Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Friday, January 06, 2012

Servicing the Unbanked

Does the mobile "cash" wallet popular across Africa make sense for the North American market?


This is Part 1 in a two-part series exploring the opportunity to service the large unbanked and underbanked population in North America through innovative new banking services. Part 1 discusses the “mobile wallet,” and explores the applicability of this service offered in Zambia and other countries to the North American market.

With approximately 60 million people unbanked (or underbanked) in North America, Africa has become a technology poster child for wireless carriers, retailers, and financial institutions that are trying to de-risk banking for the poor. But can mobile business models and banking solutions from Africa be transferred to main-street North America?



Not if the banks have any say. As one banking colleague explained to me, “There is often a reason why the underbanked are underbanked.” For the financial institutions, it requires a considerable amount of effort to reach and service this population without a robust business case.








Related: Microfinance Goes Public




The touted Google mobile wallet requires an out-of-the-gate formal banking relationship that the unbanked obviously do not have. Is there an opportunity to provide a viable light-banking footprint that services the cash needs of the poorer communities by leveraging their mobile phones? And can the African model prove a worthwhile business case for North America?

These questions are particularly interesting for me, as I was born in a small mining town in central Africa called Kitwe. I remember opening my first bank account at the Buteko Branch of the Standard Chartered Bank in Zambia. For the small minority of citizens who had bank accounts, banking was a cumbersome process. Account holders needed to line up for hours simply to get their bank statements.

Most Zambians, however, do not have bank accounts. The currency that ties Zambians together is not their cowhide wallets, but, more universally, their airtime accounts. Over one-third of the population owns a mobile phone.

With the ubiquity of mobile phones in Zambia and other countries in the region, services such as M-PESA and Xapit have made certain financial services accessible and fluid, and have dramatically dropped transaction costs. They have been successful because they do not focus on mobilizing traditional banking services (like the bank-balance management we see in mobile applications on our Androids and iPhones), but rather on providing the unbanked with new types of mobile-cash services, such as:

  • Peer-to-peer money transfers
  • Airtime top-ups
  • The ability to make bill payments
  • Retail micro-transactions

We know that smartphones are becoming the wallet of choice for the unbanked in the region. The GSM Association says that by 2012, nearly 300 million of the previously unbanked in Africa will be using some form of mobile banking.

So how does this apply to North America?

Some may be surprised to find out that approximately eight per cent of U.S. households (17 million people) are currently unbanked, and that another approximately 18 per cent of U.S. households (a further 43 million people) are underbanked, relying on pawn brokers, loan sharks, etc. According to the 2009 Federal Deposit Insurance Corporation (FDIC) survey that reports these figures, roughly 60 million Americans need to use cash to pay bills. A report by the Annie E. Casey Foundation suggests that this demographic is young, minority, poorly educated, and extremely low-income. It further suggests that four out of five of these families make less than $25,000 a year, and two out of five have annual incomes of less than $10,000.




Related: Health Care Goes Mobile




Not only is it hard to believe that a family in North America can subsist on $10,000 per year, but, ironically, there is an additional cost to being this poor – a hidden “poverty tax.” The fees this underserviced group pays on borrowing money, cashing cheques, and paying bills are inordinately high. A cheque-casher can demand five per cent or more of each meager paycheque (five per cent of $25,000 is $1,250 per annum). Consider, too, the added penalty of the time that it takes to physically walk around town to pay for utilities or phone bills. Mobile wallets could reduce these fees and save valuable time, as many of these low-income Americans already use mobile phones.

But are the mobile wallets in Africa transferrable to North America? As I argue in my book The Impulse Economy, foreign mobile-wallet models cannot be imported wholesale. There are different environmental factors globally that determine whether it makes sense for a domestic market. Let’s look at two African mobile wallets:

  1. WIZZIT was developed in partnership with a major bank in South Africa, and provides standard banking services: bank balances, bank statements, etc. This wallet has not been widely successful, as it is not servicing the needs of the existing unbanked community.
  2. M-PESA was not launched by a bank. It was an initiative started by the mobile network operator Safaricom (in conjunction with Vodafone), and it has been extremely successful, as it displaced Kenyans’ standard practice of carrying and paying with cash.

These brief examples demonstrate that a mobile wallet does not necessarily need to involve a bank. What the North American market requires is a cash-focused, light-banking wallet that services the real needs of the unbanked.

In the second part of this series, I will discuss which stakeholders are in a position to capitalize on this opportunity to service the unbanked through a mobile wallet, and will explore what benefits the new services will provide for the unbanked.

Original Article
Source: the Mark 

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