Mobile Banking for the Unbanked

Harvard Business School recently published a case about providing mobile banking services in the third world. In developing countries, many people have cell phones; fewer have relationships with a bank. The case profiles two companies that tried to offer mobile banking services to this population. One was a bank, the other a cell phone provider.

The bank group, WIZZIT, entered the South African mobile banking market in 2004, when they realized that the cell phone penetration rate exceeded 100 percent (driven in large part by the use of prepaid phone plans). However, more than half of South Africa’s population had no access to a bank account, largely because they lived below the poverty line and banks had not been eager to service a moneyless customer base. WIZZIT’s founders thought there was a noble and viable business model in bringing banking to the poor, via a mobile banking platform that could be used on even the most primitive cell phone.

Despite good intentions, WIZZIT was not successful. It had not turned a profit, even after five years. While regulatory hurdles were partially to blame, the main problem came because WIZZIT failed to recognize the true needs of their target customers. They took a service resembling American mobile banking – depositing salaries in banks and using mobile payments to draw down the balance. The problem was that this was not the way poor people think of money. They have hardly any savings. Their main need is money transfer.

The cell phone group, M-PESA, followed a different approach in Kenya. In many developing countries, most of the population lives in rural areas, but the majority of both bank branches and jobs are in cities. To send money home to their village, city workers had to seal their wages in an envelope and pay a courier to travel to the remote village. Under the system designed by M-PESA, franchises were provided to thousands of mom and pop convenience stores. Customers who want to send money home visit one of these franchises, hand the franchise agent the money they want to transfer, plus a modest transfer fee (about 40 cents). Through a computerized process secured by multiple passwords and PINs, the agent transfers the payment to the SIM card on the customer’s phone. Rather than the old system of hiring a courier, the customer now simply hits “SEND” and transfers the money to the phone of a family member back in the village. The family member goes to a franchise agent in the village, with the phone, and redeems the cash.

M-PESA was successful where WIZZIT was not, because it understood, and met, the customer’s real need.


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