Mobile Banking for Equitable International Development: Financial Power to the People

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A Capital Markets presentation discussing the benefits of mobile banking for equitable development, leveraging high entrepreneurship and mobile subscription rates of the developing world.

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  • We are Justin Bean, SeMe Sung, and Jake Blackshear. We will be explore how mobile banking can be used to improve access to capital markets in the developing world. In our first presentation we covered the history of capital markets in developing regions, then explored best practices in those areas. Today we will cover mobile banking in detail, and recommendations for improving access to mobile banking services in the developing world.
  • As you may remember, a majority of people in most developing countries do not have access to a bank account or capital markets. This creates significant barriers to participation in the economy, exacerbates financial risks for households and businesses, as well as inequality. We enjoy high rates of access to banking services in the developed world, but as you can see from this map, much of the developing world does not.
  • This lack of access to finance has been consistently cited as one of the biggest challenges, if not THE biggest challenge facing entrepreneurs and the development of business in these countries. Access to finance is roughly correlated to impoverishment, with high-income countries reporting access and cost of finance as an issue at the lowest rates.
  • This is especially true for the missing middle, for whom little finance is available. This presents a challenge for the scaling of small enterprises, who cannot acquire finance to support growth into and throughout the “middle”. The skewed distribution of firms by size in low-income countries, as seen on the right, is a result of this barrier.
  • An increase in credit has been correlated to a decrease in inequality. The GINI coefficient (which measures income inequality) decreases as private credit rates (per GDP) increase. This demonstrates that access to finance presents a major opportunity to decrease inequality and improve the lives of many people across the globe.
  • We also talked about the opportunities for equitable economic growth associated with high mobile subscription rates and mobile banking growth. As you can see from the chart, there are more mobile phone subscriptions than people in most developed regions. Developing regions have higher growth rates, as shown by the green line. Mobile banking is also growing quickly and is projected to experience explosive growth globally over the next few years. This mobile banking is the platform that can deliver the much-needed financial services which we have seen to have a dramatic impact on wealth creation and distribution. But there exist many barriers to sustainable mobile banking implementation.
  • Entrepreneurship = potential for new business creation and economic growth. Mobile subscriptions = platform for delivering finance to these entrepreneurs through mobile banking. Unbanked = opportunity to provide financial services. Africa shows very high rates of entrepreneurship and unbanked, with lower rates of mobile penetration. However, mobile subscription growth rates are second only to Asia, with mobile services (not computer internet access) being the primary mode of access to the internet. This presents an opportunity for ease of adoption for mobile services, including mobile banking.
  • Asia, although a large and diverse region, has an opportunity to leverage its major economies to empower the people in the less developed countries of the region. This is a mutually beneficial opportunity. This region has the highest mobile subscription growth rate in the world, and represents over a third of global population. Japan’s entrepreneurship rate is the second lowest in the world, dragging down the average for the region.
  • Latin America is ripe for mobile banking as a lever for inequality reduction and empowerment of entrepreneurs. With mobile subscription rates that are on par with the developed world, the highest regional entrepreneurship rates, and above-average rates of unbanked people, Latin America has an ideal profile for mobile banking. The IMF has invested over $1b in this opportunity, via a mobile banking network called Yellow Pepper in the Caribbean.
  • Fraud has been a major concern and could be a barrier for sustainable mobile banking, as it compromises the security of accounts, creates a considerable risk of doing business, and increases costs.This fraud has already cost Mpesa over 21 million Kenyan Shillings (just over $331,787), which is roughly equal to .006% of all transactions to date (Annual revenues of over $974m USD). Many fraudulent transactions given the $500 limit and purchasing power parity.Two notable forms of fraud:“Tumbling” – is a program that puts together a database of stolen serial numbers, numbers, etc. Normally a system can trace the fraudulent account using unique serial numbers, but due to a supply of phones from a cheap Chinese source without unique serial numbers, investigators cannot trace the fraudulent accounts.Mpesa inspectors are impersonated using extremely accurate badges and IDs, inspecting logbooks and extracting account information, which is then used by another fraudster to complete a counterfeit transaction.
  • So we just explained a bunch of barriers and recommendations for the successful implementation of mobile banking. Which if done right will increase liquidity in the financial systems and allow the missing middle access to the benefits of capital markets…and increased social equity.These fell into 4 categories…OperationsSecurity RegulationAnd Industry Strategic, for the key players within the industry (which are telecoms, banks, NGOs, + governments)
  • 2 months ago, we wrote a letter containing recommendations in all 4 of those areas. We wrote to a total of 16 people at the IFC, The UN Conference on Trade and Development, and the developing countries of Peru and Uganda. And then 2 weeks later, we followed up with all of them.We sent it to 4 people in the Peruvian government, including Head of the Economic Ministry.The letter can be read on Triple Pundit here: http://www.triplepundit.com/2011/04/power-people-mobile-banking-developing-countries/
  • Mobile Banking for Equitable International Development: Financial Power to the People

