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Phoney Finance

Economist News Wire (
Thu, 26 Oct 2006 13:48:04 -0500

From The Economist print edition

Most South Africans do not have bank accounts. But most do have mobile

LIFE is now easier for Andile Mbatha, who owns a hair salon in Soweto.
Gone are his days of trekking to his bank, which could take two hours
by minibus, to send money to relatives. Nor does he keep piles of cash
in his salon any more. Last year, he opened a bank account with
Wizzit, an innovative provider of financial services. He now sends
money to his sister in Cape Town whenever he wants, from wherever he
wants, using a simple menu on his mobile phone. Half his customers no
longer pay cash for their haircuts. They use their phones to move
money from their accounts to his, in a few seconds. This has taken
out a lot of stress, says Mr Mbatha.

About half a million South Africans now use their mobile phones as a
bank. Besides sending money to relatives and paying for goods, they
can check balances, buy mobile airtime and settle utility
bills. Traditional banks offer mobile banking as an added service to
existing customers, most of whom are quite well off. But Wizzit, and
to some extent First National Bank (FNB) and MTN Banking (a joint
venture between Standard Bank and a mobile-phone network), are chasing
another market: the 16m South Africans, over half of the adult
population, with no bank account. Significantly, 30% of these people
do have mobile phones. Wizzit hired and trained over 2,000 unemployed
people, known as Wizzkids, to drum up business. It worked: eight out
of ten Wizzit customers previously had no bank account and had never
used an ATM.

Mobile banking is just one example of a wider phenomenon in South
Africa. With its odd mix of advanced capitalism and developing-world
economics, the country is successfully luring people who hitherto
dealt only in cash or barter to the world of formal finance. A
simplified kind of account called Mzansi was launched in 2004 to reach
the unbanked, and portable banks and ATMs have been rolled out in
townships and in the countryside. To this fast-changing scene,
mobile-phone banking looks to be a promising addition. Millions of
South Africans send money to their relatives in other parts of the
country. And most of these sums, which add up to about 12 billion rand
($1.5 billion) each year, still move informally.

South Africa is not the first place to use mobile-phone banking:
countries such as Japan, South Korea and the Philippines have had it
for a while. But the potential is probably bigger in the developing
world, and in countries in which migrants remit money to their
families in relatively poor homelands. In Greece, a European Union
member that is now awash with migrant labour, Albanians or Bulgarians
often send money home by putting crumpled banknotes in the hands of a
trusted compatriot, who takes a cut. If they could do it all by
pressing buttons, they would.

In most of Africa, meanwhile, only a fraction of people have bank
accounts -- but there is huge demand for cheap and convenient ways to
send money and buy prepaid services such as airtime. Many Africans,
having skipped landlines and jumped to mobiles, already use prepaid
airtime as a way of transferring money.

They could now leap from a world of cash to cellular banking. In
Kenya, a pilot scheme called M-Pesa is being used to disburse and pay
micro-loans by phone. Meanwhile Celpay, which FNB bought last year
from Celtel, a mobile-phone company, is offering platforms for banks
and phone companies in Zambia and Congo. In countries like Somalia,
with chaotic conditions at home and a huge diaspora, cash transfers by
phone would be a boon.

For banks, persuading people not to use branches for simple
transactions such as balance enquiries or transfers should reduce
operating costs. So far, they charge the same for mobile as for
traditional banking, though Wizzit says its services are at least a
third cheaper than those of a traditional bank.

But drawing the unbanked into the joys of cell-finance isn't always
easy. Many think banking too expensive and complicated, and helping
new customers become financially literate takes time. The technology
remains clunky in some cases, with downloads requiring dozens of text
messages. Several rival platforms are still in the fight, but so far
those that emphasise simplicity and ease-of-use over state-of-the-art
technology and security have made the greatest strides. A lot also
hangs on putting in place the right laws and regulations. They need to
be tight enough to protect vulnerable users and discourage money
laundering, but open enough to allow innovative mobile banking to

If the transfer of money by mobile phone between countries as well as
within them takes off, it could have implications far beyond the
salons of Soweto. In 2005, according to the United Nations, global
migrants remitted $232 billion, of which up to 20% was lost on the
way, mostly in bank charges or fraud. If cellular transfers could
slash that figure, mobile banking would prove to be a good call.

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