Mobile payments could save millions of unbanked people around the world

At a time of unprecedented economic hardship, we need to experiment with new ideas. Parvez Jasani writes that one of those is unleashing the power of our telecoms infrastructure to bring financial inclusion to those individuals who desperately need it.

In the world's most developed economies, some 25 per cent of the population are either unbanked or under banked, i.e. cut off from the financial system or not able to fully benefit from the existing banking system. The financial exclusion crisis of the under banked perpetuates racial and social divides. Banks are not willing to solve this, but mobile phones can. Almost everyone in developed countries has a mobile phone, which requires top-ups. If we allow people to pay for goods and services with this cell phone credit, their phones can become de facto bank accounts.

Unbanked or under banked people are more likely to turn to risky and predatory lenders that charge sky-high fees. Such debts can leave people living paycheck to paycheck, or worse, force them to turn to crime to keep up with their payment schedule.

Yet, it doesn't have to be this way. Even many homeless people have mobile phones. The cash they use to top up these phones is an untapped resource for delivering financial inclusion to those portions of the population who desperately need it.

Why are so many individuals unbanked in the first place? 49 per cent of unbanked Americans say they do not have enough money to open an account, and 44 per cent cite a lack of trust in banking institutions – the responsibility for this lies with banks. 95 per cent of those same individuals are making micro-purchases of phone credit for their phones, suggesting that a phone network is more accessible or trustworthy than a bank for some people. The broader financial system can and should be piggybacking on this by allowing phone credit to be used as a 'currency' to pay for rent, bills, or even food in a pandemic-stricken, cash-shy economy.

The process could be quite simple; an individual could send a one-off, PIN-activated message to their payee, who can then use the code to receive the funds. Many charities have used this process: The American Red Cross, for example, was able to use SMS payments to raise $29 million in donations for Haiti in fifteen days. The technology is clearly workable when large organizations wish to use it. Why not make the same technology accessible for under banked individuals to run their daily financial affairs too?

It is developing economies, where perhaps it is not taboo to acknowledge the issue of the under banked, that are leading here – for example, Kenya – and industrialized nations should learn from them. The Kenyan start-up M-Pesa has 18.2 million subscribers in a country of 43.2 million. The company allows for the transfer of funds by allowing users to use airtime directly for paying bills, goods and services through cell phones, and has improved the lives of millions of Kenyans.

I understand that there may be concerns surrounding identity and the anonymous transfer of funds that could facilitate increased criminal activity. However, we have to remember the target market that we have in mind; these would not be people who have access to vast sums of capital; it is for those who need to make small payments for groceries, bills and medical supplies. A simple upper limit for transfer amounts could protect against these potential issues.

Tax authorities or anti-money laundering regulations do not raise any questions about a transfer of funds of under $1,000. Why couldn't the same process be used for the transfer of funds through phone credit?

The predatory high-interest rates offered by loan sharks and payday loans inevitably lead to the general degradation of the socially marginalized. The simple use of low-cost mobile phones fund transfers could break that cycle and include many millions of individuals in the economy and ultimately – once their phone 'credit history' is established – in loans and other financial products. This could be transformational at both the individual and collective level.

Our financial system and economy work on the assumption that everyone has access to a bank account; this is very far from being true. The more people remain unbanked, the more economic growth is lost and the more social problems they fall victim to.