The Internet and Mobile Money – Scenarios for 2020

6 months + 200 technology and finance leaders from 30 countries = four scenarios of branchless banking for poor people in 2020.

In 2009, CGAP and DFID talked with over 200 technology and finance leaders from 30 countries to determine how branchless banking, including mobile banking, might look in the year 2020. The work culminated in the CGAP/DFID Branchless Banking Scenarios 2020 Focus Note. A video discussion with the authors and some of the leaders in mobile and branchless banking was held in Washington in December; you can watch the archived video here. To help frame the scenarios process, we identified four forces and four uncertainties that are shaping the industry.

Force 4. Internet browsing via mobile phones will change the competitive landscape.

We have taken for granted that the rollout of mobile communications will continue, albeit at a declining pace as even low-income markets become saturated. It is likely that there will be few people outside the reach of wireless communications by 2020, and few who do not have connectivity to wireless communications in some form. Indeed, the lack of reliable and affordable energy sources is today increasingly a greater constraint on development in poor and remote areas than is communications. Devices like mobile phones, which require less energy than PCs and ATMs and which can be recharged by windup or solar power, are an increasingly important part of any rollout of branchless channels to off-grid areas.

This much seems obvious. So we have chosen instead to highlight a different force, which is yet not fully recognized by all of today’s branchless banking providers. Today’s successful payment services in developing countries have been built using certain mobile-specific channels that even basic handsets could support.

However, over the next 10 years, the spread of affordable data-enabled phones in developing countries will increasingly enable consumers to have direct access to the Internet. This is made possible by a dramatic fall in the price of mobile devices with basic Internet browsing and falling prices of data services, which are also available on a prepaid basis. Such “enhanced” phones are increasingly the basic handsets of tomorrow. They already make up half of all phones shipped to emerging markets in 2009. Faster speeds and falling prices of both data-enabled handsets and data-over- mobile networks will mean greater usage of data channels on these phones, effectively making Internet access via mobile pervasive in many developing countries during the next decade.

Few branchless banking services have been offered over mobile Internet in developing countries (yet), but social networking content is already driving uptake among segments such as youth. In South Africa, the mobile instant messaging service MXit has attracted more than 13 million users who send more than 250 million messages per day (in a country of 47 million) (Vecchiatto 2009 and Lombard 2009). Hardware barriers to Internet access are also decreasing.

Microsoft recently announced OneApp, an application that enables phones with slow processors and low memory to surf the Web like more powerful handsets. Users will be able to access a dozen sites initially, like Facebook and Twitter. In August 2009, Nokia announced its intention to provide widespread mobile payment services as part of its desire to promote pervasive Internet that “connects people” (Young 2009). In short, there is much work being done today to make Internet over mobile more widely available in developing countries.

What does this force mean for branchless banking? First, Web interfaces will improve the user experience compared to today’s services running over USSD or SMS bearer channels, which typically require customers to input alphanumeric sequences or navigate relatively unsophisticated menus. Improved usability could make branchless banking more accessible to a wider swathe of low-income consumers, for example by enabling more icon-based menus for low-literacy clients. Also, as Internet use expands in general, consumers will become more comfortable with using their handset for increasingly sophisticated purposes, which should also bolster adoption of electronic channels for financial services.

Second, access to the Internet will enable providers to offer solutions that do not depend on the security solutions offered using the chip (SIM card) in the phone. Applications resident on the SIM card can provide end-to-end security for messages but require the cooperation of the MNO. While there is some debate whether java applications can provide similar levels of security to applications resident on the SIM card, they are likely to provide higher security than today’s USSD and SMS-based services. This will reduce barriers to entry for new players who are not MNOs—whether banks or others. The growth of the mobile Internet may cause a boom in a new generation of branchless banking providers, raising substantial questions about risks to consumers, as well as the future shape of the competitive landscape.

-Mark Pickens, David Porteous, and Sarah Rotman