It’s all too easy to talk about payments in terms of convenience from the very narrow consumer perspective. It’s easier to tap and go with your contactless card than to use cash at a till, but is it really transforming lives?
In the developing world, however, the power of mobile banking and payments to radically improve the lives of people in poverty is something that deserves attention.
The Bill and Melinda Gates Foundation predicts mobile money will catalyst change across the poorest nations. This charity has for some time been making the case for spreading electronic payments globally to improve lives by increasing financial inclusion. Now, as part of a new report, it argues that mobile technology in particular will be key.
Taking the example of one East African nation, the Kenyan Financial Diaries is a project that highlights how people need to forgo medical care or take their children out of school because they don’t have enough cash. But it’s not just lack of assets, no meaningful financial inclusion ensures there is no way out.
“The reason poor people face these agonizing choices is not just that they don’t have enough assets,” says the charity. “They also don’t have access to a bank to help them use their assets effectively. If their savings are in the form of jewelry or livestock, for example, they can’t very well chip off tiny pieces to cover routine daily expenses.
The financial services they do use are “extremely inefficient” – hiding cash or buying commodities that lose value over time.
“When they send money to friends and relatives to help them through tough times, they either take a day off and deliver the cash themselves or trust someone else to do it for them. If they need to borrow money for an emergency, they have to pay usurious interest rates to a moneylender.”
As someone once said, it costs a lot of money to be poor: “Not having access to a range of cheap and easy financial services makes it much more difficult to be poor.”
However, the charity argues that digital banking will transform lives over the next 15 years and the key to this will be mobile.
People can already store money digitally on their phones and use them to make purchases. The example of M-Pesa in Kenya has been well documented as a great success. More schemes like this and more advanced solutions will come.
“By 2030, two billion people who don’t have a bank account today will be storing money and making payment with their phones. And by then, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit to insurance,” says the Bill and Melinda Gates Foundation report.
Small margins, big effect
Part of the reason is a change in business model. The high cost of serving poor customers – infrastructure investment and so on – has been the major barrier. But most adults possess a mobile phone and providers are able to charge virtually nothing for processing a digital transaction.
“By making small commissions on millions and millions of transactions, mobile money providers can make a profit serving poor customers, just as brick-and-mortar banks do serving the wealthy,” says the charity. “Once these services get going, then there will be competitive innovation in offerings like special savings or credit plans related to farming or education.”
Of course hurdles remain; the mobile banking revolution won’t just happen by itself. For example, just 46 per cent of Bangladeshi women own a phone, compared to 76 per cent of men in the country.
And physical cash still remains king, which means it’s vital for there to be enough locations for people to convert their digital money into notes and back again. “Without this as an enabling factor, the digital economy can’t get started. Making sure that enough retail stores in every community provide this service allows the digital economy to bootstrap into the mainstream,” the report argues.