One of the big raps against mobile banking is that it will unleash a wave of cross-border terrorism funding and criminal money laundering, because the practice is so unregulated.  It’s a major concern that regulators are beinning to come to grips with.

But what if mobile banking might actually reduce AML and terrorism funding. How m-banking can reduce money laundering (Business Daily, May 27), by Matt Herbert of The Fletcher School, suggests that might be possible:

In the epicenter of global m-banking today(Kenya), the M-Banking 2009: Balancing Regulation and Innovation conference in Nairobi was a landmark event–bringing together bankers, telecoms and Central Bankers to hash out the issues and resolve the tensions between them. The protagonist was/is Safaricom’s  M-PESA money-transfer-by-mobile phone, which has caught bankers flat-footed.

From hotel porters to members of Parliament, everyone is using M-PESA, to send money home to villages, pay bills and tuition–and store money in their phone.  Even in Kibera, the largest slum in Africa with 1 million people living without electicity or sewage, M-PESA is being used by local savings groups to mobilize money.  Some groups have used their meager savings to invest on the stock market–in M-PESA.

Organized largely by students at The Fletcher School (Center for Emerging Markets Enterprises) and co-sponsored by the Kenya School of Monetary Studies, with lead support from Kenya’s Equity Bank, the conference provided a forum for the Central Bank of Kenya to address simmering tensions between the banking community and Safaricom, whose M PESA mobile-money transfer system is spreading like wildfire. With more than 6 million M-PESA accounts, more people in Kenya are transferring money by mobile phone than have bank accounts.

High-level Kenyan dignitaries included the Governnor of the National Bank, the Vice President of Kenya, and the Ministers of Finance and Communications. Attendees included the Central Banks of Uganda, Tanzania, and Rwanda, numerous commerical banks, Safaricom,  and interested parties primarily from Africa and Europe, butalso including World Bank’s CGAP and Bankable Frontiers from the U.S. The presentations and debate were high-level and high-spirited.

The week of the conference,  Business Daily Africa ran a 12-page spread representing numerous points of view; during and after the conference, local TV and print media ran multiple stories.

More updates to follow…I’m going to predict, there’s something happening here.

M-PESA, the extremely popular mobile-banking product offered by mobile carrier Safaricom in Kenya, is being audited by the Central Bank of Kenya.  In December, a cartel of local banks attacked M-PESA as a “Ponzi” scheme and asked the government to investigate.  See the story in allAfrica.com.

M-PESA, launched by Safaricom in 2007 in conjunction with Vodafone, has gotten the attention of bankers because of its quick growth. M-PESA now has 5 million users and 5,000 outlets–compared to 3 million with bank accounts at 750 banks.

Because M-PESA is primarily aimed at the “unbanked” population, the limit on a single transfer is under $500.

Safaricom overall counts 12 million users.

The mobile banking phenomenom is one of the more exciting and unpredictable offshoots of the cell phone revolution in poor countries. People who until very recently had no phones and no bank accounts are now transferring money by phone.

M-banking is most pronounced in the Phillippines, where it started, but it’s heating up in Africa. Vodafone in conjuntion with Safaricom in Kenya recently launched M-PESA (“mobile money” in Swahili), initially with the intention of streamlining microfinance operations by allowing loans dispersal and repayment by cell phones. In three months, the service has attracted 175,000 subscribers, who aresigning up at the rate of 2,500 a day.

Nick Hughes, Vodafone’s head of international payments, told The New York Times (In Poorer Nations, Cellphones Help Open up Microfinancing):

“The idea was to reduce the cost of loan disbursal and recovery, but what we found was that customers were using it for person-to-person transfers.”

Customers don’t need a bank account, but can load money into their phones by paying cash at selected outlets, including grocery stores and gas stations. They then text money (“stored value”) to other cell phones.

The Vodafone/Safaricom m-banking case study is fully detailed in Innovations journal (MIT Press), in the current issue (M-PESA: Mobile Money for the “Unbanked” Turning Cellphones into 24-Hour Tellers in Kenya). The June 28th Economist has a piece on M-PESA called Dial M for Money. And, of course, there Chapter 9 in my book, Cell Phone as Wallet, which tracks the evolution of mobile banking. 

The Times’ article (above) also describes the way new technologies, including fingertip authentication, are being used by microlenders to extend the reach and efficiency of their lending operations.

One of the key messages in You Can Hear Me Now is that cell phones are not only providing untold rural income opportunities that didn’t exist before, but also providing access to financial services for the “unbanked.” This mobile banking revolution is also greasing the skids for remittances from overseas relatives, which now total in the range of $300 billion per year, most of that going to people without bank accounts. In many countries, remittances outpace foreign investment and foreign aid combined.

