How can you run financial services over mobile phones?
As outlined in our 10 Trends for 2014, the mobile device is becoming a gateway to opportunity, helping consumers in emerging markets improve their lives by providing access to financial services, education, health care and more. While researching this trend, we spoke to Chris Locke, then-managing director of Mobile for Development, a division of the GSMA (the global association of mobile operators) that works with the mobile industry to build critical services for underserved people in emerging markets. Locke, who starts a visiting fellowship at UCSD’s Center on Emerging and Pacific Economies in April, talked about how mobile is advancing financial inclusion, driving innovation and improving health care, and some of the implications for marketers.
Tell me a bit about the Mobile for Development initiative.
We’ve been going about nine years now as part of the GSMA trade association for the industry globally, which has mobile operators around the world as members. We do this because mobile phones are probably one of the most significant innovations and developments in the last 15 years. Mobile phones have now reached the base of the [consumer] pyramid and are relatively ubiquitous in lots of countries.
Given that the mobile networks are there, how can you deliver health information? How can phones be used as a diagnostic tool? How can smartphones in the hand of health workers help them provide better service? How can we do the same for agricultural information? How can it be a learning tool that provides access to information, helps you get jobs, etc.? And very importantly, how can you run financial services over mobile phones?
How is mobile technology contributing to financial inclusion?
There are now a significant number of countries that have mobile money services that have reached scale. In Kenya, mPesa is used by 70 percent of the population. Over 30 percent of the country’s GDP is transacted over mobile phones. And that’s possible not just because of technology—actually the technology used in mobile money is incredibly simple. It’s SMS messages that allow you to confirm your intention to give money to someone else by sending codes between people.
What really allows that to be more effective than banks is, in part, that in building out their businesses, mobile operators built out a massive network of airtime sell agents—people selling scratch cards with airtime codes so people can top up their phones. There may only be a couple of hundred bank branches for traditional banks in a [given] country, but a mobile operator may have between 30,000 to 50,000 airtime agents in an average sized African country. And it’s the ability to take those airtime agents and turn them into “cash in, cash out” agents to allow people to send cash back and forward that’s really driving mobile money.
So, it’s not just the technology, it’s actually the marketing and the operations structure, the distribution infrastructure that mobile offers that makes these kind of things happen.
It’s such a phenomenal emerging market innovation. There are far more sophisticated mobile money transactions taking place in emerging markets than there are in a lot of developed markets. [In Nairobi, you can] literally walk up to a shack and buy four bottles of Coke by sending them an SMS. I can’t do that in London.
It’s allowing the move from an unstable cash economy. Turning that network of airtime agents into a formalized money distribution network and then allowing you to send money by just sending your family a text, which they then take to an airtime agent to cash out, has massively reduced the cost, the time and a lot of the fraud and risk in transacting money. It’s very big in East Africa. It’s very big in Pakistan, we’re seeing it grow in Indonesia.
Do you see mobile money driving innovation?
When you get that kind of electronic transfer process in place, you are starting to see completely innovative businesses built on top of that. And in markets where mobile money is very mature, like Kenya, we’ve seen a phenomenal level of innovation. A startup, an entrepreneur, suddenly can build a business and make it sustainable and get paid by using mobile money as a way for people to pay for their services and also build their business out. We’re starting to see a lot of VC and investor activity around Nairobi; we’re seeing people coding for the Android platform.
We have a program where we look at how mobile technology supports water and energy access. We set up a grant process to support entrepreneurs and innovators looking at embedding mobile technology into solar power units, biogas units, water pumps. We’re seeing fascinating innovative models of how you can make what would otherwise be very expensive solar units affordable to people—there’s a wonderful business called mKopa that wanted to address this issue of access to solar power units.
By far the most common way of bringing lighting and heating into an off-grid dwelling in Kenya would be kerosene, and on average people pay around 80 to 90 Kenyan shillings a day for kerosene. It’s polluting, it’s not sustainable, it’s expensive, etc. People should be using solar power units, particularly given that there’s an abundance of sun. But they’re still expensive. mKopa has embedded mobile technology into a solar power unit for the home. You pay a very small deposit, and you walk out with a solar power unit.
Whereas you would have been spending 80 or 90 Kenyan shillings a day on kerosene, what you now do is send roughly that same amount using mPesa, the mobile money platform, from your phone to the solar unit and get access to the power that comes from it. During an average 12 months of usage, you’d also be laying away money to pay for the unit. And suddenly you own a solar power unit for your house and you’ve got free, clean electricity.
