Beyond M-Banking: Adding New Meaning to "Smart Phone"

Mobile banking is revolutionizing microfinance. In oversimplified terms: millions of economically-vulnerable and otherwise financially-excluded people around the world are now able to manage their scarce resources, through payment and transfer services in large part, via m-banking. Clients are no longer thwarted by lack of access to brick and mortar branches and banks benefit from the lower transaction costs associated with the same. Both factors combine to facilitate participation on a large scale.

While that may be useful background for some, it’s actually not news: the usefulness of mobile phone technology to spur global development has been well-documented in recent years.   What’s new is that m-banking is quickly evolving into much more than a basic bank account in your pocket.

For instance, The US Government is now experimenting with mobile phone technology to distribute aid. Because of the infrastructure devastation caused by the earthquake in Haiti, many banks, ATMs, and financial service providers were destroyed, making financial transactions and aid delivery extremely difficult. Encouraged by the success of m-banking practices in Kenya and elsewhere, USAID is collaborating with the Bill and Melinda Gates foundation on a $10 million initiative to subsidize banks offering mobile banking services. Instead of operating exclusively in cash, Haitians will be able to receive aid and payment delivery from friends, relatives, NGOs, businesses, and the central government through their mobile phones, a more efficient and safer process for all parties. 

Additionally, mobile phones are now being used by micro-entrepreneurs for managing small businesses. Smartphone technology and new phone applications now allow business owners to perform many key operations functions, such as taking inventory through scanning capabilities, bill payment, and other accounting services. The phone eliminates the need to purchase a computer to manage a micro- enterprise.

Microinsurance companies are also leveraging m-banking to provide services to low-income clients. Similar to the business case for m-banking, managing microinsurance accounts via a mobile phone reduces costs, but also facilitates payments. It seems to be working in Kenya where nearly 10,000 farmers are now using mobile phones to scan additionally-taxed supplies and fertilizer, serving as premiums, which are sent to a database. If local weather stations report excessive drought or flood conditions, the insurance company sends payment directly to the farmer’s account, accessible through their phone.

While the excitement around m-banking is still largely linked to its ability to accelerate financial inclusion, these innovations indicate that there is potential to do much more to create asset building opportunities for the poor.