When development organisations disburse aid for food, water and medical supplies to poor families in the remote regions of northern Kenya, administrators in Nairobi can now simply press a button allowing the families to receive the cash instantly on their mobile phones via Safaricom’s M-Pesa.
In the past, the organisations would have had to pay a van with security guards to transport the cash in order to pay local beneficiaries and volunteers. Given the poor network of roads in northern Kenya, this would often take days and use up precious resources, not to mention the danger involved.
This is a great example of how mobile wallets are helping to transform lives. In emerging markets, most people still pay or get paid in cash, but mobile wallets such as M-Pesa are changing all that, providing a fast, cheap and safe alternative.
With mobile wallets, there’s no need to travel long distances and queue up at a counter to pay bills, as people can simply text money. A pin-protected mobile is safer than cash, which can be lost or stolen, and transferring money is instant, in many cases beating the speed of local inter-bank transfers.
The impact on society is huge, as millions of people – the unbanked and those living in remote regions without easy access to banks – are brought into the financial system. In Kenya, more than half of the adult population are now registered for M-Pesa, with payments equivalent to more than a third of the country’s GDP.
With an estimated one billion people across emerging markets possessing a mobile phone but no bank account, the potential is substantial. Already, there are over 200 mobile wallet systems in the world, many of them in Asia, Africa and the Middle East.
Given the right regulatory encouragement, I believe mobile wallets right across emerging markets could replicate the success of M-Pesa. Large NGOs, development organisations and companies could push adoption past the tipping point as they wake up to the huge benefits of switching from cash to mobile electronic credits: lower cost, faster reconciliation and greater security, to name but a few.
There’s is no need to wait for mobile wallet ecosystems to mature, or for disparate mobile payment standards to converge. Mobile wallets offer vast benefits right now and, by using them, large organisations can help to accelerate their development.
Mobile wallets represent a fantastic opportunity for any NGO, development organisation or company with business in emerging markets to reach out to individuals more efficiently and, in the process, drive large-scale social and economic change.
Our clients are showing strong interest in using mobile wallets. Large insurance companies, for example, are keen to use mobiles for collecting premiums or paying out claims. Food companies are looking for a better way to pay their farm workers, development organisations for a more efficient distribution of aid, and logistics companies for smarter ways to collect courier fees.
Mobile wallets are largely driven by telecom companies, which use their extensive geographic reach and existing networks to fill a gap in the market that banks can’t reach. I see these mobile service providers not as competitors but as partners, as both sides can benefit from the other’s complementary capabilities.
The role of banks
Banks have a crucial role to play in driving wide-spread adoption. As global institutions embrace mobile wallets and connect corporates for payments and collections to end consumers, the entire ecosystem will benefit and grow.
Banks can be advocates, engaging with regulators and transferring knowledge and best practice from market to market. And we can be aggregators, encouraging our multi-national clients to adapt by providing the means for them to connect to their customers and workers across multiple geographies and multiple mobile wallets.
Clients of international banks should be able to pay an unbanked mobile wallet consumer anywhere in the world just as easily as a conventional payee, the only difference being that they need to type in a phone number instead of a bank account.
Banks still have work to do to set up the background systems that make this possible, but when this happens – not if – I believe it will drive very significant traffic into the mobile wallet ecosystem.
By the same token, the cost of inaction for banks would be severe. If they don’t connect their clients to mobile wallets, others will, and banks risk becoming increasingly irrelevant in the emerging market payments space. Worse, banks will miss out on one of the potentially most transformative innovations in the retail financial services space for decades.
Gautam Jain is Managing Director and Global Head of Client Access, Transaction Banking at Standard Chartered.