Mobile money aids the unbanked

By Catherine
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By Catherine Bolgar*

Mobile money

Imagine paying at a shop by sending a text message from your phone. Or sending money to your child at university in another city with an SMS. Or getting a small loan via your phone.

This futuristic vision of mobile money has been promised ever since mobile phones took off in the 1990s. In most of the developed world, mobile banking means using a phone to do the same kinds of transactions—checking a balance, transferring funds—one would do on a desktop computer. Mobile money hasn’t found footing.

In Kenya and some other developing countries, however, mobile money is widely accepted. The World Bank estimates 2.5 billion people in the world are “unbanked”—without access to formal bank accounts. Mobile money programs offer a bridge toward financial inclusion, not just in developing countries but also for unbanked people such as the poor or immigrants in the West.

In Africa, where people were trying to transfer money from urban to rural areas or across borders, they had to rely on really insecure methods like giving the money to a bus driver to deliver,” says Janine Aron, economics professor at the University of Oxford in the U.K. and author of “‘Leapfrogging’: A Survey of the Nature and Implications of Mobile Money.” “In the West we have secure methods like credit cards, payment cards. People are suspicious of the security of mobile methods.” But in Africa, the mobile methods are more secure than the alternatives.

In Kenya, the biggest mobile phone operator, Safaricom, offers a service called M-Pesa—pesa is Swahili for money. Since its launch in March 2007, M-Pesa has reached 18 million active users among Kenya’s 43 million population.

In poor countries that rely heavily on cash, these services are likely to take off,” Dr. Aron says. Vodafone, which developed M-Pesa with Safaricom, took the mobile money program in March to Romania, after launching it in India last year.

In 2001, there was only one mobile money service for the unbanked, she says. By 2007, there were 11, including M-Pesa. Last year, there were 219, with the biggest growth in Africa.

Mobile money

M-Pesa takes advantage of Safaricom’s dense network of 45,000 agents who sell mobile phone airtime. People go into the Safaricom kiosk to top off their SIM cards. “My SIM card becomes my bank,” explains Sunil Gupta, business professor at Harvard University in Cambridge, Massachusetts. The Safaricom agents thus act as bank tellers handling cash, taking deposits and paying out withdrawals. The kiosks are open early and close late for maximum convenience.

Kenya has two commercial bank branches and about four automated teller machines per 1,000 square kilometers; high-income countries have an average of 28 branches and nearly 75 ATMs per 1,000 square kilometers, according to the World Bank.

The whole service has really helped compensate for the lack of infrastructure,” says David Albertazzi, senior analyst at Aite Group, a market research consultancy in Boston, Massachusetts. “The lack of infrastructure let mobile devices become that infrastructure.”

In addition, Kenyans mostly are using older models of mobile phones. That made the M-Pesa approach different from the fancy user interfaces and responsive Web design that vendors in high-income countries are developing for smart phones and tablets. “In the rest of the world, I don’t care how it looks—I just want to conduct transactions and I want it to be ubiquitous,” Mr. Albertazzi says.

The system continues to evolve. In December 2012, Safaricom partnered with Commercial Bank of Africa to launch M-Shwari, a service with a savings account that bears interest—important in a country with inflation topping 6%—and 30-day loans that can be applied for via SMS. The program is open to M-Pesa users who have had an account for at least six months. Algorithms analyze the customer’s transactions on M-Pesa to substitute for what in the U.S. would be a credit score. M-Shwari already has 2.4 million active users and has collected the equivalent of $21 million.

“It’s tremendously enabling,” Dr. Aron says. “It has reduced transaction costs and reduced risk.”

In the absence of credit information about people who don’t have bank accounts, banks have been reluctant to give loans. The lack of access to credit is a key culprit in Africa’s economic stagnancy—people can’t start small businesses because they don’t have enough savings (in cash) upfront; small businesses can’t get loans to expand. M-Shwari begins to address that situation by making small loans accessible—not only in terms of openness to a population who previously couldn’t get loans through a bank but also in terms of ease of use—a simple SMS.

However, only Kenya, Tanzania, Ghana and the Philippines have mobile financial services adoption rates above 10%, according to the World Economic Forum. Adoption of mobile financial services remains under 1% in some very populous countries, including India, Pakistan, Nigeria and Brazil.

The world’s poor have long been ignored, not just by banks but also by companies and governments, because the cost of reaching them was so huge, Dr. Gupta says, “That’s the next battle to win, for banks and the rest of the private sector.”

*For more from Catherine, contributors from the Economist Intelligence Unit along with industry experts, join The Future Realities discussion.

Can Technology Transform the Investment Management Industry?

By Rachel
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Since 2008, technology has levelled the playing field. The sell side has access to the buy side, lenders are replacing banks that are more capital constrained and we’ve even seen changes in the peer-to-peer lending arena, with new online financial lending/ crowd funding communities sprouting up. Financial institutions are embracing digital technology and driving disruptive innovation. This has lowered the cost of access and changed the financial services landscape, providing easier access to capital, expertise and distribution. By embracing digital technology, from end-to-end product management, cloud computing, data management, mobile and even social media, financial institutions are better able to compete in an increasingly global, complex and regulated market place. They are also better placed to improve the customer experience of increasingly, discerning, digitally savvy customers and shareholders.

