Around two billion people on the planet are “unbanked” — which is to say they have no access to financial services. Their transactions are all in cash. Any savings need to be hidden in their home. They are vulnerable to crime. They can’t earn interest. They can’t transfer money to others. They don’t qualify for loans.
Fortunately, new technologies are offering important opportunities, particularly through cell phones.
The best-known and most celebrated online financial service utilizing cell phones is M-Pesa, launched in Kenya in 2007. M-Pesa allows users to deposit cash into their M-Pesa accounts (usually via the ubiquitous cell phone agents that sell users minutes all across Kenya), store money, and transfer money to others. They can also pay bills, purchase air time, and in some cases buy products.
M-Pesa was launched when Safaricom, a leading mobile operator in Kenya, saw that new cell phone users were “banking” minutes on their phones. Apparently, if someone had some money, it was safer to buy and store minutes than to hold cash. When Safaricom allowed users to share minutes, they saw people start to make payments to one another in this new “currency”. So Safaricom decided to allow users to not only store and share minutes, but also money. M-Pesa was born.
The service spread quickly in Kenya, and currently includes over 25 million active users (which is about the entire adult population of the country). A study of M-Pesa by MIT and Georgetown researchers concluded that between 2008 and 2014, M-Pesa was responsible for lifting 200,000 families out of poverty (about 2% of total households).
M-Pesa has also been launched in Tanzania, South Africa, Afghanistan, India, and several Eastern European countries — to mixed success.
M-Pesa also provides a financial platform for other services. For example, the Kenyan company M-Kopa sells personal solar systems for households that are lacking electricity. Payments for the system are made daily for a year through M-Pesa. If a payment is missed, the system is disabled until payments resume.
Online banking is convenient for those of us in developed countries. In developing countries, it is transformative.