Mobile money is driving a lot of these entrepreneurs to look at water and energy access and see how they can use mobile money to effectively build pay-as-you-go models to allow people to access networks that would otherwise be too unstable or too expensive to put into place. We see a phenomenal quality of products, designers and engineers wanting to go into this water and energy space using mobile technology and see how it can solve other problems in emerging markets.
So far there are a lot of services dedicated to delivering information via SMS. What’s the next frontier?
The next big thing will be digital inclusion—the impact of the last 2 billion people on the planet getting access to the Internet. And I expect it will happen at scale at some point in the next two to five years: Access to the Internet will become affordable and will become accessible to people, and that is going to mean a phenomenal amount of change in so many areas, not just in service delivery but also in terms of democracy and governance. More voices will be part of civil society than have ever been there before.
People say emerging markets are responsible for nimble innovation. Is this true?
I don’t necessarily want to contribute to that kind of a narrative, because I think it can be a little bit patronizing sometimes. What really fascinates me is that these countries are going to actually have a far more sophisticated technological infrastructure than we have. There is a huge leapfrogging going on that isn’t about bricolage innovation. You’re building certain services in a place that tragically had very little infrastructure. [There is] an opportunity to actually build 21st century smart infrastructure.
You mentioned using the phone as a diagnostic tool. How are telediagnostics being leveraged in the developing world?
That is going to be a strong trend. I’m interested in how we can make sure there are physical doctors and advisers and people there as well. What I really love is when innovation is really innovation, and it’s sometimes very simple technology and very simple processes where someone just looked at an issue and worked out the simplest way to solve it rather than asking, What is the technology capable of?
In Mali, [Orange] is supporting a really simple program. It’s basically a SIM card that, as users top up their phone, it makes a payment into the maternal health insurance program for them. So when they do get pregnant and have a baby, they can cash out and have a midwife available for the birth. It’s beautifully simple. It doesn’t use any technology beyond what we already have in the mobile network, and it’s an incredibly elegant way to solve the problem of maternal and child mortality and health issues.
That’s a nice example of how can brands get involved. Are most of these types of programs corporate social responsibility efforts?
Most of the work we do is with [companies’] core business, for two reasons. It means services scale: When we work with product owners, CEOs and CFOs, they put the full force of their business behind the services we run. You don’t get [the desirable] level of scale through CSR, you get it by talking to the core business. And mobile operators are interested in this because, [for instance], the rural farmer is a customer, and looking at how you deliver agricultural services to him or what you can do with mobile money to enable him to make payments into an insurance program is not CSR, it’s understanding customer needs and delivering to them. Understanding how you deliver these services to low-income, rural populations is part of your core business strategy, not something which is beside.
In each of our programs there is a partner with a mobile operator. What mobile operators bring to the table is a phenomenal, efficient, low-cost marketing and distribution program. We bring range. Few mobile operators are actually interested in being health care experts, agriculture experts.
If you presume that mobile is probably the only ubiquitous, efficient marketing distribution channel, there is opportunity for adjacent industries. How do you use that to bring your business and your services to customers in those hard-to-reach and rural populations? That’s the partnership opportunity for health care companies, for agricultural firms and for anyone in that space.
How will some of the mobile technologies being developed in emerging markets be retooled for developed markets?
There are 20 million unbanked people in the U.S. Mobile money might be a very efficient way to bring financial inclusion to them. However, models [in emerging markets] work because of the particular situation these countries are in, where there’s very low infrastructure. That’s hard to map back onto developed countries, where there are existing, entrenched systems.
As an example, our forecasts show there will probably be more smart-meter utilities customers in emerging markets by 2017 than there will be in developed markets. It takes a really long time to roll out new technology when there is existing metering technology delivering water and energy to people. In a market like Kenya, Kenya Power moved from scratch cards to offering people mPesa as a way of paying for their electricity, and 70 percent of their customers switched to mPesa within six months. These things grow very fast, and innovation moves very fast.
There’s a certain torpor in developed markets, ironically, because you have to replace infrastructure. And also, critically, you have to replace consumer behavior.
I’ve seen some research showing that people in emerging markets are especially positive toward mobile technology, more open to it in some ways.
The presence and branding of mobile in people’s lives is incredibly strong. The utility of mobile is felt very keenly. That makes people feel very positive towards [mobile] and very positive towards what it can offer people in a way that perhaps isn’t there in the developed market.