Bankable Frontier Weblog

The June 11^th edition of The Economist describes how a Congolese mother recently settled the bribe necessary for officials across the country to allow her daughter, separated from her in the war, to travel to rejoin her: she bought pre-paid airtime vouchers; then phoned the officials and gave them the code numbers from the vouchers to enable them to recharge their own mobile phones. As The Economist notes, this is a much faster and more efficient means of value transfer in a country in which the retail banking system is almost non-existent.

Cell phone vouchers are therefore a convenient cash substitute—providing the recipient is able to make use of the airtime. The process of transferring airtime can be made much easier than phoning through code numbers: in some countries, networks allow for the real time transfer of airtime minutes between phone users—for example, the Me2U product of network MTN in several African countries. Since the charge is low (in SA, some US$0.2 per transaction), it is highly competitive in some ways to other PIN-based money transfer services such as Western Union which can cost thirty times as much for small transfers; but, at the end of the day, it is only airtime minutes which can be transferred.

However, if airtime becomes widely used and accepted for payments, airminutes effectively become a form of currency: this is more likely in countries with very underdeveloped payments systems but increasing cell phone usage, like Congo. It is not impossible to envisage airtime vendors offering to ‘cash out’ airtime, which they know they can resell. This would happen at a discount to its face value, since the vendor depends on this margin for profit.

However, the currency of mobile payments need not be airtime, with all its limitations. Monetary value can also be transferred from one person or business to another securely and cheaply. This is already offered by several entities, usually closely linked to cell networks. One relevant example is Celpay, which is active in Congo and Zambia today. Originally a subsidiary of cell network Celtel, Celpay was sold recently to South Africa’s First Rand Bank. Its product is supported by a software platform built by SA based Fundamo. Celpay users open and fund special Celpay accounts, linked to existing bank accounts, from which they are able to transfer funds. The transfer is free for payers (although no interest is paid on the float in their Celpay account). However, as with credit card payments, the payee or recipient is charged a fee by Celpay. This works well for payments especially in countries with limited on-line banking infrastructure. Celpay is in use today in Zambia as a secure, effective payment mechanism for remote stores and fuel stations to pay for deliveries of beer and fuel. But it does require that the sender and recipient have Celpay and bank accounts—which may have precluded the Congolese mother in the Economist article from using this method.

Too bad she was not in the Philippines; or rather, that the officials were not clients of Smart, the major Philippine cell phone company. Smart has led the way in providing cell-phone remittances which do not need the sender or recipient to have a bank account. Smart Padala allows any person to enter a Smart agency, even internationally, and hand over funds for transfer to a Smart user in the Philippines. The recipient is notified on her phone that funds are available. To get the cash, she can go to any Smart Padala center, which include McDonald’s branches in the Philippines, where she transfers the value received to that center’s Smart account in exchange.

While more and more banks offer banking options via mobile phone, my own experience of these offerings has been disappointing: hard to get started; slow to access; clunky menus to work through. In short, all the hallmarks of a new technology where neither bank nor telco has quite got it right. Cell phone companies generally disavow a direct interest in providing financial services: their core skill is voice and data messaging, not risk managing, they say.  However, they have several advantages in this new area: powerful consumer brands in many developing countries, where their number of customers often far exceeds the number of banked people, and the ability to integrate and package their services in the convenient manner which has spurred rapid cell phone adoption. At present, joint ventures, such that announced recently between Standard Bank and MTN in South Africa, seem to be the way to get complementarity between banks and telcos. But competition for who really ‘owns’ the customer among such powerful retail brands may make JV’s like these unstable in the long run.

One thing is for sure: person-to-person payments using cell phones will play a major role in the domestic and international remittance market in the future; and probably in financial services more broadly. Here’s hoping that corrupt officials, like those encountered by the Congolese mother, will play much less of a role in the growth of these payments.