If you're seriously interested in mobile technology and what it could mean for financial inclusion and the fight against poverty, you are crazy not to be reading and following Ignacio Mas. When I recently checked in for an update on his work since publication of The End of Money, he dashed off this sobering and seriously smart missive. Techno-utopians, brace yourselves.

Hi David

I wish I could give you an upbeat follow-up, but I don't think I can, at least for emerging markets. After the developing world took the lead on mobile payments on the back of the spectacular growth of M-PESA in Kenya and the ridiculously large number of copycats that popped up seemingly everywhere, I think the action is now firmly back in the developed world, particularly the US. That's because mobile payments there are at the intersection of two ballooning trends: the spread of smartphones, which let third parties develop good customer experiences affordably and in a telco-independent way, and the sweeping belief in Big Data analytics. The Big Data craze has led many people to believe that payments embody a treasure-trove of actionable customer information, and a battle of the titans is brewing. It's not banks vs. telcos as it was a few years ago, but Google vs. Amazon vs. Facebook vs. Visa (part owner of Square).

In emerging markets, there has been precious little service innovation on mobile money. Most of the schemes we see are still struggling to put some legs on a basic M-PESA-like service based on remote payments and/or bill payments. That isn't generating enough volume of transactions to sustain the service in most countries. I would say it's still only a handful of countries where mobile money has legs, which is to say has gained critical mass to sustain the big ecosystem it requires. (Tanzania and Uganda are top of mind; Bangladesh and Pakistan to some extent, but I tend to discount them because the majority of payments are for cash over the counter, akin to Western Union, rather than account-based; Somalia and Zimbabwe are supposed to be experiencing substantial growth in mobile money, but I haven't been there, and I tend to discount all stories of success until I've seen evidence with mine own eyes.)

To garner many more transactions, there is now a lot of attention on electronic payment for goods at stores. This will mean underwhelming results for some time to come. M-PESA-like services are still too expensive and too fiddly or time consuming to be convenient at everyday shops where poor people live. More fundamental still, people will not have an inherent preference for paying electronically for their daily stuff as long as their money is not held electronically. The problem, or a problem, is that not many people are taken by the store-of-value function of mobile money. One of my recent mantras is "you can't go cash-lite on empty accounts." 

The prevailing implicit assumption is that people don't save money electronically. Or worse, they immediately withdraw whatever electronic money they receive because of a lack of financial literacy. That is an incredibly facile and incorrect assumption. People don't want to keep any money in their mobile money wallet for exactly the same reason they don't want to keep many banknotes in their wallet: It's hard to hang onto that money. What they do instead is separate out their money in jars, or in various savings instruments, based on how they plan to spend the money. As long as mobile money fails to deliver a convenient form of money separation with enough self-discipline nudges and hooks, it will not serve a useful store-of-value function for consumers. And without store-of-value there will be limited use of mobile money as a means of payment.

You'll recall that my deferred payments idea --being able to send money to yourself on some future date--was one early example of how we might achieve this digital earmarking simply and intuitively. While most people I've talked to in the business like the idea, I have not been able to get anyone--bank, telco or third party-- to try it. They are all too busy sorting out their basic operational issues and copying each others' services to have any energy left for innovation.

To put it kindly, we are going through a 'consolidation' phase where mobile money providers are ironing out their programs, learning how to mitigate fraud, and digging in for the long run.
Over in the world of banking, meanwhile, zzzz. I know only a few banks in this big world of ours that are pursuing agency banking (getting closer to people by letting them do basic things like cash in/out at local shops) with any sense of urgency. The only exception seems to be in Kenya.

Ignacio

Posted
AuthorDavid Wolman