Examples of financial services using mobile phones

The continual expanding coverage and use of wireless mobile devices such as mobile phones in developing regions such as Africa and South East Asia, are leading to increased applications to deliver financial services, especially to those in remote regions and whose low income have typically excluded them from the traditional banking system.

Mobile financial services are often referred to as m-commerce or m-banking applications. They can be broadly categorized as extensions of existing bank services delivery, or as innovative approaches of telecommunications providers where the mobile phone network becomes a medium for financial transactions. Mobile phone network transactions include the use of network airtime or e-currencies for deposit, transfer of funds or credits, and payment of services  

Most common bank services provided through mobile phones have traditionally been SMS-based account information applications using text commands which can often be completed via a variety of telecommunications operator networks. These applications have typically been restricted to informational services such as transaction records, balance status, market information and minor transactions related to account administration and settings.

Branchless banking models
An extension of the mobile or branchless bank model includes enhanced ability to carry out limited banking transactions via mobile phone such as individual and third party account transfers, or making use of ATM outlets without having to open a branch-based bank account.

The WIZZIT service of South Africa, a cellphone-based banking facility which developed as a joint venture with the South African Bank of Athens, is an example of a branchless bank model extended through mobile phones. Using any telecommunications network, clients can make bill payments, transfer money to other WIZZIT users or any bank account, and buy airtime via their mobile phone. Deposits can be made at postal outlets, Bank of Athens and Absa Bank branches, while a “Maestro” debit card is issued to allow for purchases at retail outlets and money withdrawal at any ATM.

Requirements for holding a WIZZIT account are minimized to an approximately USD 5 charge for sign up via local individual agents, the WIZZ kids who are members of the target low-income community and can meet their clients at home or at work.  The flexibility of this service is that it is able to facilitate transactions across various national and international banks and financial organizations such as remittance agencies.  Further, operational costs are minimized as many transactions are electronic without the need for human intervention and WIZZIT has no bank branches to run. This is translated to savings for clients who can get cash-back via a participating retailer for about 40 per cent less than through a bank’s ATM.  Drawbacks of the system for users in remote under serviced areas, is that gaps exist in coverage of the network of participating bank outlets and retailers.  Further, if other bank and ATM outlets are present in under serviced areas, clients must pay an additional service charge to use another banking network.

Mobile payment systems
Another financial service model is the mobile payment system approach. This model utilizes mobile phone airtime or e-money credits for a variety of transactions that include payment of utility bills and, in some cases, the capacity to process deposit and withdrawal of funds. These systems are usually led by telecommunications operators, whose highly dispersed network of local agents provide greater client access, especially in rural and under serviced areas, to outlets that honour their mobile phone transactions.

Established in 2006, M-PESA is a mobile-phone payment service provided through the telecommunication provider Safaricom in Kenya.  To set up an account, all that is required is a Kenyan national identity card and the installation of a free SIM card which drives the application.  The system utilizes a proprietary e-currency called the m-pesa which can be purchased by anyone at participating dealers.  Clients can make a number of transactions with the m-pesa currency such as sending and receiving, review of their m-pesa balances and transactions, and deposit and withdrawal of cash at Safaricom outlets and participating retailers (such as select petrol refilling stations).  Future services include m-pesa transfers to bank outlets, payments for major utility bills and even salary payments to clients. A key benefit of the payment system approach is that financial transactions, via m-pesa currency, are less costly to process (on the network side) as they usually involve the mobile operator’s automated airtime credit management system.  Customer charges are typically lower than respective banking costs.

Mobile Payment/Business Development Model
An important variant of the mobile payment system is linked with microfinance organization efforts to provide means for underserved clients to leverage and manage investment financing or business opportunities. Telecommunications operators are often engaged to lead these systems due to the wide reach of their networks and agents. In this system, arrangements are typically made between a microfinance bank and target clients to receive small loans for business development and make payments via mobile phone credit transfers.

The Globe Telecom G-Cash service of the Philippines includes financial products targeting clients of microfinance initiatives. The overall service provision utilizes mobile phones as “mobile wallets” allowing subscribers to send and receive domestic and international remittances through SMS, make purchases and payments at retail establishments, pay bills, and convert G-Cash to prepaid mobile credits. An additional service, piloted in 2005, is a loan management and payment system where the client, who is provided small loans through the Rural Bankers Association of the Philippines (RBAP), can review loan status and flexibly make cash payments to local telecom agents or transfer the amounts via e-credits on their mobile handset. In many cases, the only transaction charges are for airtime using the SMS (text) commands.  

Airtime transfers
Another related model that is grounded in mobile phone functionality that many telecommunication networks provide is airtime credit transfer or resale. Although this model has began as a specific business opportunity for retailers to market and sell airtime for a telecommunications operator, its use has spread among a large number of users, especially in financially underserved areas such as the Philippines, South Africa and Kenya. Airtime transfer is essentially a simple service of sending and receiving mobile phone airtime credits for a small fee.  

The telecommunications operator Vodafone Egypt offers a number of mobile services packages which includes an airtime re-distribution function for use on its prepaid service. Using Vodafone Egypt’s existing voice interactive account balance enquiry, mobile phone clients can transfer airtime in three different denominations of 5, 10 or 15 Egyptian pounds. The client’s account is debited a fee of 20 cents for the transaction. The airtime transfers provide financial services in that clients provide a convenience or access service by selling surplus credits to others at a mark-up. As the airtime credits have a limited duration, it is also a means by which mobile users can recoup losses on unused minutes by offering airtime to a third party at a discounted rate. As with the previous model, a key drawback is that cash transaction settlement is largely informal, with limited confirmation ability in the event of a dispute.

Airtime transfer models of mobile financial services show great potential as a model with the most extensive reach to the un-banked segments of society. Airtime credit transactions are a highly automated and cost effective function that is already established with most telecom operators and their marketing structures. Clients using prepaid services can obtain credits in the form of pre-paid cards or e-transfers in a variety of denominations, at many locations without requirements for identification or credit history. These credits can then be exchanged, traded and honoured by many others for services and cash.

Further, advances in national policies and regulations regarding mobile financing and electronic commerce are establishing good frameworks for implementation that are utilized by telecom operators to reduce the risks of abuse and illegal activities. Already many participating operators integrate security procedures such as setting transaction limits and amounts to curtail activities like money laundering.  Improved clarity on how non-banking agents could provide settlement services, would provide a positive alternative to informal transaction settlement between individuals through greatly extending the reach of a network of formal agents where limited financial transactions could be carried out.

Sources:
Anne Crotty, “Wizzit has done its homework, says Mphahlele”, Business Report, Sept 2005

Vodafone Group Plc. The Transformational Potential of M-Transactions. in Moving the Debate Forward -The Policy Paper Series. Number 6 July 2007

Regulating Mobile Banking: The Philippines Perspective. Presentation by Microfinance Examination Group, Bangko Sentral ng Pilipinas, December 2006

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