Ignacio Mas's blog

The most striking thing about mobile money in Kenya is how visible it is: the proliferation of store signage with M-PESA (and, increasingly, other mobile money and banking logos) leaves no one with any doubt that something big is happening in the Kenyan payment space.

It is estimated that four out of five adult Kenyans have access to a mobile money account. This means that most people that any business touches –whether they are consumers, employees, business partners or retail staff— are connected to a real-time electronic payment network. That’s unprecedented in the developing world.

And yet few formal businesses have a dedicated mobile money account to conduct their financial transactions electronically, and among those who have one most do not appear to promote its use by their customers and suppliers particularly aggressively. Cheques remain the preferred payment mode for suppliers, or cash for smaller payments. M-PESA payments might be taken from customers if they insist and M-PESA might be used to pay field staff in exceptional or emergency situations, but then staff’s personal mobile phones are most likely to be used. Few enterprises have any vision about how they can use mobile money to re-engineer how they do operate, taking cash out of their business. The tidal wave of M-PESA is but a mere ripple for most businesses.

This post is part of our Closing the Gap: Financial Inclusion blog series, which shares the views of selected experts and practitioners on different financial inclusion topics.

The internet did not grow by having established old media companies jumping at the fantastic new opportunities offered by the new medium. For a long time they resisted giving their customers the convenience of immediate online access to their products; they resisted letting their customers tinker with the format (the newspaper, the CD, the TV series) when all they wanted was a component of it (an article, a song, a sketch); they were loathe to trade off lower margins for higher volumes. And when they finally started offering their content digitally, they were more interested in using the new medium to restrict their customers’ options than to enhance their customers’ sense of control: whereas before I could loan a book to a friend under a broad fair use clause, now I can’t easily share my e-book without being made to feel like an e-criminal.

Media companies were too focused on the risk of losing what they had: certain revenue streams and a certain relationship with their customers. It took industry outsiders (Apple iTunes, Amazon) to figure out a commercial path to bring the old players into the new online world.

Why should it be any different with banking for the poor? Why should we expect established banks to see opportunity where they have never seen it before? Why should we expect them to want to disrupt their comfortable business model, attractive margins and well-worn practices – which are what leads them to ignore the majority of the population in developing countries?

It’s fuzzy, it’s trendy, and it’s not even clear how new the whole concept really is. The passions triggered by the new breed of enterprises we now call social may even appear to some almost cultish.

They operate as private enterprises, often with a strong entrepreneurial and innovation culture, but claim to have a broader purpose than just maximizing financial returns for shareholders. They aim to be sustainable (i.e. commercially viable) though they don’t shun grant money from foundations and aid programs to get them started.

Interest in the social enterprise sector will continue to grow because it lies at the confluence of several powerful trends. There are three inter-linked themes: the search for new approaches to the challenges of development, the spirit of technological innovation, and growing global prosperity and integration.

Donors and multilateral development organizations are increasingly emphasizing private sector development as the preferred path to growth. They have seen that promotion of a stable macroeconomic environment and trade liberalization by themselves may not trigger supply-side responses, and that heavy-handed government action through public enterprises and industrial policies are prone to political capture and often result in a checkerboard of local monopolies. There is therefore much interest in policies that make it easier to do business, remove obstacles to external enterprise financing, and develop a pool of skills that can be readily harnessed by a growing entrepreneurial class.

The mobile phone has become a useful tool in tackling the  financial access deficit in many countries. M-PESA in Kenya has shown that adoption curves typical of new information-based technologies (radio,TV, mobiles, internet) can be applied to  financial services. Yet M-PESA-like mobile payment schemes have only scratched the surface of what is possible. The typical mobile money user still uses it only a couple of times a month.

In a recent paper, Colin Mayer of the Saïd Business School at the University of Oxford and I argue that the real power of mobile will come when it is seen not only as a mechanism for reducing access costs but also for building new types of banking experiences. Indeed, the agenda needs to shift from access to use.