Monday, June 07, 2010

Poverty CAN be defeated by Mobile Money

Two articles caught my eye recently:

M banking closes the poverty gap" says the BBC website and "Could Mobile Banking End Poverty in Africa?" another website proclaims. Both articles elaborate about the new m-Kesho product recently launched by Safaricom in Kenya (I also referred to it in this blog). The connection between providing an electronic means to save and the eradication of poverty shows a massive lack of understanding of the challenges of the poor. Poor people save anyhow (with our without electronic saving accounts). It is not their ability to now suddenly be able to save electronically that is going to make poverty go away.

It is my (unscientific) opinion that poverty is fundamentally caused by two factors:
  • The cost of money to poor people are much too expensive. The cost of storing, moving and multiplying money is extremely expensive, especially if the indirect cost (loss of money, transport to get to money etc.) is taken into consideration. This cost of money has been estimated to be as high as 25% of the income of poor people. Mobile Money can (without a doubt) reduce this cost.
  • The skill with which money is used often lead to an increase in poverty. Inappropriately timed loans, wasteful spending or badly balanced portfolios always destroy wealth. Even in more affluent communities this behaviour leads to poverty. If the skill in using money can be improved in poor people, poverty will also be dealt a death blow. And, yes, Mobile Money can help in many ways to increase money management skills.
So, yes, poverty can be defeated by mobile money schemes... but not in a simplistic way.

Characteristics of Mobile financial products

Just having written the previous blog, I was wondering what would be the characteristics of mobile financial products. What would get a financial product to qualify as mobile? Or what should one be looking for when finding financial products to deploy on mobile?

There are some things that, counter-intuitively, should not be a disqualification for mobile financial products. For instance, mobile financial products should not be for small amounts only - it is quite fine to do this for big value tickets too. As a matter of fact (if properly deployed) the phone could be a nice security enhancer for large value financial products.

The following is my list for characteristics of mobile financial products.
  • Should be real-time products. Balances should be up to date all the time and any transaction should be applied immediately.
  • Should be identity dependant. The ownership of the product and the identification of the ownership should be central to the product. The mobile phone carries identity best.
  • The product should be dependent on some dynamic element. Transactions/payments that can be run against it or prices/exchange rates that change. Long term products where nothing change are better suited to paper. (takes less electricity)
  • Information display and input fields must be limited. You do not want to complete a few page application form on a phone.
I am sure this is not an exhaustive list and much more can be said about this topic, but hopefully this stimulate some thinking.

Mobile wallets enabled further financial products

The traction of mobile wallet solutions in a number of countries are now a reality. Millions of people that have not had access to financial services can now experience the benefits of rudimentary payment types. They can now send and receive money, purchase goods and have immediate access to information about their money. But this is not the end of the road. Other financial products that could previously not be delivered now becomes a possibility.
  • Savings products are the most likely next application. As a matter of fact, many studies have indicated that subscribers with mobile wallets start using the wallet as a means to keep their money safe. Even though no interest is paid, subscribers are still comfortable in keeping their money in a wallet. This is why the launch of M-kesho recently by Safaricom in Kenya is so interesting (Read here). This is a true savings product living next to the mPesa mobile wallet. As an aside, one would think that the right way forward would be to turn the wallet into a savings account (rather than having a separate savings account.
  • Extending the reach of wallets to assist with loan products take many different forms and examples from Kenya to Pakistan and the Philippines abound. The fact that it is now easier to pay out a loan, to collect repayments more smoothly, to assess creditworthiness etc. are all reasons why this sector will grow. (Read here)
  • The next wave without any doubt will be when insurance products (and other risk related financial products) are to be delivered by means of mobile wallets. This will be real in a short time-frame and significant benefits will be available to both consumers and suppliers.
The operators of wallet solutions should plan to be ready to launch other financial products as their offerings start to mature.

Smishing by any other name

One of the great things about our industry is how quickly a new name can appear and then become part of the vocabulary. One such a word is Smishing. In short Smishing is Phishing by making use of SMS's. The how-to of Smishing is describe in many places on the Internet (Read here) and has even made it into Wikipedia (Read here).

Using fake SMS's to get unsuspected consumers to respond to promises of wealth ("you have won the lotto") or fear of implied actions ("your account has not been paid), is not a recent phenomena. Since SMS'ing became a general means of communicating, this medium has been used to trick people into paying money (when they don't have to) or meet unknown stalkers (when they should not). What makes Smishing different and dangerous is that the technique is now being used to steal identity for purposes of accessing banking or payment information. In the light of this risk, it is important to take measures to protect consumers.

It has become important to implement a standard, easy to use and mutually understood mechanism to authenticate interactions between customers and their financial-services suppliers. This would take the form of a challenge and (secret) response. Some banks have already implemented such mechanisms, but these are not well understood, not widely used and definitely not standardised.