1 The Opportunity of M-banking to Popularize Payment Services David Porteous "Exploring Frontiers in Payments Systems" Washington DC 31 May 2007

2 Contents 1.The Opportunity 2.The Hype 3.The Reality 4.The Opportunity re-examined

3 1. The m-banking proposition 97% % banked % mobile phone penetration Finland 50% 100% 20% 10%50% 100% 10% Sources: Numbers: % Banked Honohan 2007; % m-penetration: ITU; WireIess Intelligence 4:2002, 4: bn cell phone users vs. +/-1.6bn bank account holders globally >50% of world’s population within wireless coverage (2005) South Africa Philippines Kenya

4 2. The hype? “Mobile phone banking takes off” World Bank PSD Blog, 2006 “NFC spells plastic card decline” GFG Report, New Zealand, 2006 “Mobiles begin calling the shots on banking and payments” The Banker, 1 Feb 2007 “GSMA links with Mastercard in global pilot” Mobile Payments World, February 2007 “Cell phones bring banks to the poor” Business Day, South Africa, 19 March 2007

5 3. The reality

6 Source: ITU 2004/ WI 2007 The mobile adoption S-curve

7 No of users 1 Current reality: m-payments 432

8 Target group: ‘unbanked’ with mobile Source: FinScope 2006; FinAccess 2006 % of adults; numbers are in m 8% adults use an ATM card; 21% have transferred airtime

9 Transformational m-banking models in developing world Philippines –SmartMoney (Smart): (2.4m) –G-Cash (GXI): (0.5m) South Africa: ( users 2006) - MTN Mobile Banking: Wizzit: Kenya: M-Pesa (Vodafone): 2005 pilot started March 2007: National rollout

10 4. The opportunity reconsidered How fast is realistic? 2007: +5 years 4m Philippinos/10% of m subscribers have a m-wallet Sources: US: Paying with Plastic (2005); other: company reports 2002: +50 years 84% US households have a payment card

11 Country take-up potential is a function of: Mobile/ internet access ratio –MICs e.g. Philippines 7:1; Japan 1.5:1 Existing retail payment infrastructure –How pervasively is plastic accepted? Tech ‘savvi-ness’ of population –SMS vs menu driven Regulation –Openness vs certainty of regimes

12 Potential for take-up of m-banking High Fin infra- structu re Medium Low MediumHigh % banked

13 Potential for take-up of m-banking High Developed Niche payment platforms PayPal mobile Fin infra- structu re Medium Low MediumHigh % banked

14 Potential for take-up of m-banking High Developed Niche payment platforms PayPal mobile Fin infra- structu re Medium South Africa Bank driven/ JV Low MediumHigh % banked

15 Potential for take-up of m-banking High Developed Niche payment platforms PayPal mobile Fin infra- structu re Medium South Africa Bank driven/ JV Low Kenya Telco driven Philippines Telco-driven LowMediumHigh % banked

16 Key uncertainties: Regulatory questions 1.Are non-banks allowed to issue e-money on a attractive basis? 2.Can non-bank agents handle cash in and out on an easy basis? Branching regulation and AML/CFT 3. Can telcos directly access retail payment systems? If yes, to all three, then more likely to be enabling

17 Mobile payment platforms Are they likely to be reabsorbed into existing payment systems? –e.g. Deutsche Bank Research report 44, 2004 Security element issue –Who controls access to the SIM? –Bank vs telco struggles –Recent Mobey Forum/ GSMA reports stress need for trusted third party to control access

18 Conclusion: which trajectory? No of consumers Enabled Not enabled