While 2014 is closing out with worldwide cyber-threats, at BuckleySandler, we’re going to close out our first year publishingDigital Insights & Trends on an optimistic note. Looking forward, we welcome a mobile payments development that could be cause for cyber-celebration in 2015 and the years to follow.
As financial services lawyers, we usually navigate the regulatory concerns of e-commerce providers in the financial sector for a clientele of banks, other financial institutions and technology companies. But we are keenly aware that access to financial services is vital even for those without access to traditional banks. This reality, referred to as the “unbanked” problem, has preoccupied financial service providers (and consumer advocates, and policymakers) for decades. Mobile payment technology may be the solution.
About 8% of American consumers are “unbanked,” and a third are “under-banked.” Internationally, as many as 2.5 billion may be unbanked, according to the GSMA, a mobile services association of primarily European participants. Other studies suggest about 40% of the world’s population is unbanked or under-banked. In Pakistan, a country with 140 million mobile phone subscribers but only 37 million bank account holders, the un- and under-banked population may be as high as 89%. In Haiti, banks lend money to less than one percent of the population, but 85% of Haitian households have access to mobile phones.
The barriers to financial inclusion in poor countries are many, but in a word, traditional banking services may be just too expensive for widespread adoption. Enter mobile financial services via cellphone. Scholars, governments, and philanthropists are joining forces to see if mobile payments can solve the problem of financial exclusion. Encouraging research is emerging from organizations like the Grameen Foundation and the Institute for Money, Technology and Financial Inclusion.
Even among the poor, mobile phones are becoming ubiquitous. Rapid-fire development of payment, transfer, and credit technologies is turning all those mobile phones into instruments of finance. While some claim that the digital divide has never been greater, other voices persuasively argue that digital technology furthers financial inclusion. A mobile phone in a poor rural area in Bolivia has even been called “hand-held wealth.” With groundbreaking work being done on prospects for the mobile financial sector, we’re inclined to side with the optimists.
Consider how mobile phone technology has helped the rural poor. According to one study of fishermen in south India, prices for the catch were higher when sellers used mobile phones to communicate among themselves, and called back to shore to arrange an auctioneer to sell the catch as soon as it landed. With cell phones, ice could be ordered as and where needed to protect the highly perishable commodity in transit to its destination. Emergency response and rescue calls on mobile phones also contributed to the survival (and consequent economic well-being) of fishermen who might have otherwise been lost in rough seas or when their fuel ran out.
Mobile payments also help avoid the problem of theft of currency and tangible valuables. International money transmission contributes to the support of millions. Even those far from population centers benefit from mobile financial services, because for them, the time and travel costs to reach traditional branch offices can be prohibitive. Even where cellphone connectivity is limited, financial service providers can schedule periodic visits by representatives who download stored smartphone (offline) transaction data for later synchronization. For the most desperate, such as victims of natural disasters, mobile banking technology is an efficient way to deliver aid. Government and humanitarian organizations have distributed relief payments through cellphones, including in Haiti, after its 2010 earthquake.
Mobile banking benefits financial providers, too. Studies in Brazil found that introduction of alternative banking systems increased the number of financial transactions and greatlydecreased the cost per transaction (as compared to transactions conducted through a teller). Happily, the increased transactions reflected growth in savings and deposits, not just withdrawals.
Ironically, for both the financially marginalized and the financially sophisticated, the barriers to adoption of mobile money technologies are similar. First, users must overcome resistance to changing their behaviors and habits. Migrant workers may entrust their wages to labor bosses for safekeeping because they’re accustomed to doing so (and have been trained to do so), in much the same way an American consumer automatically swipes a debit card at a POS terminal to buy lunch. Then there is interoperability, which is necessary for widespread adoption, because users need to know that merchants, governments and other vendors will accept their mobile payments. (Developing partnerships among mobile network operators, financial institutions and merchants is part of the interoperability challenge.) The third potential obstacle is training, because mobile banking and payment technologies won’t be adopted if users cannot use them. (Trust in the technologies is a complex aspect of the acceptance and training element, further complicated by cultural norms.) A final challenge, circling back to BuckleySandler’s digital/e-commerce/mobile technology practice, isregulatory uncertainty. As systems are built and users prepare to adopt them, a regulatory environment will emerge and evolve. The regulatory process is neither swift nor smooth and its consequences can be unpredictable, in terms of costs and operations.
Despite these challenges, there is near-consensus that financial and economic welfare can be enhanced for populations at all income levels, with corresponding benefits for digital/e-commerce industry participants, through the 24/7 power of mobile phones. By any measure, achievement of that goal would be a huge win/win, well worth celebrating in the new year.