Mobile money – A cash replacement?

In the 1920s, fuel stations, hotel chains and restaurants began offering their customers charge cards so that they would not have to carry cash with them at all times. With this action the breezy remark, “charge it” was born. By the 1960s, Diners Club, American Express and Bank of America had built empires on the credit card boom. Businesses had no choice but to accept credit cards in order to survive. Consumers would get irritated when they encountered a business that only took cash and businesses were wary of this fact. The age of the computer saw an exponential increase in the number of credit card users. By the 1980s, credit cards were a way of life.

Fast forward to the first decade of the 21st century and there is a new type of cashless craze in vogue. Mobile money, as the term suggests, is money you “carry around” in a mobile phone. The way it works is that a mobile telecoms provider would create electronic accounts for each mobile line. Customers then load their accounts with cash at designated agents. Agents are usually prequalified by the telecoms provider in order to ensure they meet pre-set criteria in terms of capital and financial management expertise. The agent would receive actual cash from the customer and then proceed to load virtual money into the customer’s digital cell phone “bank” account. The cell phone owner has access to statements and account balances via an interface on the phone. Once cash is loaded, the customer can make payments to any business or individual that accepts virtual money. Notifications of payment are effected using short message service (SMS) technology. Once a recipient receives virtual money via SMS, they can retain it in their virtual account, use it to make payments, transfer to their bank account and generally perform any other action that the telecoms provider allows.

Mobile money transfers originated in the Philippines around 2005. However, the concept was refined and fully developed in Kenya by Vodafone UK Plc. Safaricom, a Vodafone subsidiary developed the concept in early 2007 and dubbed it M-Pesa.  “M” for mobile and “Pesa” is the Swahili word for money. The platform is currently the most developed mobile banking system in the world. It is a branchless banking system since clients are able to complete transactions without having to visit the bank. In Kenya, M-Pesa has just about replaced cash. Once a client has loaded virtual money into their cell phone, they can pay for a wide range of goods and services running the gamut from supermarket groceries to rent. Businesses can even pay salaries using M-Pesa. M-Pesa has now spread the whole of East Africa and is being replicated around the world from Johannesburg to Kolkata.

In Africa and Asia, Mobile Banking systems have become popular for a number of reasons. The main reason is of course convenience. However, there is also the fact that the large majority of the population in Africa does not have access to formal banking systems. Mobile money, therefore, fills this void. The big question now appears to be whether the success on the African continent can be replicated in North America and Europe, two traditional cashless economies.