How mobile banking could bring the next billion online

BARCELONA — A third of the world are Internet junkies, unable to imagine life before it. And bringing another 3.4 billion people online certainly makes sense: If you increase mobile broadband reach by ten percent, you increase a country's GDP by one percent, and as the rest of the world connects, about 140 million jobs will come.

But this isn't such a compelling argument to rural Africa's farmers and fishermen, who find little reason to "Get Mail."

"Why should they spend that one, two or three dollars [a month] to access? If you've never had access to the Internet, you don't know why it's valuable," said Facebook founder Mark Zuckerberg at the Mobile World Congress in Barcelona last month.

As providers aim to get the next billion people online by 2020, the consensus at mobile's biggest conference seemed to be that the carrot is mobile banking.

An estimated 2.5 billion people in the developing world are unbanked. With about 80 percent of the world's population living within 2G or 3G range, offering banking services to many for the first time is a unique opportunity for mobile providers to expand quickly. Mobile banking is any transfer or payment of money supported by a financial institutions via the Internet, SMS or, more recently, mobile apps.

The mobile payment market reached about $300 billion last year.

“Eighty percent of many countries are unbanked. In Kenya, [my company ran] an experiment [and] mobile money has become the biggest opportunity of banking the unbanked,” said Manoj Kohli, CEO of Bharti Airtel Ltd., provider for 300 million customers in Asia-Pacific and Africa. In fact, by the end of 2013, a total of nine sub-Saharan countries had more mobile money accounts than bank accounts. This means first generations of millions of people are gaining access to things like credit to start their own businesses and the ability to send money from urban centers to villages.

An extraordinary jump in mobile money reach happened in the Ivory Coast, which has about five million mobile money accounts, more than half of all mobile subscribers, in a country where less than 11 percent of adults have access to traditional banking. “On many occasions, customers told us [mobile banking provider] Orange Money changed their life,” said Sadamoudou Kaba, the head of the Ivory Coast Orange Money Business Unit. “In fact the various partnerships and initiatives we engaged in are the results of our willingness to simply provide adequate answers to their needs.”

While Orange Money was the first in the Ivory Coast in December 2008, the French mobile company saw little growth until the fourth quarter of 2012. An end to a decade of political instability that saw ceasing of operations in four traditional banks led to a boost in the economy and indirectly to a jump from two to five million mobile money accounts.

However, Orange and other providers have yet to see large profits. Three quarters of all mobile money transactions last year were still prepaid phone top-ups — buying more minutes or adding more credit — the least profitable piece of the product mix. The rest of the transactions were mostly peer-to-peer domestic transfers, as well as some bill paying. 

Last year saw a rapid adoption of bulk payments for salaries and between governments and individuals. Strangely, only 40 percent of providers offer international remittance— usually a large transfer of money from a family member working in a foreign country—which is by far the most profitable mobile money service, as these transfers are significantly larger than any other. Of course that's expected to change over the next few years, as U.K.-based WorldRemit just had one of the greatest Series A fundraising rounds Europe has ever seen, with an influx of $40 million to grow its online platform for sending cash. 

But questions about how big the market could be still remain. Just last week, the Chinese central bank put the kibosh on a couple virtual credit card and QR-code based virtual payments, so the future of mobile money still remains uncertain.

Another significant hindrance to profitability is that less than 30 percent of accounts are considered active. Providers are now tasked with discovering ways to incentivize usage, not just registration. The Mobile Money for Unbanked Programme has found that customers who transact at the point of registration are 26 percent more likely to be active customers, with 95 percent higher revenue per user.

"The next three and a half billion are not as rich and not as educated, rural, making it inherently more difficult," said Kohli.

Basic mobile money services are also available to non-smartphone users as well via SMS, meaning that mobile money can’t be the only way to bring the next billion online. Affordability is still an issue. Half of the world will skip right over desktops and laptops for simpler mobile ways to connect to the Internet via “feature phones” — like the smartphones of a decade ago — at the sweet spot of about $25 or 1,500 rupees each.

With this $25 phone supporting basic Internet predicted to be widely available for the first time in emerging markets within the year, the value of phone and SMS will be an easy sell. It’s costly data that will cause 3.4 billion hesitations.

Zuckerberg put it into a Western perspective: "The average American spends $2,000 in two years on their iPhone: $500 for the phone and the rest on data."

Even though the speed in 2G networks has jumped from an average of 22 seconds to about six, those six seconds are still critical when data is a precious commodity and preserving battery life is critical. Marco Quatorze, CMO of Latin America's America Movil shared that his customers thought they were being robbed because ads were stealing their data. He agreed. Data-sucking ads cannot be a source of provider revenue in emerging markets.

Internet.org's Chris Weasler spoke about how Facebook spent a lot of time developing a data-hogging Android app that they eventually realized basically didn't work in these countries. There’s a “need to make it more lightweight and download quicker, preserve battery life and send less data across the network,” he said. The reason why Wikipedia is more often than not the top Google result is less due to its accuracy or well-sprinkled keywords, and more to it being simply designed, quick and easy to load.

Zuckerberg says he paid a staggering $19 billion for WhatsApp because it's a simple messaging app that has made never having ads a priority, and it takes minimal data and battery to run. WhatsApp fits smoothly into his foundation Internet.org's goal of connecting the rest of the world.

The mobile world must look to follow suit developing low-data mobile money apps, if they have any hope of connecting the next billion by 2020.

Of course, Zuckerberg thinks that billion is not good enough, saying “I hope we can do much better than that."

Photo: Erik (HASH) Hersman, Flickr Creative Commons

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This post was originally published on Smartplanet.com