Banking on the phone


In many so called Third World countries, informal businesses thrive. Hernando De Soto and his team note in The Mystery of Capital: Why Capitalism Thrives in the West and Fails Everywhere Else that an estimated four billion people across the globe operate within the extralegal sector. Most researchers, including De Soto, have shown that this sector contributes significantly to Third World GNP yet the sector exists outside the law and is generally beyond the reach of banks.

In the numbers game, where banks have failed dismally, mobile telephone operators have flourished. Annual increase in mobile phone uptake in developing countries and former Communist states have consistently exceeded projections. According to the International Telecommunications Union, of the 1.2 billion mobile phone users worldwide, 45% live in developing countries - a natural habitat of the extralegal.

New and improved specifications such as Mobile Information Device Profile (MIDP) and Connected Limited Device Configuration (CLDC) support deployment of simple and secure software applications on basic, inexpensive mobile phones. Surely this presents opportunities for transitional rather than additive growth in banking services. Parcel cash transfer services are an obvious launch pad where infrastructure (mobile networks and handsets) and distribution networks (retail stores) already exist.

Mobile phone operators are experimenting with different models to get mobile transactions going. Examples include Pure Payment (Sokotele, Kenya), Stored-Value (GCash, Philippines) and Debit Account (WIZZIT, South Africa). Many of these models exclude banks of the brick and mortar type.

Cellular phones have brought communication services close to the urban and rural poor. The poor may very well be banking on the phone to bring banking services into their communities.

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