The cellphone in the developing world, as in the developed world, has quickly fast-forwarded into a mini PC with Internet and transaction capability. But the social and economic impact is much more dramatic and disruptive in the developing world, where many people have never had phones before, let alone computers or Internet connections or bank accounts.

The cellphone is not only bridging the digital divide, but changing the way people who have never had bank accounts or credit cards deal with money. In Zambia, Coca-Cola distributors text payments to truck drivers, and consumers text payments to gas stations, dry cleaners and other shops. In Rwanda, local craftspeople without electricity or telephone lines needed to take credit cards can take credit card payments through the cellphone. In the Philippines, people buy soap and pizza by phone; in the Philippines and India, villagers receive remittances from overseas by phone. In Bangladesh, villagers check their bank accounts by phone. As a great social leveler, information technology is second only to death.

The key stepping stone to mobile banking is prepaid SIM cards for cellphone subscribers. In places such as the Philippines and Africa, almost everyone is a prepaid subscriber, with rates between 95% to 98%. In Bangladesh, the prepaid rate was initially lower, because GrameenPhone started before prepaid cards were available, but has essentially caught up with other developing regions. Once you have loaded prepaid minutes (”value”) into your phone, no matter how small the amount of time you have purchased, your cellphone becomes your wallet. Before you know it, money’s flowing in and out. For many poor people, the upside is that they are for the first time connected to a banking grid, which over the long term improves their chances for saving and establishing credit and moving from an informal cash culture to a formal credit-and-debit culture.

Mobile banking in developing countries is just the beginning of an expected avalanche of services and applications that collectively will comprise mobile commerce (m-commerce). After voice communications (and texting, in some cultures), connection to financial services is the first big “killer app” for cellphones, initially manifested in three ways:

• cashless transactions, some of which involve banks, some of which involve cell carriers (and increasingly, hybrid bank-cellphone companies);
• the sending and receiving of remittances, a $300 billion business, with superior delivery and reduced transaction costs;
• Retail purchasing and bill paying, both at preselected outlets.

Microfinance institutions, given their symbiotic relationship with cellphone companies in certain countries, are also beginning to experiment with the delivery of microloans through the cellphone, although micro-lending remains a very high-touch business. In general, making financial transactions by sending text messages on a cellphone has been started by people who don’t have much money and who are not connected to banks. Such mobile banking is likely to be the second cellphone application, after prepaid cards, that first takes root in poor countries and then migrates to rich countries.