Kenyan model shows 'mobile money' may threaten bank income
Published:Sunday | January 30, 2011 | 12:00 AM
Avia Collinder, Business Reporter
In the near future, you may be able to collect your salary and remittances on your telephone and change it into cash at the local phone store or lottery shop instead of bank and remittance-agent counters.
The wild success of the mobile cash transfer model used in Kenya - M-PESA money-transfer service operated by Safaricom, Kenya's largest mobile operator - is a harbinger of what is likely: fewer remittance agents and bank branches in countries where the model is adopted.
Locally, there are several forms of mobile banking available, but none so simple as the Kenyan model, which does not involve visiting banks or bill-payment services to add to your account, or even maintaining bank accounts.
Digicel, which has rolled out banking products in the Pacific, and in Haiti in partnership with Scotiabank, has said it sees Jamaica as another frontier. A summit of bankers, telecommunications companies, and Jamaica's central bank was held last year, largely behind closed doors, to examine what the implications would be.
The Economist magazine last year featured the M-PESA money-transfer service in which people used to queuing at banks for hours to pay bills or school fees now simply buy and send credit.
As of June 2010, the banking platform was used by 9.5 million people, or 23 per cent of the population, with transfers equating 11 per cent of Kenya's GDP each year. According to the financial magazine, the model has inspired 60 similar schemes worldwide.
With M-PESA, 100,000 small retailers in Kenya who already sell mobile-phone airtime, in the form of scratch cards, can also register to be mobile-money agents, taking in and paying out cash.
"Paying in cash involves exchanging physical money for the virtual sort, called 'e-float', which is credited to his mobile-money account. E-float can then be transferred to other users by mobile phone, and exchanged for cash by the recipient, who visits another agent," The Economist reported.
No bank accounts needed
No need for bank accounts. The system, however, may increase the need for money courier services provided by security companies. Locally, it could save employers hundreds monthly paid over to banks for lodging money to the accounts of each employee.
In December, Finance Minister Audley Shaw was reported to be engaged in reviewing options for mobile money services with the Bank of Jamaica in discussions with the Inter-American Development Bank.
As reported by this newspaper then, the Government is now studying the various models of mobile banking available to determine the platform's viability in order to develop the appropriate policy framework in Jamaica.
One form of mobile money available locally is that offered by Coolbiz, which involves adding credit at your bank or Paymaster. Several local banks also offered account-related service on a mobile platform in 2010.
In Kenya, the banks are largely wholesalers.
There, where most transactions are deposits, The Economist reports that "keeping the system running requires the agents to manage their liquidity by regularly swapping cash for e-float, or vice versa. Exchanging cash for e-float (money traded digitally) means visiting a bank affiliated with Safaricom, but the whole point of systems like M-PESA is to reach where banks cannot. Accordingly, M-PESA relies on a system of intermediaries between agents and banks. These middlemen have their own distribution networks, and take on much of the work of ferrying cash around the country. But individual agents still handle the 'last mile'."