Last month, the US Agency for International Development (USAID) and Citi announced a partnership aimed at accelerating mobile money adoption in developing countries. The partnership will initially focus its work in Colombia, Haiti, Indonesia, Kenya, and the Philippines. Its efforts will later be extended to Peru, Tanzania, Uganda and Zambia.
“Of the five billion mobile phone users worldwide, nearly two billion lack access to banking services, instead relying on cash transactions that expose them to potential theft, fraud or loss, and high-cost lending and remittance providers that leave them vulnerable to endless debt and high fees,” said the joint press release, and later added:
“USAID and Citi share a common belief that expanding the adoption of mobile financial solutions is a critical economic development strategy with the potential to drive growth and increase financial access and security for the developing world’s poor population. The effort seeks to strengthen alternatives to a cash-based system that is inefficient, costly, and prone to corruption.”
The digital technology revolution that has been transforming just about every aspect of life around us - from the way we interact with each other to the way we conduct business, - is now poised to usher the concept of mobile digital money to every corner of the world.
It is very hard to anticipate the consequences of disruptive technologies, especially those technologies that end up transforming something that is part of the very fabric of society. It was clear from the earliest days that the Internet and World Wide Web would revolutionize communications and access to information. But the disruptive consequences of e-business, social networks and online music caught most of us by surprise.
Few things are as integrated as money into just about every aspect of society and our daily lives. So, as has been the case with the Web, we can expect that the transition to mobile digital money will bring with it many unanticipated innovations and surprises.
For many of us, this is the kind of semi-magical technology innovation we have become so accustomed to that we barely notice. But for billions around the world, mobile digital money is their ticket to inclusion into our increasingly global, digital economy. That’s because the digital divide, - the gap in access to digital technologies among people of different economic means, - is much smaller with mobile phones than it has been with PC’s.
This is a huge deal. Several billion people will become part of the world's economy through their mobile devices. Companies, from the largest to the smallest, will want them as customers. Governments will provide them all kinds of digital services. They will be offered new kinds of banking relationships. This will usher a plethora of innovative apps, many of which we can barely imagine today.
“The ability to store and transfer money, as well as to make small payments using mobile phones, has the potential to lift millions out of poverty, just as the Green Revolution did in the 1960s,” said USAID Aministrator Rajiv Shah in the press release.
“Mobile money is a game-changing endeavor with the potential to improve lives, create jobs, spawn new enterprises, and expand financial inclusion, particularly in the emerging markets that are critical to the growth of the global economy,” added Citi CEO Vikram Pandit.
But, as this jointly developed report, - 10 Ways to Accelerate Mobile Money, - points out, while mobile money ecosystems are being launched around the world at a rapid pace, only a few have reached critical mass. What we have all learned from these deployments is that neither governments nor the private sector can do it alone. To achieve the necessary scale, mobile money deployments require the coordinated action of all ecosystem participants, including governments, banks, MNO and NGOs. With rare exceptions, that is not happening today.
The report offers ten specific suggestions, which it calls accelerators, to help coordinate the activities of all the various actors involved in transitioning payment streams from cash to mobile money:
- Ensure Mobile Money Transfers Are Safe and Transparent
- Establish an Inter-agency Government Process to Coordinate Mobile Money Decisions
- Leverage Mobile Money for Government and Donor Payments and Collections
- Get Food and Household Product Retailers to Accept Mobile Money
- Promote Open-Architecture Policies and Interoperability Within and Across Ecosystems
- Allow Mobile Money Transfers to Move Seamlessly Across Borders and Mobile Networks
- Pilot Programs to Test Innovative Approaches, Create Impact Analysis, and Develop Replicable Opportunities for Scale
- Protect People through Client Education and Consumer Protection Measures
- Facilitate the Ability of People to Put Cash In and Take Cash Out of Their Mobile Wallets
- Tackle the Identity Issue for the Unbanked
Let me say a few words about a few of these accelerators.
The best way to significantly scale the use of mobile digital money around the world is for governments to leverage this channel to pay salaries, pensions, social benefits and cash transfers. Similarly, donor organizations should embrace mobile money for all their disbursements.
But to effectively promote financial inclusion, it is important that individuals be able to not only receive payments, but to also add funds to their digital mobile accounts. They should be able to use them within the general payments infrastructure, including paying bills and purchasing goods. Having to convert digital payments into cash in order to use them would defeat many of the benefits of a digital money ecosystem. This will require the close collaboration between banks and government to develop new kinds of accounts, with properties somewhere in the spectrum between prepaid and traditional bank accounts.
Safety and security are critical to the successful adoption of mobile digital money. Doing so requires striking the right balance between the regulations needed to ensure the proper levels of protection, and the many innovations that will undoubtedly be developed on mobile digital platforms. Existing regulations will generally be inadequate to support the scalability, low cost and real time requirements of mobile digital ecosystems. The laws, policies and institutions we developed for the physical world are not adequate for our fast moving, fast changing digital world. We must learn how to best adapt our policies and regulations from the physical to the digital world.
Similarly, we need to develop innovative solutions to address the issues of identity management for the many previously unbanked individuals who lack appropriate forms of identifications and who we would like to now integrate into our digital economy. Many innovative ideas are being developed to leverage mobile devices for identity management, including the use of biometrics, geospatial information, and behavioral patterns.
The use of information from mobile devices requires very careful attention to the personal nature of such information. Extensive research and experimentation is needed to come up with effective identity management solutions that enable us to properly identify individuals while adequately protecting their privacy.
In his remarks at the announcement of the USAID-Citi Mobile Money Alliance, Vikram Pandit summarized both the exciting opportunities ahead, as well as the tough challenges we will face:
“The mobile revolution will be for banking what the digital revolution was to the broader economy. And mobile money has the potential to become one of the most powerful engines of economic development in history . . .Success will require a critical mass of participants. . . . The more widespread mobile payments become, the faster people will adopt them.”
“The problem today is cacophony. Everyone - in industry and government alike - is singing from different song sheets. We need to replace the cacophony with a symphony: everyone showing up at the same time, with the same sheet of music and playing in harmony.”