The fast growth of mobile technology means cell phones maybe the way to reach the unbanked in many parts of the world.
That?s the premise of Janet Koech, an assistant economist at the Federal Reserve Bank of Dallas.
?In developing countries with a high mobile-phone penetration rate but a lack of robust financial services, the need for efficient payment methods has contributed to M-banking?s appeal,? Koech wrote in today?s issue of the Dallas Fed?s Economic Letter. ?The World Bank predicts mobile money could affect the lives of more than 2 billion people in developing countries by 2020, paving the way for a new era of financial services in which banking will no longer be the domain of a small upper class.?
More than half of the world?s adult population that lacks access to financial services. That trend is greater in developing nations, where 64 percent of people don?t bank accounts, compared with 17 percent in developed countries (see map above).
My colleague, Hanah Cho, recently wrote about the unbanked issue in the United States. Nearly 13 percent of Texas households are unbanked.
The demand is there, Koech says: Residents of developing nations living in cities frequently send remittances to families and friends in rural areas or other countries.
Six billion mobile phone subscriptions were active worldwide in 2011, up from 719 million in 2000, according to data from the International Telecommunication Union. Most of that growth was in developing nations (see chart), helped by affordable phones and prepaid airtime cards.
New mobile banking networks can reach customers who may not be able to get to brick-and-mortar bank branches in urban centers, Koech said. About 1.7 billion people globally have cell phones, but no bank account, she said.
In Africa, where cell phone subscriptions outnumber bank accounts in many countries, Koech noted that a Vodafone affiliate launched a mobile banking service in Kenya in 2007. In four years, the M-Pesa (M for mobile and Pesa for money in Swahili) had more than 14 million customers, or 59 percent of Kenya?s adult population.
M-Pesa customers need a government-issued identification card to ope an account for free. There?s no minimum-balance requirement. Fees are charged for customer transactions, such as money transfers and bill payment, and for mobile airtime.
Account holders can make deposits at M-Pesa agents, exchanging cash for credit applied to their mobile account. Credits can be transferred electronically to other users, exchanged for cash, used to pay bills or buy airtime. Customers can withdraw money at agents, M-Pesa retail outlets and ATMs. Many companies use M-Pesa to pay employees who don?t have conventional bank accounts.
Worldwide, there are 129 such mobile services and 91 more are planned, according to the Global System for Mobile Communications Association.
By gaining a banking relationship, consumers can increase their buying power and improve their living standards and see lower costs, Koech said. Small businesses gain greater access to credit.
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