World’s unbanked turn to cellphones for money services

• The mobile phone will in 10 years be the tool of choice for the world’s 2.7 billion unbanked people
• Most consumers will use their phone as a key financial tool, but they will not abandon financial institutions,
• Across Africa, Latin America and Asia, the number of people who do not have accounts but have phones will rise from 1 billion today to 1.7 billion by 2012.

The mobile phone will in 10 years be the tool of choice for the world’s 2.7 billion unbanked people, a new study says.

More than two billion people who have no bank accounts will be using it for simple financial transactions, says the survey by CGAP, a microfinance group based at the World Bank, and the UK’s Department for International Development (DfID).

“The fact that many of the 2.7 billion people who currently don’t use a bank will have access to branchless banking methods such as mobile phones and the internet by 2020 is a huge step towards financial inclusion for people in developing countries,” said UK Minister for Trade and Development Gareth Thomas.

In the next ten years, most consumers will use their mobile phone as a key financial tool, but they will not completely abandon financial institutions, the research, contained in a report entitled “Scenarios for Branchless Banking in 2020,” reveals.

However, CGAP says the next 10 years will herald unprecedented change in the financial industry as it moves away towards branchless banking accessible through devices such as the mobile phone and the internet.

Already, existing market forces have compelled local banks to start positioning themselves to take advantage of the coming changes by launching mobile banking products aimed at a more youthful, technology savvy consumer.

Kenyan banks started warming up to the mobile banking model after they saw the success telecommunication operators enjoyed when they started offering money transfer services.

In just two years, Safaricom’s M-Pesa and Zain’s Zap, now allow 20 per cent of the country to access rudimentary financial services through their mobile phones — an achievement the 100 year old financial industry is yet to see.

But CGAP researchers note that while growing use of mobile phone banking is inevitable, it is less certain whether large numbers of the unbanked poor will use these alternative channels for financial services beyond payments, such as savings and credit.

“Mobile banking pioneers give us hope that millions of poor people, especially those living in rural areas, finally might be served by the banking system. That said, new business models and partnerships that provide the right incentives to banks and banking agents are vital if we are to move beyond simple payments and transfers to... basic banking services, especially savings, that poor people need and want,” said Elizabeth Littlefield, the chief executive of CGAP.

The report details two major forces that will shape the financial sector in the future.

First, a greater number of younger consumers coming into the market and greater mobility within countries will create a favourable environment for the adoption of branchless banking.

Second, the advent of Internet browsing via mobile phones will reduce costs of financial transactions and enable new players to offer financial services.

Market opportunity

CGAP and GSM Association researchers have found that across Africa, Latin America and Asia, the number of people who do not have a bank account but have a mobile phone is set to grow from one billion today to 1.7 billion by 2012.