Mobile applications have created a bridge between our digital and physical worlds. One of the more important trends, projected to be the top mobile app by 2012, is mobile money transfer and payment. In this article, we will look at a compelling case (recently highlighted in The Economist) for mobile transfer and payment in an emerging market and then see where the industry is moving in the developed world.
M-Pesa
In 2007, M-Pesa was introduced in Kenya as a money transfer system through Safaricom. Using a similar model to PayPal, members are able to transfer funds and manage their account through a mobile device. Leveraging the network effect, M-Pesa created a faster, more economical way for Kenyans to conduct business, but there were a few unforeseen outcomes from the introduction of the program.
First, this proved to be a safer way of doing business. Rather than traveling with cash in hand or storing cash locally, entrepreneurs mitigated the threat of theft with virtual money. M-Pesa customers felt safer about their money.
Second, mobile access helped stabilize market prices. Mobile changed the competitive landscape giving participants better tools for monitoring the free market and actually reduced price discrepancies.
Lastly, M-Pesa opened up an entirely new segment of customers – the “unbanked.” Although the service started as a complementary bank feature, 40% of service users have never banked before.
What started as added customer service feature actually increased the size and efficiency of the market as a whole. With 8 million subscribers (that’s 1 in 5 Kenyans) and an average of $10 million in transactions daily, M-Pesa has revealed a substantial opportunity for mobile penetration and growth in developing markets.
But what about developed markets?
The developed world isn’t going to see a economic transformation in the same way emerging markets might, but major players are taking note and moving forward. Established and start-up companies are testing the waters in mobile money transfer (ie. PayPal Mobile), but the future is looking toward point-of-purchase transactions with the mobile device. This idea, coined contactless payment, entails scanable hardware embedded in/on the device.
At the Cartes Exposition in Paris two weeks ago, Visa showcased it’s contactless system with Nokia that will be introduced in the next year. This system allows items under a certain price threshold go through immediately and for items over, the user will be prompted to enter a PIN number for added security. Another similar system, Mastercard‘s PayPass mobile program partnered with Blackberry, is currently pilot testing in Canada. And American start-up Bling Nation is working on a smaller scale to create local networks of banks and participating retailers with mobile device transaction capabilities.
As larger programs are being tested and introduced outside of the US, it will be interesting to see who will tap the American market first. Although safety and security are hurdles to adoption, the idea of an m-wallet is showing appeal and pushing companies beyond transfer and into transaction. Fear not developed world, our phones are about to get a whole lot smarter.
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December 4th, 2009 at 9:11 am
As MPESA created a more faster and economical way for Kenyans to go for mobile banking… a recent service launched in Pakistan under the banner of “Easy Paisa” has provided the unbanked people of Pakistan to pay utility bills and transfer money…
I guess all these services being launched in developing cpuntries are definitely going to boom the economy
December 7th, 2009 at 9:30 am
Thanks Andrew! I was struck by these programs because it reminded me that mobile is still highly disruptive technology. Very interesting (and exciting) to see the scale of change capable. And the added supply of money coming out from under the mattress and into financial institutions couldn’t be a bad thing for the economy!!
December 8th, 2009 at 2:44 pm
This is a pretty timely article given all the recent buzz about Square, a recently released “PayPal for mobile.”
http://squareup.com/
January 2nd, 2010 at 1:00 pm
Paying with your mobile: Mastercard/Blackberry testing Paypass in Canada. Visa/Nokia system coming soon. @JillKrumsick…
“The future is looking toward point-of-purchase transactions with the mobile device. This idea, coined contactless payment, entails scanable hardware embedded in/on the device.
At the Cartes Exposition in Paris two weeks ago, Visa showcased it’s con…