When you think of financial technology, you might think of stodgy banking chiefs and flashy tech CEOs, but I bet the idea of social good doesn’t come to mind. So you might be surprised to learn that the banking and technology industries are coming together to create products and processes that are improving lives in the developing world.
It’s true: Mobile banking technology is paving a bright new path for the world’s unbanked population.
Unbanked: who and why?
The term “unbanked” refers to people who do not have access to banking facilities or services. There are 2.5 billion unbanked individuals in the world, mostly residing in Africa, Latin America, Asia and the Middle East. Within the unbanked population are also 200 million small businesses that operate sans bank.
The problem often exists where there is a lack of traditional banking infrastructure. Adults in developing countries often find barriers to banking in several different forms, including distance, cost and bureaucracy.
But since the mobile banking industry has taken off, unbanked individuals have found even less use for the institution itself. Of these 2.5 billion adults who do not have bank accounts, what 1 billion of them do have are mobile phones — and they’re using them to safely store cash, send and receive payments, pay bills and buy goods.
Kenya: a case study
Out of necessity but also innovative ingenuity, Kenya has stepped up to the plate when it comes to financial inclusion for the world’s unbanked population. The country’s top Internet provider, Safaricom, has developed a veritable mobile payments revolution through its digital financial service, M-Pesa.
It is reported that more than 19 million Kenyans, or 90 percent of the adult population, are now using M-Pesa as a substitute for traditional financial services that many do not have access to in the first place. In fact, in Kenya, M-Pesa transfers make up about 42 percent of the country’s GDP.
Before mobile banking, individuals were not the only ones who suffered. Without access to debit or credit, people who could afford items while out and about would not always have sufficient cash on hand. This left small businesses high and dry and the economy stagnant. With the introduction and widespread use of M-Pesa, people can now safely and rapidly transfer money from their mobile phones to merchants’ mobile phones through SMS.
So, how exactly does it work?
Individuals take their cash to a local M-Pesa branch and have an agent load funds onto their mobile phone. The actual cash is securely held in a trust owned by Vodafone and distributed to several commercial banks.
To send money, users can simply enter the mobile number of the recipient and the amount they’d like to send. The money arrives in the amount of time it takes for the recipient to receive the text.
Paying bills works in much the same way. Users can pay for school, utilities or any one of 600 kinds of services by sending their digital currency through a text message. This has even led to an increase in access to solar power and clean water in developing countries. For example, M-Pesa users can access clean water with Grundfos Water Solutions through mobile payments.
Grundfos uses solar energy to power local water filtration stations in rural areas. To access the water, the local people pay through their M-Pesa accounts to load water tokens onto key fobs. Once loaded, they tap their key to the water dispenser and fill their tanks with clean water to take home to their families.
The bottom line
Financial technology products such as M-Pesa are taking the lead in allowing citizens of developing countries to effectively pay their bills, access clean water and receive payments for goods and serves. Bill Gates estimates that “in the next 15 years, digital banking will give the poor more control over their assets and help them transform their lives.”