The Rise of a Cashless Society
When running a business, there is one primary motive: profit. Imagine running a resource intensive business in one of the least developed regions in the world. You have no infrastructure to provide your services, there is an absence of a solid foundation in consumer market, lack of manpower, and weak governments. But you still need to make a profit, so what do you do? You turn to innovation: corporate innovation, which benefits you, your consumers, and the society in general. Vodacom and Safaricom launched M-Pesa in Kenya in 2007. M, for money and ‘Pesa,’ the Swahili word for money, were quite literally combined together to usher Africa into a new age of opportunity and financial development. The ground realities of Kenya were not encouraging for the banking industry. Only one billion people in the world have traditional bank accounts and an even smaller number uses banks for money transfer and transactions. The ratio is even lower in Africa, where banks lack the operational resources to open bank accounts in sparsely populated regions with poor transport networks and infrastructure. Traditional banking models were never successful in Kenya. In contrast, mobile phones have penetrated African markets on an astronomical scale. A basic mobile phone costs anything from five to ten dollars in most sub-Saharan African countries, serving as a cheap alternative to the expensive and limited landline phone service. Add cheap service offered by mobile phone networks, and Kenyans had found themselves a bargain. With this, the banking industry found had a cheap and strong infrastructure that they could exploit.  This was the backdrop for the arrival of M-Pesa, which thus used ubiquitous mobile phone access to provide citizens with a cheap way to access money and make transactions 24 hours a day. The model is quite simple: customers can buy credit in the form of scratch cards from any local convenience store and add that to their account. They can send this money from one person to another through a simple phone call or text message for a very small fee. Similarly, utility bills can be paid using a basic mobile phone as can payment for more general goods and services. The process is fast – it only takes a few seconds for the confirmation of a transaction, ensuring the long-term viability of the concept. Government can also pay salaries and provide benefits through the mobile phone, without the need for any complicated systems. This virtual money can be converted at any convenience store where a balance transfer can be paid out to the consumer in cash. M-Pesa started off as a novelty item, used by a select few for aesthetic purposes only. In 2012, it had grown to include more consumers in Kenya than the number of people with Facebook accounts. The reason behind the success is low overhead costs for the financial sector and for the consumer. The consumer needs a basic cell phone and a cheap, inexpensive SIM card while the financial sector does not need to open actual banking locations and hire trained employees. In contrast with the concept of mobile banking in Europe and North America, here there is no need to have an app for mobile transactions or the need to buy an expensive smartphone and have a mobile internet connection. It’s a simple GPRS connection, which is now available in 90% of Kenya. Instead of analyzing it from the business’ perspective, let’s think about its overarching effects on consumers. These people have never had access to a financial institution and are often too poor to move from one place to another. A chunk of Kenya's population is in serious debt and liable to fall into poverty traps. The only hope for the consumers to get some sort of financial autonomy and responsibility is through these simple mobile accounts. It takes away the hassle of having to go to banking locations far from home and connects people to the service through an already popular network. 80 percent of Kenyans had no access to any formal financial service before this introduction to mobile banking, but the percentage is going down very quickly, courtesy of M-Pesa. Another interesting factor about the Kenyan market was the domestic migration associated with it. Significant portions of urban populations live away from their families and move to the cities to gain access to higher paying jobs in order to support their families. These people are among those most benefited by mobile banking technology. There is a rising appeal to shift to non-conventional mobile banking options to transfer funds quickly and conveniently. Soon after the M-Pesa revolution, Western Union jumped into the race. Western Union, a firm that facilitates the transfer of money internationally, partnered with local finance institutions to facilitate international money transfers using mobile banking accounts. Developing countries rely heavily on remittances from expatriates working in other countries. For many families in the developing world, remittances continue to be the main form of income for the household. Today, Kenyans can send and receive money using Western Union Digital to and from over 45 countries across the world in a matter of minutes. Compare this effortless method of money transfer to the tedious process of opening a foreign currency bank account in a major banking location to receive a telegraphic transfer, which can often take up to a week to be processed, and the differences in ease between the two are clear. Particularly in less developed areas, such as Kenya, the advent of mobile-based banking is aiding governments in catching and regulating financial operations between individuals. Illicit money transfer has started to decrease since the arrival of mobile banking. Hundi or hawalla is a money laundering method to send and receive money through agents between two countries. Hawalla has also been known to funnel money into terrorist organizations and support rebels in Africa and Asia. At the same time however, this method is being used harmlessly to send remittances to developing countries to people who do not have access to a formal banking service. With weak states and governments, it was always very difficult to combat such money laundering means effectively. Mobile banking goes a long way in the progress towards mitigating the effects of hawalla. Legal users of hawalla are more likely to use mobile banking money transfer options now, leaving governments in a better position to combat illegal money transfer from a particular country. Critics argue that mobile banking can never be as good as conventional banking and citizens do not have access to the full range of services that a bank can offer when he or she is using a mobile banking service. However, companies have also started to offer insurance policies, microfinance options, and special saving accounts to better manage finance over the phone. Simple text messages allow customers to learn about these policies and choose what they feel is the best for them. Having said that, there is still no form of credit worthiness, investment opportunities, or interest based saving accounts that are available in conventional banking system in America. The fact, however, is that such criticism ignores the more basic needs of the majority of mobile banking's users.  These are people who save less than ten dollars a month, and thus do not need access to an investment bank or a hedge fund – all they want is a safe and secure means of receiving and sending money to cover their basic needs. One factor not yet mentioned is the partnership of some financial institutions with the Bill and Melinda Gates Foundation to spread this technology to all parts of sub-Saharan Africa. Mobile banking should be a lesson for business in aligning the profit motive with the with what would benefit society as a whole. In today’s world, the only way to do that is through corporate innovation and smart decision-making. Businesses need to assess the nature, size and limitations of markets and then tailor their products to fit the uniqueness of the market. Failing to do so reduces profit and customer satisfaction, and fails to exploit the potential of society to reach maximum welfare. The rise in mobile banking allegorizes the importance of business in a society. Business is not necessarily corrupt and detrimental to the overall welfare of the society. Such innovations show the social responsibility among companies and how this social cooperation can go hand in hand with the profit motive that all businesses strive for. The growth of the mobile phone industry and mobile banking has been encouraging so far. The trend has spread from Kenya to most countries in sub-Saharan Africa and is now being introduced in Asia. In Bangladesh, Dutch Bangla Bank Limited has incorporated mobile banking into the standard banking model to tailor their services to fit the Bangladeshi market demand. Creative innovation will help us escape the quagmire of businesses clashing with other parts of society on unfriendly practices and led to more efficiency in our world. We can only hope that this trend shall continue, with companies making an effort to align their needs with those of society at large.

  • Richard

    I agree. A wise businessman in the Caribbean named Sir Kyffin Simpson always said that the key to success is progression and humility, and clearly he’s done very well for himself as a self made man!

  • John Andrews

    The Airgain IPO launches this week, and they’re a one-brand company.

    Some investors don’t think it’s a good stock though:

    http://seekingalpha.com/article/3997291-risky-signals-antenna-maker-airgain-launches-ipo

  • Cincinnati World Cinema

    Well said, Joe, and worth rereading on a regular basis! Another advantage of small-to-midsize city living is pace and competition. Living in NYC, LA and SF entailed a hectic pace, hallmarked by capital S striving, as one realized there were a ton of others doing what I do. Spending so much time in one’s car in SoCal meant much less time for quality pursuits and pleasures. A smaller pond with relaxed pace allows one to savor life and special moments.


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