In many parts of the developing world, mobile payments are changing the lives of millions of the world’s poorest people.

Living without a bank account is a reality for about 2.5 billion of the world’s adults, according to research by global mobile phone association GSMA. These staggering numbers have created an unexpected upside. In a growing number of countries and regions, including Kenya, Somaliland, Bangladesh and Afghanistan, mobile payments and branchless banks have taken off in just a few years, making cash increasingly obsolete.
For countries with vast rural populations, the nearest bank or ATM can be hours or even days away. But more than 1 billion people who lack traditional financial services have access to a mobile phone. However, with lower regulatory hurdles and huge demand for a better way to protect, exchange and invest money, these countries are set to leapfrog wealthy nations when it comes to technology-driven financial solutions.
If only Google Wallet or Apple Pay could achieve in their target markets the penetration mobile money service M-PESA now boasts in Kenya, where you can buy nearly everything with your mobile phone. In 2013, 43 per cent of Kenya’s GDP flowed through M-PESA, made up of  more than 237 million person-to-person transactions. A report last year in The Atlantic found adults living in sub-Saharan Africa were three times more likely than those in Europe or the Americas to use mobile money.
M-PESA was developed by Vodafone and Safaricom and launched in Kenya in 2007 with support from Kenya’s Central Bank. It grew quickly. Users can use text messages to deposit and withdraw money, pay bills and even access microcredit. Tens of thousands of agents around the country – typically shop or business owners – act as tellers for this sprawling virtual bank.
So ubiquitous is M-PESA that a start-up ecosystem has emerged as a result, offering a growing range of financial products, including payment of insurance premiums, moving money into interest-earning accounts, and accessing loans. A 2009 study found the incomes of rural users rose 5 to 30 per cent, thanks to cheaper transactions, saved transportation costs and because city relatives were able to send money home more often.
Similar services have since emerged around the world in rapid succession, with about 255 mobile money services operating in 89 countries, according to 2014 research by GSMA. However there is still enormous potential. M-PESA stores and transfers only relatively small amounts of money and can’t substitute for a formal bank account. Others are stepping in to fill this need.
South African company Tyme, which the Commonwealth Bank of Australia (CBA) acquired this year for $40 million, has created a branchless bank where, in two minutes, roaming agents with hardly any training can use a highly intuitive tablet app to open fully compliant bank accounts for customers.
With access to South Africa’s Department of Home Affairs’ National Identification System and biometrics, the Tyme app can instantly verify a customer. The agent then hands over a bank card and the customer leaves with a fully active account. CBA plans to use the technology to expand in developing markets in Asia where mobile phones are more prevalent than bank accounts.
Mobile banking certainly isn’t a silver bullet to end poverty around the world. Only 4 per cent or 100 million of the developing world’s 2.5 billion unbanked people use mobile money, according to the World Bank, and a quarter of these are Kenyans. Mobile money services pushing to expand in countries such as India, Nigeria and Brazil have faced an uphill battle.
Regulation frequently gets in the way, sometimes for good reason. Many governments are more wary than Kenya’s to allow a quick and easy way to launder dirty money. In fact, it wasn’t until 2011 that Kenya legislated capital requirements for mobile banking, and regulators tolerated a system largely without deposit insurance.
Still, there are many parts to this unfolding good-news story. Canada-based think tank the Digital Finance Institute is piloting a project to use blockchain technology to create a bank for refugees. It could be only a matter of time before a similar service gains traction in the US where traditional banks are increasingly abandoning low-income customers, which is increasing the number of unbanked Americans.
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