In this post
we would talk about Mobile Money. According to Jonathan Dolan from Harvard
Kennedy school “Mobile money refers to a suite of financial services offered
through mobile phones and other handheld mobile devices. These services can
include 1) person-to-person transfer of funds, such as domestic and
international remittances, 2) person-to-business payments for the purchase of a
range of goods and services, and 3) mobile banking, through which customers can
access their bank accounts, pay bills, or deposit and withdraw funds.”
Thus in
simple terms Mobile money (MM) is a concept where monetary transactions such as
money deposit, withdrawl, payments, fund transfer etc can be performed using
mobile phones. The point worth mentioning is that in this system user may or
may not hold a formal bank account (though one may have to open a basic account
with the service provider). All one needs to have is a mobile phone, in some
cases only with very basic features such as short messaging. Here is how this
system works. The money is held by the service provider/operator. Between the
end users and operator there is a network of agents working as the backbone of
this system. These agents are commissioned by the operator and are a vital part
of MM value chain. The agent network might consist of bank branches (if service
is being provided by a bank), company outlets (if service is being provided by
an established company, such as Airtel, SafariCom) or small store owners (if
the service is being provided by a smaller company such as EKO in India). Mostly
these agents provide only basic banking services such as deposit, withdrawl and
money transfer. In order to use these services one needs to visit an agent and
provide some basic documents along with his phone number to open an account.
The phone number acts as his bank account number for all future communications.
Once the account is opened user gets a confirmation on his mobile phone through
a text message. He also gets a PIN to be used for future transactions. Next he
hands over money to the agent who registers this deposit into the system either
by sending a message or by making an entry into the computer. This information
goes to a centralised server which responds by sending a confirmation message
to the account holder. At this point deposit is complete and all the details of
this deposit are now with the account holder, agent and the service provider.
Making a utility bill payment with this money is as simple as sending a message
to the operator with beneficiary’s name, amount to be transferred and
transaction PIN. Sending money to someone who wants to withdraw it physically
is a longer process. When a user wants to transfer money to another user, he
has to send a text message from his registered phone number to the operator.
This message is usually in a standard format consisting of receiver’s phone
number, transaction PIN and few other details. After authenticating the
veracity of details, operator responds back with a transaction confirmation
code. User can give this code to the person he wants his money to be
transferred. Having received the withdrawl code, the beneficiary can visit a
nearby agent and ask for money. The agent can message this code to the operator
asking for a confirmation of fund release. Operator checks the code, confirms
the release and registers current balance available with the agent. The agent
then hands over the money to the beneficiary and the transfer cycle is
completed.
You can also
watch this video to understand how this system works.
The video above shows EKO, one of largest Mobile
Money players in India. Some other known players in this area are M-Pesa by
Safaricom in Kenya, Airtel Money by Airtel in India, M-Wallet by Loop Mobile in
India, MTN MobileMoney by MTN in Uganda etc. Since the main purpose of Mobile
money is to provide banking services to unbanked people, it has made progress
mostly in the developing and underdeveloped countries. Its acceptance and
penetration among the citizens can be realised by the fact that in Kenya out of
total population of 38 Million, approximately 7 Million people are using M-Pesa
today.
Now lets discuss the advantages MM can
bring to the lives of people. The greatest benefit of MM is financial inclusion
of unbanked people all over the world. In developing countries a large percentage
of people don’t have ready access to the banks forcing them carry hard cash
with themselves. Hard cash is not only inconvenient to store but also risky to
carry and transact. Mobile Money makes it easier for them to store as well as
transact money. They are able to send money
back home to more rural parts of the country quickly and cost
effectively. Further it is easier for them to track the
transactions. Thus its reach to low income consumers is much greater than other
traditional financial institutions. For the government it’s an excellent way to
check black money thus giving a boost to the economy. It encourages the habit
of saving among citizens at the bottom of the pyramid thereby helping the
economy. It can also be one of the best and fastest channels of government
social welfare payments. For telecom service providers it helps to reduce
churn. Since mobile number acts as the account number for users, discarding a
number becomes more difficult. Further it has been observed by the carriers
that ARPU (Average Revenue Per User) of MM users can be more than 20%
higher than non-users. It also gives employment to a large number of people
working as agents. Thus a strong mobile money ecosystem and its success is a
win-win for all sections of the economy.
Here we also need to talk about role of regulatory agencies. Since the organization providing these services acts like a bank but it may not be a bank, it becomes imperative for regulatory agencies to keep an eye on their operations. It becomes important also because of the fact that such services have the potential to affect the lives of a significantly large number of people. In India RBI has taken cautious steps in allowing the operators go full throttle with their MM plans. In 2008 it published many operative guidelines allowing only banks to provide such services. Later in 2010 new set of guidelines were issued allowing mobile operators to provide 'Mobile Wallet' that can hold up to Rs 5000 and can only be used for mobile payments. Restrictive physical transactions are allowed from this mobile wallet. Withdrawl is possible only if the operator is in collaboration with some bank. Airtel Money follows the model of M-Wallet whereas one can deposit and make payments but cannot withdraw money. EKO follows the model in which one can deposit, withdraw as well as transfer money since it works in association with SBI and ICICI Bank. As a recent development RBI has started a new dedicated clearing system for mobile payments named Interbank Mobile Payment System (IMPS) whereby consumers are able to transfer money from their accounts to any other account in the country using their mobile devices. This facility is available only to the people having a formal bank account.
To conclude, the future of Mobile Money
looks bright. With the advancement in technology, falling handset prices and
increased mobile penetration, banks and telecom operators are quite optimistic
about it. And they are rightly so!!
References and further readings:
https://www.mckinseyquarterly.com/Mobile_money_Getting_to_scale_in_emerging_markets_2951
http://policymatters.net/wordpress/wp-content/uploads/2010/05/MobileMoney.pdf
http://www.thehindubusinessline.com/industry-and-economy/banking/article2615635.ece?ref=wl_industry-and-economyhttp://policymatters.net/wordpress/wp-content/uploads/2010/05/MobileMoney.pdf
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