13 June 2012

Mobile Money is Failing and Expanding. Go Figure.

Mobile money is one of the latest development darlings. I can be counted as one of the enthusiastic fans of M-PESA in Kenya. It was a vital way for me to do banking while I lived in Western Kenya. Access to the nearest ATM was 30 minutes away (if road conditions were good), but M-PESA vendors were just about everywhere. So, I would withdraw money from the bank when in Kakamega and make a deposit into my M-PESA account. It allowed me to reduce unnecessary travel, reduce money spent, and allow me to essentially carry around more money without having the too much cash in hand.

The Economist 2010
Beyond personal anecdote, the data coming back from M-PESA is remarkable. A World Bank study finds that 93% of Kenyans are mobile phone users and 73% are mobile money customers. The same study shows that people who sign up for M-PESA are more likely to save money which also happens to be the part of microfinance that is showing some of the most robust data for success.

In only five years, M-PESA has supplanted traditional banking in Kenya. The same Economist article that featured the above graphic noted that there were more M-PESA operators than banks in 2010. Given the rate of growth of mobile banking in Kenya, it is safe to assume that mobile money remains ahead. By lowering the barriers for banking at just about every point, mobile money is a brilliant innovation.

So it comes at no surprise that Citi is eager to get into the mobile money market. Today, it announced a partnership with USAID to develop services in 9 countries including Colombia, Haiti, Indonesia, Kenya, and the Philippines.
“Mobile money is a game-changing endeavor with the potential to improve lives, create jobs, spawn new enterprises, and expand financial inclusion, particularly in the emerging markets that are critical to the growth of the global economy,” said Citi CEO Vikram Pandit. “Citi has a rich tradition of ingenuity that enhances our clients’ lives through innovation and is one of our company's core principles. As we approach our 200th anniversary on Saturday, we are proud to work with USAID to accelerate mobile money adoption with tools and solutions that eliminate barriers to access, improve security, and enhance education.”
USAID Administrator Raj Shah is equally eager to explore the partnership.
The ability to store and transfer money, as well as to make small payments using mobile phones, has the potential to lift millions out of poverty, just as the Green Revolution did in the 1960s. Our partnership with Citi, a global banking leader, will accelerate implementation of these new services in a smart and safe way.

But mobile money has been slow to reach the same level of success that it stumbled upon in Kenya. Tate Watkins picked up on an AP story that highlighted the struggle in Haiti to grow mobile money.
About a year after the earthquake, USAID and the Bill & Melinda Gates Foundation announced plans to fund a mobile money initiative in Haiti that would allow customers to send and receive payments via cell phone. USAID contributed $5 million toward the project while the Gates Foundation donated $10 million. Both have hyped mobile money's effect in Haiti, USAID using its blog to imply that the service could “transform” the country. Fast Company reported that it's "taking off and allowing commerce to flourish." Together, the country's two major mobile operators recently surpassed the one millionth mobile money transaction.

But as the AP reported yesterday, mobile money in Haiti may be as much about hype—or at least potential—as substance:
As yet, though, few Haitians are buying the idea, which has become one of many post-quake projects to fall short of expectations and a reminder of how hard it is to change a society that has been repeatedly set back by political upheaval and natural disasters.
While there are nearly 800,000 registered mobile money users and more than 800 agent locations—places where customers can deposit or withdraw mobile funds—the AP reports that the services have only 22,000 regular users. The main reasons for slow uptake seem to lack of familiarity or fear of the unknown.
Tate says that the lack of use may be attributed to factors such as low literacy rates and suggests a lack of comfort with handling money through a mobile device. Though he is optimistic that new services, such as conditional cash transfers paid out to mothers who ensure their children go to school, can encourage take-up.

Nigeria, who in many respects is doing better than Haiti, is also experiencing its own challenges to scale mobile banking. A recent report in PUNCH found that the number of mobile money agents falls well below the population's needs.
[m]obile money companies have had to rely on about 3,000 agents across the country; whereas the country requires about 50,000 agents to start with.

This, according to experts, must be increased to 250,000 in the nearest future.
The CBN however, says mobile money service is gradually gaining acceptance in the country as the mobile payment operators recorded 35,971 transactions in January, 2012.

The Head, Shared Services, CBN, Mr. Chidi Umeano, who disclosed this, said the value of the 35,971 transactions was N227.92m.

Investigation has also revealed that mobile money operators will be able to do N6.5bn transactions daily if they are able to increase their agents to 250,000.
The report also points out the large proportion of people who are unbanked. Citing the Enhancing Financial Innovation & Access survey, the article says that 63.5% adult men and 76.8% of adult women are unbanked. The rate is even higher for those living in rural parts of Nigeria.

Like the AP report on Haiti, PUNCH shows that the market for mobile money seemingly exists in Nigeria, but it is not adequately served. Citi entering the market is an interesting development. It has 200 years of experience with banking that provides it with the capacity to grow quickly and address part of the problem seen in Nigeria. However, as learned from Haiti, adoption and use is equally important.

M-PESA's success in Kenya shows what can be for the mobile banking sector while Haiti and Nigeria show that getting there is a varying challenge.