Financial services institutions are however, challenged to streamline operations and improve efficiencies to meet profound regulatory and infrastructure changes (eg the Dodd Frank Act, EMIR, Target 2 Securities and CSDR). Many institutions, in particular securities services firms active in clearing and asset servicing, still rely on manual processing, especially in non-transactional domains such as product development and management. The biggest securities services providers span multiple continents, making it a requisite to service clients not only across time zones but with local nuances in regulation and market practice, all of which are subject to change. Some say, due to these types of challenges, the only way forward, is for all participants to embrace technological innovation in order to for the Investment Management Industry to survive.

Philippe Ruault, Head of Clearing and Settlement at BNP Paribas Securities Services comments,

Philippe Ruault, BNP Paribas Securities ServicesIt is no surprise that innovation has become a key differentiator in our industry. Being the first to market with new products and solutions is often the difference between success and failure.

We have found a wealth of value in comparing the way we handle the complexities of the financial services industry with similar methods in, for example aerospace and industrial processes.” Ruault continues, “Take for example the design of an A380 Airbus which combines millions of components and 100,000 processes, integrates new technologies, and meets very high security constraints and so on. A surprising value can be found in applying similar innovation techniques to product development in both processes.”

This is why Dassault Systèmes, the 3DEXPERIENCE company, with a history of over 30 years of industry know-how in product life cycle management, collaboration and social intelligence applications has moved into Financial Services.

Kevin Pleiter, Dassault SystèmesBy combining the power of our 3DEXPERIENCE business platform with finance-industry best practices, we are empowering innovation and enabling financial institutions to replace many ad hoc, manual methods with automated processes,”

says Kevin Pleiter, Global Head of Financial Services, Dassault Systèmes.

Innovation is not only about generating new ideas, but efficiently converting ideas into marketable outcomes and services. It’s also about managing product initiatives and product portfolios in correlation with an overall business strategy.

Dassault Systèmes believes the time is right for it to help drive innovation in Financial Services, and specifically, in the Investment Management Industry. While some institutions have made a real effort to ingrain innovation into their corporate culture and taken encouraging steps, Dassault Systèmes believes it can bring value to the Industry by leveraging successes and innovation associated with product lifecycle management tools used in industries such as transportation, industrial equipment and consumer goods which are often as complex, as global and as regulated environments as financial services. Its solutions

As Professor Amin Rajan, CEO CREATE- Research stated in his 2013 asset management market study, “Future innovation success requires a rebalance: great emphasis is needed in the industry on skills and processes, coupled with client engagement” have helped businesses like Johnson & Johnson and Boeing increase digitization, drive collaboration globally and regionally and increase corporate memory. This has resulted in eliminating silos across teams, increased operational efficiencies, improved governance and automated operations and faster time to market. The knock on value means freeing up time for innovative thinking while reducing costs, improving organisational transparency and governance which also better places the organisation to meet regulatory requirements. This is why BNP Paribas Securities Services has partnered with Dassault Systèmes to implement Innovation Factory, designed to help organisations maximize efficiencies and empower innovation. The solution will be the catalyst for collaboration and innovation to help BNP Paribas accelerate time to market of innovative customer-centric solutions and strenghten their ability to meet regulatory changes.

Figure below shows that while directing the innovation effort at meeting client needs, asset managers need to strike a balance between two opposing forces:

  • Product push – where product success mainly rests on the prevailing market sentiment and deft marketing (southwest box)
  • Product pull – where success rests mainly on knowing the client’s needs and the quality of skills and processes aimed at meeting them (north east box). Since 2008 and the extreme market volatility, product push has exceeded product. According to Professor Rajan, when markets have headed south, many investors have left the money on the table and gone after the next fad. On asset managers’ part, the innovation disciplines needed to promote product pull are taking time to embed into the corporate culture.

Current approaches to current innovation lack balance - click to enlarge

Click on the picture to enlarge. Source: CREATE-Research Upping the Innovation Game in a Winner Takes All World, 2013

Dassault Systèmes is also spearheading innovation in Financial Services through its technology challenge, 3D FinTech Challenge.  In its second year, and currently focused on business problems in the Investment Management industry, the Challenge specifically looks at how to empower the investment customer through technology innovation. The 7 week programme brings together entrepreneurial, young FinTech businesses with experienced industry mentors and domain experts.  It showcases how technology innovation has the revolutionary potential to increase operational efficiencies and transform the entire investment journey for all stakeholders.

By embracing technology, the investment industry has the potential to build respect and trust where it has for too long, been broken.  By delivering diversity and personalization to an increasingly demanding customer base, technology will improve the customer experience. And by leveraging the full potential of technological innovation, we can help to demystify the art of investment, enabling the end customer to be master of their own financial destiny.

Sibos 2014 Boston


To find out more, join Dassault Systemes and BNP Paribas Securities Services at Sibos 2014 on Thursday 2nd October at 10.45-11.15, Open Theatre 2.


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