This story will not come as a surprise to the techies that read this site, nor many other bloggers, but I was still struck by a report from TowerGroup, the research firm, that says that the day is approaching when millions of people on low incomes living around the world will be able to switch funds to their relatives and friends over the mobile phone with as much ease as downloading tunes on to an MP3 player.
This is big money, when gathered together. The market for remitting money is worth about half a trillion dollars, although goodness knows quite how one quantifies this accurately. Existing middlemen will be cut out of the equation.
“Ultimately, TowerGroup expects mobile phones will do for financial services what Apple iPods did for music – spur a sea change in the way consumers access services and suppliers deliver them,” one of executive said.
Just think what this will mean to parts of the world like Africa, already a continent where it has been easier to put in mobile phones than bother with the traditional wire-based stuff.
As far as I can see, the key issue to get right is security. But then that applies to Internet banking already.
Point is, it is already happening in Africa. Lack of other infrastructure has meant that there was a demand which mobile phones were able to fulfil. These facilities are about to spread from there to the rest of us.
Right. This is already happening in Kenya by a corporation part-owned by Vodafone. The banks are really scared because the conventional wisdom for them was that low income Kenyans were not transacting much. The system’s called M-Pesa (M-Money) and in my reckoning is surely one of the smarter business ideas one finds in Kenya today.
Interesting stuff. It’s certainly going to shake up the status quo (but that’s what all technological change does). This seems to play into the societal change forecasted by Davidson and Rees-Mogg in their book “The Sovereign Individual.”
I disagree with you on your comment that “[e]xisting middlemen will be cut out of the equation.” The smart ones will adapt to the new reality. Someone has to process these transactions, and they will charge a fee. Wells Fargo, which started out as a courier service, reinvented itself into a telegraph company, then a bank, and now is a major provider of “point-to-point” funds transfer services. Go into any grocery store any you’ll probably find their sign by the customer service desk. Many (most?) of their clients are immigrants (legal or otherwise) who have a cultural aversion to banks and live in a cash society. These people need an intermediary to send money home. Even those of us who use the formal banking system need remittance intermediaries; that’s why Paypal and similar services were invented (Wells Fargo is already moving into that market segment).
Sending money bank-to-bank through the “Fedwire” system makes sense only for large transfers. For all these smaller “iPod” transactions we’ll still need intermediaries. In fact, they will become even more important. (Hmmm . . . this might be an investment opportunity.)
Security and privacy will be the bottlenecks. While I don’t care if the NSA knows I sent $15 to a say a Kazakh home for unwed cats, others might.
Old news. I’ve written here before about the informal web of transaction agents that connects vast areas of the (primarily Islamic) world. You can go to a coffee house on Michigan Avenue in Dearborn with cash money in your hand and see a man, and in two days, your cousin in Peshawar or Kabul or Kuala Liumpur can go into another coffee house and see another man and collect cash money. This sort of networking, as much social and cultural as it is financial, has existed for centuries. Not surprising that it’s marching with the times.
llater,
llamas
I heard a Beeb report on the Kenyan experience, where apparently phone-minutes were also a medium of exchange, so you could send your mother some minutes which she would trade for some chickens, which she would then raise and sell in the market.
The same report also told of farmers going in together to buy a mobile, then calling a service that listed the latest commodity prices in various towns. (“Press 1 for banana prices, press 2 for cassava, etc”) They could then determine if they should sell their produce in the local market or perhaps hire a truck to take it to another, more profitable town. Perhaps information doesn’t want to be free, it really wants to make money.
Phone-to-phone transfer of prepaid balance is the standard way of topping up mobile phones in India. You go into a shop, tell the guy how much you’d like – expressed in rupees and equivalent local voice minutes – give him you phone number. He takes your money and transfers the balance to your phone.
I asked some of my acquaintances how this could work, because surely the guy in the shop’s phone couldn’t be a magic money pump – otherwise gangsters would steal them all the time. No, it’s just a normal prepaid phone on which he maintains fairly high balance, and from which he is authorised to make transfers. Apparently this was for a while standard on all Indian mobile phones, but then was restricted to dealers only because of security concerns.
As Walt said, it leaves an audit trail a mile wide, but most people don’t mind
In Malaysia the same minutes transfer system is workable, but those minutes have a seriously short expiration date. Best to just top-up at your local 7-11. Or Kwik-Mart (I’m serious!)
Of course, all of our prepaid services have short expiration dates – that’s slated to change, but it’s a bit slow.