The rapid emergence of mobile banking
Two years ago we reported on Somalia, a country with no government and no governing structures such as proper banking and telecoms systems. Yet we found that the people in that country were able to survive, because of the existence of a remittance economy.
At that time I mentioned the Islamic hawala system that underpinned this ‘economy’.
It is quite amazing to see that since 2003 the remittance banking alternative has grown worldwide from well under $100 billion to $400 billion per annum, and it is mainly based on the overseas income from migrant workers abroad. This system is now three times larger than the global aid system. And if one adds goods (and cash hidden away in it) to this calculation an additional $100 billion-worth of these are shipped back home by migrants workers.
The South Pacific kingdom of Tonga depends on a remittance economy for over 50% of its income. Obviously there are mixed opinions about the success and sustainability of this system, especially as some believe that it can lead to a culture of laziness within the country in question. However, at the same time, organisations such as the World Bank indicate that a collapse of the remittance economy would have significant economic and social consequences as it has become the financial backbone of many poor countries.
The largest countries in receipt of this remittance economy are Philippines, Mexico and India. The developed countries such as the USA, Europe and the Gulf countries are the major contributors.
One of the key problems is that often only small amounts of money can be transferred back through the official banking system. Western Union and City Bank are the leading operatives, and their fees are so high (up to $25 per transaction) that the transfer of small amounts – often around $20 – is economically non-viable.
The telecoms industry has now entered the market and prepaid calling cards are being used as one avenue.
Telco-based money transfers
- Consumer-to-consumer money transfer services, utilising calling cards and mobile phones, allow people to send and receive money worldwide, primarily through a global network of agents who use multi-currency money transfer processing systems.
- In most cases the money is paid out in cash, but sometimes payments are made directly to the receiver’s bank account, or to a stored-value card.
- Consumers can often also use websites to send funds online, using a credit or debit card. Telephone money transfers allow customers to send funds by telephone.
- The e-pay service is part of the global Euronet money transfer company, while calling card companies such as gotalk in the Pacific region allows share-loading of mobile calls between Australia and the Philippines. Money transfer services are expected to follow soon.
Mobile phones are also seen as a useful way to transfer money. Everything is relative – while 50 cents for a call would be seen as expensive in many countries, and certainly in the developing countries, a mobile banking transaction fee (the cost of an SMS) of 50 cents is seen as a very cheap method of money transfer.
The international banking system is making it impossible for mobile operators to use this method for international transactions; however the global nature of the telecoms market is enabling people to find a way around this.
For example, to cite just one of the ways that has been devised to circumvent the official international limitations, minutes are added to an account in a developed country and these minutes are sold for cash in another country. And, yes, this is a matter of concern to officials, who are worried about money laundering, terrorist payments, etc. But unless a better international payment system is developed – one that looks after the needs of the less prosperous – people are going to bypass the expensive official circuit.
National mobile banking systems are thriving in countries such as Kenya and India, and they are popping up all around the world. In Kenya three million of Vodafone’s ten million subscribers are using the mobile banking services and Vodafone is speedily rolling out the service in other countries as well.
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