    1. 1. Mobile Banking in Developing Countries:<br />Financial Power <br />to the People<br />Justin Bean <br />Jake Blackshear<br />SeMe Sung<br />
    2. 2. Background<br />Percentage of households with access to banking<br />Image source: World Bank<br />
    3. 3. Background<br />Financial barriers are a serious problem for firms in developing countries<br />Image source: Finance for All, World Bank<br />
    4. 4. Background<br />The “missing middle” (loans of $5,000 - $500,000) faces the highest barriers to finance.<br />Image source: Finance for All, World Bank<br />
    5. 5. Background<br />Access to finance reduces inequality<br />Image source: Finance for All, World Bank<br />
    6. 6. Background<br />Mobile Subscription Rates & Growth<br />Image sources: International Telecommunications Union<br />
    7. 7. Background: Regions<br />Image sources: Sources: ITU (2010); Global Entrepreneurship Monitor (2009); World Bank (2008).<br />
    8. 8. Background: Regions<br />Image sources: Sources: ITU (2010); Global Entrepreneurship Monitor (2009); World Bank (2008).<br />
    9. 9. Background: Regions<br />Image sources: Sources: ITU (2010); Global Entrepreneurship Monitor (2009); World Bank (2008).<br />
    10. 10. How Mobile Banking Works<br />1. cash to e-float<br />2. e-float to e-wallet<br />3. e-wallet to e-float<br />4. e-float to cash<br />Image sources: ShaswatPatel, Christian Science Monitor<br />
    11. 11. Barrier: Liquidity Management<br />• Travel times and cost<br />• Personal harm or robbery<br />• Employee malfeasance<br />• High working capital<br />Image sources: The Economist, The Huffington Post<br />
    12. 12. Recommendation: Liquidity Management<br />• Secure Infrastructure<br />• Secure Loans for Agents <br />Image source: The Economist<br />
    13. 13. Barrier: Interoperability<br />• Banks: Different mobile money platforms<br />• Phones: Different handset technologies<br />Image source: David Ajao blog <br />
    14. 14. Recommendation: Interoperability<br />• Banks: Different mobile money platforms<br />• Phones: Different handset technologies<br />Image source: David Ajao blog <br />
    15. 15. Barrier: Fraud<br /><ul><li>Growing concern for mobile banking networks.
    16. 16. Cost MPESA 21m KES (.006% of all transactions to date).
    17. 17. “Tumbling” – fools the validation process.
    18. 18. Counterfeit MPESA ID badges and impersonation used to defraud agents.</li></li></ul><li>Barrier: Regulatory Environment<br /> Issues:<br />Contentious Regulations<br />Banks Want Territory<br />Mobile Service Operators Want Opportunity & Growth<br />
    19. 19. Barrier: Regulatory Environment<br />Issues in India<br /> Banks Only<br /> Existing Customers Only<br /> Domestic Only<br /> Physical Presence<br /> Payment Infrastructure<br /> Low Transaction Limit<br />
    20. 20. Barrier: Regulatory Environment<br />Success in Kenya<br /> Non-Bank Model<br /> Easy Enrollment<br /> National Payment System<br /> Higher Transaction Limits<br />Image source: Safaricom<br />
    21. 21. Regulatory Questions<br /><ul><li> Who is allowed to carry payment instructions?
    22. 22. Who can dispense cash?
    23. 23. What types of transactions should be permitted?
    24. 24. How to protect users against fraud?</li></li></ul><li>Regulatory Recommendations<br /><ul><li> Empower Mobile Communications Companies
    25. 25. Embrace Innovative Regulatory Approaches
    26. 26. Create a Dedicated Advocacy Organization
    27. 27. Engage in Public-Private Partnerships </li></li></ul><li>Recommendations:<br /><ul><li>Operations
    28. 28. Security
    29. 29. Regulation
    30. 30. Strategic</li></li></ul><li>Our Letter<br /><ul><li>Alexandra Klopfer
    31. 31. Adriana Gomez
    32. 32. Vanessa Bauza
    33. 33. Hon. Ruth Nankabirwa
    34. 34. Hon. Aggrey Awori
    35. 35. Hon. Sydda Bbumba
    36. 36. Perezi K. Kamunanwire
    37. 37. Mr. Charles Ssentongo
    38. 38. Miguel Samanez
    39. 39. Mijail Quispe
    40. 40. Ana María Deustua
    41. 41. José Corbera
    42. 42. Ms. Anne Miroux
    43. 43. Mr. Heiner Flassbeck
    44. 44. Mr. James Zhan
    45. 45. Ms. Jo Elizabeth Butler</li></li></ul><li>Thank You!<br />
    46. 46. References:<br />Bridges to Cash: The Retail End of M-PESA2010, Eijkman, F., Kendall, J. & Mas, I.<br />http://mbanking.blogspot.com/2008/09/interoperability.html<br />http://microfinancehub.com/2011/03/17/importance-of-mobile-banking-interoperability/<br />http://www.economist.com/node/16319635<br />http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=1660<br />http://www.gmeltdown.com/2010/02/m-pesa-fraud-agents-beware.html<br />http://www.microfinancegateway.org/gm/document-1.9.25001/36204_file_M_banking_Enab_Env.pdf <br />Ondiege, Peter (2010): Mobile Banking in Africa, Taking the Bank to the People. Retrieved from: http://www.mfw4a.org/resources/documents/documents-details/mobile-banking-in-africa-taking-the-bank-to-the-people.html<br />http://catdir.loc.gov/catdir/samples/cam034/2002041243.pdf<br />http://www.bis.org/publ/bppdf/bispap36g.pdf?frames=0<br />http://www.bseindia.com/#<br />http://www.frbsf.org/publications/banking/asiafocus/2010/pdf_asiafocus-november.cfm<br />http://www.hsbc.com/1/2/about<br />http://www.imakenews.com/bga/e_article000719024.cfm?x=b11,0,w<br />http://www.money-zine.com/Investing/Stocks/Bombay-Stock-Exchange/<br />http://www.prnewswire.com/news-releases/ifcs-first-mobile-banking-investment-in-latin-america-and-the-caribbean-supports-financial-inclusion-105857958.html<br />http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2004/06/22/000160016_20040622141728/Rendered/PDF/28989.pdf<br />http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPRRS/EXTFINFORALL/0,,contentMDK:21534425~menuPK:4099726~pagePK:64168098~piPK:64168032~theSitePK:4099598,00.html<br />

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