Tuesday, November 15, 2011

ABC of Mobile Phone Banking

When the ideas about globalization started circulating around the world for the first time, many people in the West, took a very simplistic view. According to them, what globalization really meant was that the Westerners, with their well proven innovative minds, would come out with new products and services, which would be produced or provided by the Third World countries with their cheap labour costs, again for the benefit of the Western markets. The consumers in the west would immensely gain because of the low prices and the largest share of profits would still be earned by the companies and their bosses sitting in their high rise, glass walled offices, in New York or London. In short, it would be East India company all over again. For first few years, globalization process indeed followed this path. China started producing almost everything, that the West needed at an unbelievably low cost. All the labour incentive call services and rigourous and monotonous work of software development was picked up by the Indians. Companies in the west started making huge profits with their Royalty earnings and producer countries like China started to spoil their environment along with receipt of money.
Somewhere down the line, things started souring for those high street bosses from the West. Chinese manufactures did not remain contended with designs and technologies provided by the West. They started innovating things. Similarly, Indian software companies started thinking about independent projects. The center of globalization moved slowly but surely towards Asia. One area, however remained, where western companies still dominated the field. That area was Banking and finance. In the emerging market countries, the banks and finance companies still followed the old West centric methods of transferring money, wherein banks earned substantial commissions. For poor people of developing economies, this pattern of money transfer was just not affordable so they kept away from the banks. In Tanzania, just 5% of the population have bank accounts. In Ethiopia there is one bank for every 100,000 people. However, even those small percentage of people, who had bank accounts, faced such high charges to move their money around that they hardly used it.
However, along with globalization, another change was sweeping through the developing world. There was an explosive growth of mobile telephones in almost of all the countries of Asia and Africa. The poor population of these countries had leap frogged into the modern world of communication through a simple hand held device. Then, a mobile service provider from Kenya, came up with a brilliant innovation which uses the existing infrastructure of the mobile service provider to provide banking services to even the poorest of their mobile account holders. A new banking system was born. The idea was so good that it caught like a wildfire throughout Africa.

Safaricom, with about 12 million subscribers, is one of the leading mobile service provider in Kenya. The company was formed in 1997 as a subsidiary of Telkom Kenya. In year 2000, Vodafone group aquired 40% stake in the company and the right of management. The money transfer service offered by Safaricom is called M-PESA . The name is very opt because, in the local launguage, Swahili, PESA means money. M-PESA clients can use this service to pay bills, transfer cash, buy necessities of life and even pay taxi fares. The system is simple, reliable, needs no plastic cards or ATM machines. All it requires is a mobile phone connected to Safaricom and the ability to type a few numbers on the mobile screen.
How does the system work? For actual cash transactions, Safaricom has appointed thousands of Agent-Outlets. A chain of small shops who sell grocery or such sundry items. A safaricom client can actually pay or receive cash from such Agent-Outlets. The Agent-Outlet informs Safaricom about the transaction by means of a text message, which automatically debits or credits the accounts of the client and the Agent. Clients can use the money in their accounts to pay for everything from beer to cattle. Masai farmers use it to sell cows in Nairobi. The money put on their phones, ensures that robbers can’t get the cash. Kenyan women use the technology to transfer money from their phone to that of their parents, while Nairobi businessman use it for settling customer accounts as it is very handy. M-PESA service has over seven million registered customers. The average transaction amount is actually less than $40 , but the total amount M-PESA moves every day exceeds $ 8.5 millions.

There are no hidden charges anywhere except for text messaging service charges. Agents are paid a commission on the transaction volume to keep them interested. From being a mobile service provider, Safaricom has become a big banker. South Africa’s mobile service provider MTN has recently announced plans for a fully-fledged bank account on mobile phones, with an optional credit card.The service will be extended to the 20 countries where MTN operates, including Uganda, Nigeria, Cameroon and Ivory Coast, which combined have over 90 million mobile phone users.
Its no wonder that such an innovative system for banking transactions, just tailor made for the ordinary people, has found its way into India too. Eko India Financial Services Private Limited, INDIA, a company launched by Mr. Abhishek Sinha, along with his brother, promises to bring banking services to the ordinary people who have a mobile phone. In February 2009, Eko managed to get State Bank of India as it’s Business Correspondent or in ordinary words a Partner. Every Eko-SBI mobile phone bank account has the safety and guarantee of a regular SBI account. The service started in October 2009 with about 6000 accounts opened by 31st December. Now on an average 400 new accounts are opened with Eko-SBI every day. Total bank accounts exceeded 40000, by end March 2010. 1500 transactions take place on every day now worth about Rupees 1 million.
Like Safaricom, Eko has appointed Customer Service Points at various locations. These are mostly grocers or shops selling pre-paid mobile cards. Today, Eko has about 350 outlets across Delhi, Gurgaon, Noida, Ghaziabad, Four districts of Bihar and one district of Jharkhand. The targeted client base of Eko today are the migrant Bihari workers in Delhi area, who want to send money to their families bach home. To keep things simple for not so literate clients, all text messages are sent using only numerals. Eko has managed a transaction volume of Rupees 71 million in first six months of operation.
Opening an account requires minimal documentation, with RBI relaxing the rules for mobile banking. It takes about 10 minutes to open a new account. A person can deposit even Rupees 5 in his account. Labourers, hand cart vendors, rickshaw pullers, domestic help and housewives constitute some of the account holders with Eko.
Eko-SBI has not broken even yet and are operating through assistance of CGAP ( Consultative Group to assist the poor). However, as the business volume grows, promoters are fairly confident of reaching financial stability.
Mobile phone banking appears to have many distinct advantages over plastic cards. Some people may not take it seriously as the concept was innovated in Kenya. I feel that it has tremendous potential for each one of us. Imagine meeting all your daily expenses through your mobile SMS. No need to visit banks or wait in long queues and carry cash around. I feel that this may turn out to be the greatest innovation in personal banking since discovery of plastic cards.
27 April 2010

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