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Phone operators banking for the poor

BARCELONA, Feb 18 – Extending basic banking services to the world\’s poor is seen as vital for economic progress in underdeveloped countries and the mobile phone industry is emerging as part of the solution.

Network operators, keen for the revenues such services generate, have launched money transfer programmes in more than a dozen countries, providing a basic service that local banks are unable or unwilling to provide.

The reason is that mobile networks cover large parts of even the poorest countries, while banks have limited numbers of branches and provide only for those able to pay what are substantial account fees for most people.

"There are over one billion people in emerging markets today who don’t have a bank account but do have a mobile phone," says Rob Conway, chief executive of mobile industry trade body the GSM Association (GSMA).

Research by microfinance centre CGAP and consultancy McKinsey & Company shows the mobile money market for the unbanked could grow to five billion dollars over the next three years, the GSMA said.

To this end, Microsoft founder Bill Gates\’s humanitarian foundation, which has mostly focused on disease eradication up to now, announced Tuesday a grant of 12.5 million dollars (9.8 million euros) to help fund 20 new mobile money transfer projects worldwide.

The trust said the grant was part of its programme to extend financial services to the poor. It identified mobile phone technology as a means to help people "manage life’s risks and build financial security."

"Traditional financial services are often too costly and inconvenient for people who earn less than two dollars a day to obtain, and too expensive for banks to provide," said Bob Christen at the Bill & Melinda Gates Foundation.

Eden Zoller, an analyst at telecom research group Ovum, says any initiative in mobile banking should look to emulate what British network operator Vodafone and local partner Safaricom have achieved in Kenya.

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A mobile payment system there called M-Pesa was used to transfer 40 million euros (50 million dollars) in January, mostly in small payments, and there are five million account holders, according to figures from Vodafone.

Ovum forecasts that mobile money transfers in the Middle East and Africa will grow from one billion dollars in 2008 to 20 billion dollars in 2012.

"There is already strong evidence that mobile payments in emerging markets can be successful for all parties concerned," said Zoller.

Nick Hughes, who set up the M-Pesa system in Kenya for Vodafone and is the group\’s head of mobile payments, says the key to the project\’s success is the ease with which people can deposit and transfer money.

Without a comprehensive banking network in Kenya, Vodafone and Safaricom set up a network of 7,000 agents, mostly storekeepers, who take deposits and issue cash on demand.

Once money is deposited, a user can authorise payments on his or her mobile phone using a PIN number.

Money can be transferred directly to another user\’s M-Pesa account and even to non-members, who receive a text message instructing them to visit a local M\’Pesa agent to retrieve their cash.

"Our target is someone who doesn\’t have a bank account but wants to move money around quickly," he told AFP on the sidelines of industry event Mobile World Congress which is taking place here this week.

"We have a fantastic distribution network that is an order of magnitude bigger than any banking branch network."

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Vodafone has already deployed its mobile payments platform in other countries, including Afghanistan and Tanzania.

South African group Fundamo, which enables mobile phone owners to manage a bank account via their handsets, is already present in Africa, central Asia and Latin America and is working on a major new deal to extend its reach.

"You cannot consider someone is empowered if they don\’t have access to electronic money in a digital world," chief executive Hannes van Rensburg told AFP.

In Zambia, for example, the company runs a system called Celpay which van Rensburg says handles transactions yearly equivalent to about 10 percent of the African country\’s gross domestic product.

A Celpay application comes pre-loaded on mobile phones and a user can complete transactions such as paying bills or transferring money by scrolling through a menu and entering his or her PIN number.

"Mobile phones give the opportunity to bank people more quickly and much more efficiently," he says.

The main obstacles to expansion are regulation and the reliability of mobile networks which have to be able to handle the extra volume required to support mobile banking.

Vodafone would like to move into India with its M-Pesa model, but regulators have so far thwarted its efforts.

"Regulators won\’t allow any mobile payment scheme. India has said you have to be a licensed bank," he said.

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In the midst of the financial crisis light-touch regulation is out of fashion, but Hughes is keen to see softer regulation to reflect the low-risk and small-scale transactions enabled by mobile payment systems.

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