WITH smartphones taking the world by storm, a phone that can only send and receive voice calls and text messages may seem like a relic from a bygone age. Yet in East Africa, simple phones like these are changing the face of the economy, thanks to the “mobile money” services that are spreading across the region.
Using the text-messaging capability built into the GSM system used by most cellphone networks, these services allow people without a bank account or credit card to use their phone as an electronic wallet that can be used to store, send or receive cash.
Around the world, some 2.5 billion people lack access to banking services, according to the New York-based , a consortium of university economics researchers. But a billion of these people have a cellphone, and for them mobile money is an attractive option.
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It works like this: you pay cash to your local agent – often at the nearest corner shop, if you live in a city – who then tops up your mobile money account using a secure form of SMS text messaging. That money can be transferred to another person by sending an SMS to their cellphone account. People without mobile money accounts can receive payments in the form of a text code which can be forwarded to their local agent, who exchanges it for cash.
The system relies on what is known as the unstructured supplementary service data (USSD) system that is built into the GSM cellphone network. It is USSD that allows pay-as-you-go customers to find out their credit balance, for example.
To access the mobile money service, users have to enter a number and password into the phone, so any money that is stored on it should be secure even if the handset is lost. The system is not, however, foolproof and weaknesses in the GSM standard could, in theory at least, give thieves a way in (see “Your insecure cellphone”).
One of mobile money’s pioneers is the system, operated by the Kenyan cellphone network Safaricom. “Pesa” is Swahili for money. M-Pesa is now used by around 8 million Kenyans to pay for anything from school fees to grocery bills. It was joined last year by Zap, a mobile money service run by Safaricom’s main rival, .
There are tens of thousands of local agents in Kenya and the commission they charge for transferring cash into or out of the system is usually less than that imposed by banks or credit cards.
For some the system is a lifeline. “If I didn’t have my mobile phone, I would be very poor,” says Neyasse Neemur, a widowed mother of four children who lives in the Turkana district of northern Kenya. “Now I can sell fish.”
Neemur took up fishing in July last year, but benefiting from it was a little tricky, especially as Turkana people do not usually eat fish. So she needed to dry her catch and sell it elsewhere. A truck en route from Ethiopia to Tanzania passes through her village once a week, and she arranged to have the driver transport the fish several hundred kilometres south to market in Kisumu, where relatives sell the fish.
“I get the money transfer immediately,” says Neemur. “Then I can pay for my children to go to school and for beans or maize. And I have bought two goats,” she adds, “so I don’t need to eat fish.”
Mobile money also presents an opportunity for millions to save securely for the first time. Storing cash leaves people open to theft, says Arthur Goldstuck of technology analyst group in Pinegowrie, South Africa. “People are able to save and so they have a means to start planning for the long term.”
According to the Central Bank of Kenya, payments worth around 1 billion Kenyan shillings ($13 million) per day were transferred through Kenya’s mobile money systems in 2009, equalling the country’s credit card transactions. The bank expects mobile money transfers to overtake credit cards in 2010.
“In Kenya, mobile money transfers are expected to exceed credit card transactions this year”
Operators across Africa and beyond, in countries that include Afghanistan and the Philippines, are developing their own services. Meanwhile, M-Pesa agents have been appointed in the UK, allowing expatriate Kenyans to send money to family back home. Safaricom plans to extend the cross-border service to the US and to Kenya’s neighbours this year.
Banks are keen not to miss out, and the Equity Bank based in Nairobi in Kenya, Standard Bank of Johannesburg in South Africa, and Housing Finance also of Nairobi, have all announced mobile money tie-ins. Equity, for example, has struck a deal to enable M-Pesa users to withdraw cash from its ATMs. The users generate a one-time authorisation code using M-Pesa on their phone, which is then entered at an ATM, together with their phone number and the amount they wish to withdraw.
Mobile money could also have a future in richer nations, though it faces competition from the established network of ATMs, bank branches and internet banking. “I see mobile banking as a key way that people will bank in five years’ time,” says Christopher Brearley, who investigates innovative banking technologies at the UK-based bank HSBC. “There is the potential for small transactions and person-to-person payments to move through the kind of mobile banking systems we see in East Africa.”
Whether mobile money takes off in the US and Europe remains to be seen: in these areas contactless payment cards are already being promoted as an alternative to cash. But for millions of people in poorer countries who are not being courted as customers for the latest bank-card gimmicks, mobile money is proving a life-changing technology that is lifting people out of poverty.
Your insecure cellphone
Security holes in the GSM cellphone system risk dashing confidence in mobile money-transfer systems.
At the conference in Annapolis, Maryland, next week, computer scientist Michael Paik of New York University will outline possible consequences arising from the fact that hackers have found ways into the 20-year-old GSM system, which forms the basis of the cellphone networks in many nations.
Because richer parts of the world are moving on to 3G networks and beyond, holes in GSM (2G) security are not being plugged, Paik says. One “crack” allows an attacker’s phone to pose as another – a practice known as spoofing. And there are also ways for an attacker to discover a phone’s encryption method and change it to a more easily cracked one.
Paik warns that a successful attack in the developing world could sour “both world and local opinion” on mobile money. He suggests banks now work to shore up security on the GSM system.
Paul Marks
