Banking on the 'unbanked'

07 Aug 2008

Although near field communication-based contactless mobile payments are gaining traction in more developed markets, peer-to-peer m-payments such as mobile money transfer are an established and fast-growing fact of life in many developing economies.

Peer-to-peer money remittances enable an expatriated worker to send money across international borders to family or friends. According to the World Bank, 175 million migrant workers each year send billions worth of international remittances to family and friends, many of whom do not have bank accounts. Last year international remittances reached $318 billion, of which recorded remittances to developing countries exceed $240 billion, up from $221 billion in 2006 and more than double the level reached in 2002.

India, Mexico and China were the top three recipients of remittances last year, accounting for nearly one-third received by the developing countries. In India, the largest remittance-recipient, private current transfers grew by 30% in the first half of 2007.

$1 trillion market

Not surprisingly, the mobile phone - with its immediacy and ubiquity - has emerged as an important tool to disintermediate the existing ecosystem of banks and private remittance services.

According to the GSM Association, nearly five billion people worldwide have little or no access to traditional financial services - due to a lack of ATMs and bank branches, poor regulation, low levels of financial literacy or other weaknesses in infrastructure. Clearly with the wide reach of mobile phones, which now outnumber ATMs by two-thousand to one, mobile operators can potentially solve the access problem and extend remittance services to millions of people in remote, rural areas with a less expensive, more convenient alternative to the expensive private money transfer services.

According to the GSMA, the potential remittance market addressable by mobile operators is a further two billion in addition to today's 800 million existing recipients.

With the help of the mobile phone the GSMA estimated that the international remittance market will grow to $1 trillion by 2012. ABI Research, meanwhile, predicts that the global mobile fund transfer market will generate $8 billion in revenue for mobile operators by 2012 - from just over $10 million in 2006.

Disruptive force

To tap into this huge international remittance market, a handful of mobile operators already have launched trials and commercial services. In the Philippines, where international migration and large remittance flows have been a prominent feature of the nation's economy for many decades, Smart and Globe have started offering deposit, credit and money transfers services through the mobile phone since 2000 and 2004, respectively. In Kenya, Vodafone through its subsidiary Safaricom has launched a mobile banking service called M-PESA ('mobile money' in Swahili). Vodafone has also launched a pilot with Citigroup to explore international remittances from the UK to Kenya by mobile phone.

Undoubtedly a key driver for the adoption of mobile remittance service will come from the mobile money transfer program jointly launched last October by the GSMA and Western Union.

Gavin Krugel, director of strategy for the GSMA who heads up the program, said about 40 mobile operators with more than one billion customers in more than 100 countries are participating in the program, and some of them are planning commercial service rollouts later this year.

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