Let us in

IN 2007 Safaricom, the biggest mobile operator in Kenya, launched M-PESA, a service that allows money to be sent and received using mobile phones. It has since signed up 15m users, is used by 70% of the adult population and has become central to the economy: around 25% of Kenya’s GNP flows through it.

Similar schemes have had some success elsewhere. More than 120 mobile operators now offer mobile-money services of various kinds, and another 90 will soon join them. There has been a particular push in east Africa. Yet in many poor countries where mobile money should be flourishing, it isn’t.

A bank in your pocket

Mobile-money services are especially useful in developing countries. A worker in the city can send money to his family in the village without having to waste a day travelling on a rickety bus. Indeed, he can pay his family’s household bills directly from his phone. It is safer too: nobody wants to carry wads of currency on public transport.

Mobile money also gives its users—many of whom are poor and have no access to banks—a way to save small amounts of money. A World Bank report found that M-PESA users are a third more likely to have some savings than their peers. Mobile transactions are more traceable than cash, making it harder for corrupt officials to embezzle undetected. And lately Kenya has discovered a further benefit: the success of M-PESA has provided the foundation for a group of start-ups in Nairobi that are building new products and services on top of it (see article).

However Kenya’s success has yet to be replicated much elsewhere. More than half of all the world’s mobile-money transactions are handled by Safaricom. Mobile money is popular in one or two chaotic countries, such as Sudan and Somalia, but barely used in most places where it could do immense good, including India and China.

Not all countries need mobile money, of course. Rich countries, with cash machines, credit cards and internet banking, have little use for it. And among developing countries, not all have Kenya’s specific mix of circumstances. Safaricom had a dominant market share when it launched M-PESA, giving the service a large base of potential customers. But there is also a bad reason why mobile money has failed to spread. In Kenya the government took the enlightened approach of allowing M-PESA to go ahead, rather than tying Safaricom in red tape. Many of the poor countries that would most benefit from mobile money seem intent on keeping its suppliers out—mainly by insisting they should be regulated like banks.

This is often a mixture of laziness and turf protection: if the president’s cousin owns the country’s main bank, he may not rush to let cheap mobile-money systems into his country. Nobody disputes the idea that financial transactions need to be monitored. But there is also, equally clearly, a rather big difference between a cheap money-transfer system like M-PESA and a full lending bank like Citicorp.

The security worries are usually fairly easily dealt with. Placing a limit on the size of transactions and the total balance that can be stored reduces the risk of mobile money being used to launder cash. Accordingly, there is no need to apply the strict “know your customer” rules required in banking. Most of what a government needs to know is to be found in the mobile-phone contract every customer signs.

Another concern is consumer protection: dodgy operators could filch cash. One compromise, which has been adopted in several African countries, is to get operators to form partnerships with banks. An alternative, tried in the Philippines, is to let mobile operators run their services unhindered, provided regulators are given unfettered access behind the scenes.

Indeed, rather than fighting mobile money, governments should use it themselves. Afghanistan pays policemen and other officials their wages using the local version of M-PESA. Tanzania accepts tax payments by mobile-money services. They can also be used to deliver welfare or aid payments. Other countries should watch and learn.