Monthly Archives: January 2015

Mobile Payment Systems and Latin America

In many eyes, technological innovation flows in only one direction: Developed World to Developing World. Although people generally accept that countries like India, China, and Russia have robust technological sectors, the impression held by many is that the major centers of innovation are in developed countries-the United States being the Prime with its Silicon Valley technological gurus turning the world on its head with their latest gizmo or concept-and developing countries are simply technology consumers happy to sit back and let others innovate. Unfortunately, this perception belies some really exciting technological developments that have taken place in the Developing World, and one of them, M-Pesa out of Kenya, is rivaling many Tech companies in the West with its its disruption of traditional methods of doing things and its huge acceptance rate and reach, two concepts that keep your average Silicon Valley-type awake at night as they brainstorm over the next ‘big thing’.

For those that aren’t familiar with M-Pesa, Fiona Graham of BBC News did a nice write-up of it in 2010 which can be found here. Briefly, M-Pena sprung out of a joint venture between Vodaphone and Safaricom, a Kenyan telecom of which Vodaphone was a minority shareholder, in 2008. Originally, M-Pesa was envisioned as a system by which mobile phone users could handle microfinance loan repayment. Rather than rely on centralized banks to handle the fund transfers, mobile phone users, most of which did not have bank accounts, could transfer money through the M-Pesa system to a recipient easily; all one had to do was visit an M-Pesa outlet, “load money into the phone”, and send it along. However, what the developers did not envision was that adopters of M-Pesa would begin using the system to pay for just about anything they could think of. Its security, ease of use, and the ubiquity of mobile phone users in Kenya, created an environment in which microtransactions,-say, buying a newspaper from the local newsstand or paying for a taxi ride-could occur without having to carry physical money around all the time, something which many Kenyans without bank accounts worry about doing for fear of theft. After an explosion of adopters in Kenya in 2010-roughly 50% of the population was on the service-M-Pesa spread like wildfire to the rest of the African Continent over the next 4 years, and it has made inroads in to Afghanistan, India, and Eastern Europe. It is because of another unintended “feature” that I feel that mobile payment systems like M-Pesa are thriving: Remittances.

According to the Pew Research Center’s Hispanic Trends Project, the Unites States remitted $53.8 Billion in 2013 to Latin American countries (as of this writing, 2014 figures are not in yet, though 2013 continued a trend of increasing remittance levels that had dropped substantially during the Global Recession of 2008). The countries that received the bulk of remittances were in countries that closely bordered the United States – Mexico, Guatemala, and El Salvador – the only exception being Colombia. Together, El Salvador, Guatemala, and Mexico, received roughly $31 Billion in remitted money, and, according to Manuel Orozco’s report, Future Trends in Remittances to Latin America and the Caribbean, these countries are still behind South American countries in terms of population access to central banks and their branches. Mobile payment systems that follow M-Pesa’s model are making an impact on how immigrants overseas send money back to their families. As for governments, they are benefiting from revenue collection from something they never had the ability to effectively track before, thus pumping much needed money into social programs, infrastructure, and improvements to other general conditions in the home country.

What began as an experiment in a developing country has brought a sea change in the way people do business with each other. Those that always have their ears to the ground awaiting the next technological advance or innovation would be wise to not shut their ears to the sounds emmanating from Developing Nations.