Mobile money, mobile banking

University meets Microfinance Frankfurt School of Finance and Management

Michael Klein July 4, 2013

The case for mobile money

• Convenience

• Safety,

• Accounting service

• Revive extended family

Mobile Branches

Brazil Banco Postal (POS-based)

Mobile Money Adoption survey end 2012 (78 respondents)

Services

Examples of “Sprinters”

• Telesom (Somaliland)

• Easypaisa (Pakistan)

• UBL Omni (Pakistan)

• Orange Money (Madagascar)

Success for mobile money is possible

• In countries with – different income levels

– low or high levels of financial inclusion

– widely differing mobile phone penetration

• In telco markets – with very different market shares of

mobile providers

– with or without competition among mobile providers (14 “sprinters” in 10 countries)

Source: GSMA, Dec. 2012

Patterns of success

• Telcos are the typical provider • Low investment costs (e.g. $1 million), significant operating

costs; Revenue generation; cash flow positive after 2 years in several cases

• CEO support, separate business unit; Full-time staff above 10, even 50 employees

• Strong marketing – awareness and sign-up push by agents – “immediate transaction” after sign-up

• Focus on 1 or 2 core products e.g. P2P transfers • Cash-in cash-out network with active agents; Cash

management support for agents (“wholesalers”) • Adapt to local circumstances

Save and borrow

Unbundling Banking

• Exchange of forms of money

• Storing money

• Transferring money

• Investing money

Unbundling Banking The case of M-PESA

• Exchange of forms of money – exchange of money between two owners (“cash merchants”)

• Storing money

– on the servers of M-PESA and cash in banks (“money in “e”-form, stored in server, not “wallet”)

• Transferring money

– via SMS

• Investing money

– Risk of loss; prudential regulation (capital and liquidity)

Same approach of analysis whether “telco” or “bank”-based

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Some macro-financial concerns

• Impact on Monetary Aggregates – Fully backed by cash – Credit extended

• Dealing with runs

– Keep cash in “vault” – Invest in central bank paper – Invest in bank – Invest directly

Anti-money-laundering

• Strategic posture: Encourage people to leave the cash economy

• Graduated KYC requirements

– Identity check

– Transaction limits: amount, frequency

– Suspicious Transaction Reporting

New money and currency competition