Update: Part 2 available here.
A friend sent me this article on mobile phone banking about a week ago - it reminded me of a post I intended to do months ago but never got around to. So mobile phone banking was already in my head when I saw Uzodinma Iweala's article, "Stop Trying to 'Save' Africa," in today's Washington Post.
First, since the idea of mobile phone banking probably needs some introduction, I'll go over the story of how I stumbled across the idea.
Last year I did an internship in a government agency (Not CIA or DoD or anything, one of the "boring" ones) in their Iraq section. One of the guys told me "if you have an idea, out with it - when we're dealing with Iraq, any idea is a good idea."
One problem in Iraq that astounded me was that about a quarter of the Iraqi Army was on leave at any given time. The reason behind this was that Iraq had no national financial infrastructure, so Iraqi soldiers had to travel in person back home to deliver their paychecks - bags of cash - to their families. However, Iraq does have a mobile phone infrastructure, which by its nature is difficult to take down by insurgents - it has no obvious systempunkts, because calls can be re-routed fairly easily. So why not use the mobile phone infrastructure for basic financial transactions, such as paying the Iraqi Army? I had the idea in the back of my head after hearing it somewhere, possibly from Ethan Zuckerman's blog.
This is the idea in a nutshell:
1) Iraq has little/no national banking infrastructure
2) Lack of banking infrastructure impedes performance of economy, security forces, etc.
3) Building a brick and mortar banking infrastructure is very difficult in an insecure environment
4) Solution – build a virtual banking system using existing infrastructure (mobile phone infrastructure, SMS technology)
The concept is not new - I did some research and found two fascinating success stories - the Philippines and South Africa. In the Philippines, USAID helped Globe Telecom set up G-Cash, which uses SMS text messages to send virtual cash between phones, redeemable at ATMs and participating businesses. G-Cash competes with Smart mobile, which has their own mobile banking program. In South Africa, the WIZZIT bank links a debit card to a cell phone account, also using SMS text messages to send and receive money. And more banks or cellphone companies are springing up all the time offering similar services, most recently, Kenya's M-Pesa service. This idea has promise.
After a bunch of meetings with people from Commerce, State, Treasury, the Pentagon, etc., my internship ended, and as far as I can tell the idea went nowhere in the US government. There were a lot of little small problems with the idea (like making sure the program would be legal under Iraqi law, setting up monitoring systems to watch for money laundering, Iraqi trust in the system after Saddam abused the banking system, physical security for transfer points between virtual and physical cash, etc.). Given that I was but a lowly intern, in hindsight the idea of using a mobile-phone-based money transfer system for the Iraqi Army's payroll never had much of a chance of success. However, one American company, Security Financial Services, Inc., run by Iraqi emigres, was thinking of setting up the system - it would piggy-back on their AMAN debit card (background) . They installed 3000 debit-card readers at various points of sale, and their debit card went live back in 2006 or early 2007. From their website, it looks like they are linking their debit card to mobile phones, just like WIZZIT bank. Here is their website, and here's the website of their AMAN card.
Check out Ethan Zuckerman's blog for more on mobile phone banking, especially in Africa.
In part 2 of this post, I will link mobile phone banking to Iweala's article in the Post.