Cell phones are helping the flow of money by cutting out the middle man, i.e. banks and transaction agencies, such as Western Union. In some cases, people in the West are sending money directly to the phones of relatives in poor, rural areas; in other cases, the money goes to a bank or money store. Smart Communications and Globe Telecom in the Phillipines have been at the forefront of this particular revolution.

Look for this money flow to explode over the next decade. The GSM Assosiation, along with 19 mobile cellphone operators and MasterCard International, has embarked on a pilot to engage local banks as payment centers. GSM expects that this could increase the flow of remittances from $300 million to $1 trillion over the next decade.

Smart Communications, for example,  plans to launch several pilot projects in collaboration with mobile phone operators and banks in Bahrain, Italy and other countries hosting large Filipino migrant populations. In Bahrain, Smart will work in partnership with MTC Vodafone Bahrain and a leading bank in the Middle East.

“Aside from lowering costs, we shall provide Filipinos overseas greater control over the manner in which their remittances are transmitted and used back home — enabling them to send funds in the amounts of their choice, whenever they want, wherever they are,” said Napoleon L. Nazareno, Smart President and CEO.

As the book rolls off the press and nears publication date (Feb. 2), an early proof has garnered early reviews.

Library Journal (no access without subscription):

“This book offers valuable insights about the use of cell phones and technology-based investments to generate wealth and demonstrates that entrepreneurship may be more fruitful than aid. This valuable work can be effectively integrated into public administration, global business, and human resource academic courses.”

Caroline Geck, Kean Univ. Lib., Union, NJ

Next Billion.net (by Rob Katz)

“…This a history of sorts, about how Iqbal Quadir came to launch GrameenPhone.  Sullivan doesn’t claim to offer new or different strategies to engage BOP [bottom of the pyramid] markets; he simply sets out to tell the tale of an expat Bengali and his innovative phone company.  You Can Hear Me Now is well-written and very engaging, as the author enjoyed good access to some of the stories’ major players.  A smart manager can learn from GrameenPhone without being led by the hand, and Sullivan’s storytelling and analysis open up the case in a way that we haven’t before seen.  The book’s out next month; in the mean time, check out his blog.”

World Bank: Private Sector Development blog (by Christine Bowers)

“…the first half of this book tells the GrameenPhone story, the second is a grab-bag of other technology initiatives, including many players in the m-banking world. If the Nobel Prize win peaked your interest in all things Grameen, buy a copy when it comes out next month. In general, I’m not too sure that a book is the best format for telling these stories – hard to give substantive coverage to a field that moves so quickly in time. Fortunately, Nick also has a blog.”

Thanks to all for their interest and attention.

That’s 1,321 Philippine pesos, sent from London to Manila via cell phone, as described in New Conductors Speed Global Flows of Money from The Washington Post.

It’s no secret that remittances sent home by foreign workers eclipse both foreign direct investment (FDI) and foreign aid in many countries. In the Philippines, for example, remittances equal nearly 16% of total GDP. In India, nearly $23 billion is sent home from overseas, but just 3% of GDP.

Those numbers are going to increase, thanks to the cell phone, which is facilitating the process and speed of transactions, and dramatically lowering costs. Overall, anywhere from $250 to $300 billion in remittances are sent each year, with bank costs and fraud eating up 20-30% of the money. People in 17 countries can now send money to the Philippines by cellphone.

From a 2006 editorial in Dhaka’s The Independent, as quoted in You Can Hear Me Now:

“Further rapid increase in the use of cell phones is a good indicator of social progress. The fact that these phones are also being used widely by rural people is a happy trend in the reduction of distance in urban-rural communication.”

Yet another in what is becoming a steady stream of articles on mobile banking in developing countries: Phoney finance in the Oct. 28 issue of The Economist (requires subscription). This article focuses on South Africa, where 500,000 people now use their mobiles as a bank. Again, the upside is huge: 16 million South Africans, over half the adult population, still have no bank account. And 30% of them have mobile phones.

What amazes me about this phenomenon is that people who until recently never owned phones or had bank accounts, are now transferring money by phone.

As in Bangladesh and elsewhere, the rise of a valuable new service is creating thousands of rural income opportunties. One non-bank provider of financial services, Wizzit, hired 2,000 unemployed young Wizzkids to bring in new customers.

Other mobile banking operations in South Africa in clude MTN Banking and Celpay, which started as a subsidiary of Celtel but is now owned by First National Bank. In the Philippines, where mobile banking started, Globe Telecom and Smart Communications have both developed highly evolved services.