Tuesday, March 9, 2010

Financial services for the unbanked

People without bank accounts are now exchanging money using their cell phones in emerging markets.
In emerging markets, formal banking reaches about 37 percent of the population, compared with a 50 percent penetration rate for mobile phones. For every 10,000 people, these countries have one bank branch and one ATM—but 5,100 mobile phones.

Mobile devices reduce the cost to serve customers by 50 to 70 percent, making it possible to offer financial services to a vast population once considered unprofitable.

The commercial potential for mobile operators could be significant. Our estimates reflect research, on 147 countries, that we conducted together with the GSMA (mobile industry trade group) and CGAP (independent policy and research center dedicated to advancing financial access for the world's poor). They show that about one billion people in emerging markets have a mobile phone but no access to banking services; by 2012 this population will reach 1.7 billion. Today, only about 45 million people without traditional bank accounts use mobile money, but we expect that this number could rise to 360 million by 2012 if mobile operators were to achieve the adoption rates of some early movers. By that year, the opportunity could generate $5 billion annually in direct revenue, primarily from fees for financial services such as transactions and cash out, and an additional $3 billion annually in indirect revenue, including reduced churn and higher average revenues per user for traditional voice and short message service (SMS).

SmartMoney and GCash (in the Philippines) and M-Pesa (in Kenya) are at the leading edge of this shift, which is now gaining momentum. In our study with the GSMA and CGAP, we estimated that 120 operators in 70 markets will deploy mobile-money offerings within the next 6 to 12 months. Half of the operators we surveyed said that the unbanked were their principal target. But except for a few notable cases, most of these operators are in the early stages of development; nearly three-fourths have been at it for less than two years.

Capturing the promise of mobile banking in emerging markets - Business - EBR

In addition to commercial potential, it has significant social impacts. It improves safety and security issues, promote money saving and borrowing, and pursue economic initiatives.
In emerging economies, about half of people still do not have cellphones, showing how big the potential market is.
Since this is still in an early stage of development, there will be more startups, mobile providers, and bankers will join the game.
Mobile money is now heading to developed markets as well. Companies like Twitpay, Square, and Obopay are just few. It is interesting to see the developments in both markets.

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