Mobile money

Sending small amounts of cash across the world is revolutionising the lives of the ‘unbankable’ poor. Julian Rollins reports on a new Vodafone initiative. 

It’s hard to believe that people with mobile phones now comfortably outnumber those with a bank account – by about three to one. It’s a phenomenon that’s had an impact on everyone but, in particular, has placed mobile phones in an increasingly central role in the developing world.

“In developing countries the financial structure isn’t there – but mobile phones will make all the difference.”

Mobile phones not only have the benefit of enabling people who didn’t have access to a phone line the ability to communicate, but they also have the potential to offer individuals who don’t have a bank account the ability to transfer money cheaply and efficiently.

In fact the mobile trade body, the GSM Association, believes ‘money by mobile’ is the only way to serve the world’s ‘unbanked’ – particularly the many people worldwide who rely on money sent home by migrant workers. Every year around $268 billion worth of remittances cross borders – perhaps more, if you count the envelopes of notes carried informally, by a friend or associate for example.

International remittances can have a significant effect on a county’s economy, for example in Fiji they make up 30% of GDP. Arguably they offer a flow of funds that’s more stable than aid payments, which can be dependent on political whim or the generosity of donors. Despite this, the World Bank pointed out in a report last year that poorer people still face many difficulties when sending money home – not least confusion, delay and high charges on smaller sums.

This is exactly why Vodafone is working with Citigroup Corporate and Investment Banking to develop the first mobile-based international money transfer service. To be rolled out this summer, it promises to be convenient, more secure and cheaper than existing options, says Vodafone’s head of international mobile payment solutions, Nick Hughes.

The new venture draws on Vodafone’s experience in Kenya, where it launched a mobile-based money transfer service in February with telecoms provider Safaricom. It’s known as M-Pesa – ‘pesa’ being the Swahili word for money. To become an M-Pesa user a customer has to register with an agent – often a shop or petrol station – and then they can move cash in and out of their account as well as transfer  it to another mobile.

In Kenya, you tend to see a lot of urban to rural movement of money between relatives, explains Hughes. “Without access to a bank, many people have to physically make the journey themselves or give it to a taxi driver to take for them. Using mobile phones to transfer money is much quicker and safer and, because it’s PIN protected, it provides a double layer of security. Even if someone steals your phone, as soon as the theft is reported we can put a freeze on that account.”

Vodafone believes the new global remittance service will see a story very similar to the urban to rural movement of money in Kenya. The UK is expected to host the first market, allowing users to send money to Kenya, with other countries soon to follow. As with M-Pesa, users will be able to move money by text, and recipients will redeem their cash from a local agent.

So, are we seeing the beginning of the end for cash? Oyster card aside, people in the developed world appear resistant to the idea, feels Hughes. Yet he’s optimistic that the concept will spread in the developing world, where mobile technology is able to compensate for the lack of existing infrastructure.

“Here in the UK we don’t see a need to change – most people have access to a bank account and cash machines are widely available,” Nick Hughes says. “In developing countries the infrastructure we take for granted simply isn’t there, but mobile phones will make all the difference.”