MIT's Technology Review has an interesting article in their November/December issue about mobile banking in South Asia, and the convergence of banking and mobile phones in the developing world. Having skipped the landline/PC stage of telecom development, the developing world's connectivity needs are most often handled on cell phones and prepaid phone networks. The developing world has astonishing rates of mobile phone penetration – 44% of China's population, and 26% of India's, with much of the growth coming from poor, rural areas – as well as an enormous untapped need for banking services, which the majority of the poor in these countries lack. Mobile banking promises to enable money to be transfered, deposited, withdrawn, and even borrowed (in the form of microcredit) easily from a mobile phone, which are apparently services that would save a lot of time and work for India's poor farmers:
And to grasp how ordinary people could benefit, consider the life of the average farmer in the Bangalore area. Typically, a farmer spends hours trekking into the city for a 4:00 a.m. auction to sell his goods. The auction concludes by 6:00 a.m., after which the farmer takes an IOU to a bank, waits for it to open, and collects his money. Then he returns home, risking theft on the way. "We looked at the model and said, What if the retailer could use mChek to pay farmers electronically, and the farmer would receive notification on his cell phone?" Swamy says. The company conducted a pilot project with Citibank and a Bangalore retailer that buys fresh produce; they learned that 85 percent of the farmers attending the auction already owned cell phones. And some reported that if they could accept payment electronically, not only would they save hours queuing at banks, but they might skip the journey altogether, sending a son or a hired laborer in their place.
Though there is this enormous demand for mobile banking, the concept is still in the beta stages where it's needed most. India – land of the infamous license raj – has regulations that separate the banking and and telecom sectors:
India's regulations, unlike those of some other countries, do not allow telecom companies to enroll people in bank accounts; only banks and nongovernmental organizations, including microfinance institutions like Grameen Koota, can do that. So for now, mChek hopes to form partnerships with such organizations.
Hopefully mChek will be able to find a willing partner, but it sure would get mobile banking into the hands of consumers a lot faster if they were allowed to handle bank accounts themselves. In the absence of rules allowing mobile phone companies to enter directly into the banking sector, partnerships are necessary, but add a level of complexity to entrepreneurship that is apparently a serious stumbling block in the wider implementation of mobile banking:
Yet these efforts to graft developed-world banking onto developing-world mobile networks are not commensurate with the swelling popularity of the mobile phone itself. The larger story is one of pilot projects that petered out amid difficulties including cumbersome national regulations, unfriendly user interfaces, and an inability to make the right partnerships. "The reality of the field today is that the promise--which a lot of people understand is huge--is more in the conceptual stage," says Michael Chu. "The banking industry is very suspicious of the cell-phone industry, because they suspect that cell phones will make them obsolete. The cell-phone companies think the banks are like dinosaurs." But these players have to work together seamlessly for cell-phone-based banking to work.
...and while mChek might be succeeding, they seem to be one of the few that's been able to work through the regulations:
For mChek, then, the task now is to forge more such partnerships and navigate a shifting regulatory environment. Draper Fisher Jurvetson's Jolly says that mChek's achievements thus far are unique in India. "I often talk about [mChek] as a company that is dancing with gorillas or behemoths," says Jolly. "You have the banking sector on one side and the [telecom companies] on the other side, and then you've got the MasterCard and Visa folks, and finally the regulatory oversight bodies like the RBI. Trying to corral all of them, for a startup, is next to impossible. What mChek has been able to accomplish in India has never been done before."
In Africa, mobile phone users have found an interesting work-around to mobile banking restrictions: stop dealing in officially-sanctioned currency, and start dealing in an alternative currency, where the rules for transactions aren't as stifling. The currency of choice in many places is mobile phone credit, which can be sent and received easily and cheaply over text message (users text the code required to redeem the minutes, and the recipient can either use the minutes, or trade them on). The rise of this new mobile credit currency has parallels with the natural emergence of another currency: gold. Though at first valued for its useful properties (i.e., jewelry), the precious metal eventually emerged as a currency because people were sure others would accept it, and it was value-dense and it didn't spoil, allowing it to be used as a good medium of exchange, and store of value. Cell phone minutes have the same properties: they're easy to transfer over long distances (at a cost of only a text message), and retain their value over long periods of time.