Monday, February 22, 2010

Mobile Money

We understood from the beginning that PT Ruma’s initial micro-franchising product, retailing cell phone air time, would not be the only product it would use to enable poor entrepreneurs to lift themselves out of poverty. There would be other products that would be both commercially viable and socially relevant to the entrepreneurs’ communities. We have learned that the VPO networks PT Ruma is developing are valuable access points to the so-called “base of the pyramid” market segment in Indonesia. I Believe we now need to learn how to use these networks to deliver essential financial products such as savings accounts, micro-insurance, and safe money transfers (payments) through their mobile telephones.

This is certainly not an original or even new idea. Such capabilities are already widespread in developed and even some developing markets. However, the difficult part is providing these products to “unbanked” populations such as the VPOs and their customers. While doing some on-line research on this issue I came across a statement by a telecommunications executive in a presentation at a recent conference on mobile banking. She stated that it is “quite a leap between selling air time top-up cards and rolling out a distribution network that can handle cash-in and cash-out and meet know your customer requirements…” She also observed that telecommunications “operators are learning the difference between their business model and that of a financial institution…especially when it comes to systems and internal process…”

As a former banker, these statements really resonated with me. She put her finger on several key issues that inhibit the development of mobile banking for the unbanked poor. First is the issue of getting the poor’s cash into the system or converting it to “mobile money.” Second, there is adhering to anti-money laundering (AML) and combating the financing of terrorism (CFT) rules with workable know your customer (KYC) procedures. Third, is having robust systems capable of combating the inevitable attacks of cyber criminals and accurately accounting for both the cash and electronic ins and outs of customers financial resources. And finally, ensuring adequate regulatory supervision and consumer protection.

This is certainly not an exhaustive list of the challenges to bringing mobile banking and mobile money to the poor but it does illustrate some of the primary challenges. PT Ruma’s current franchise operation is already converting customers’ cash into an electronic product that, in some ways can function as electronic or mobile money. This is mostly true for the VPOs who can store value in the form of air time credit. By retaining their earnings with PT Ruma or the wholesaler, they are effectively increasing a current asset—working capital—which can be turned into cash when they sell to their customers and retain some of the cash, rather than replenishing all their working capital. In fact, this may be the safest, most convenient method the unbanked VPOs currently have for accumulating savings.

For the accumulation of air time to function as a savings vehicle for the customers of the VPOs the matter is a little more complicated but certainly not impossible. One possible solution is the issuance of stored value cards to which the air time purchaser can transfer from his mobile phone the value of his air time. This is where the need for robust systems comes into play. Again, not an insurmountable obstacle, but one that must be dealt with effectively by an entity with sufficient technology resources. There are many at work in this space, including Grameen Solutions, the applications development arm of Grameen Foundation. PT Ruma would be a perfect venue for testing the mobil money applications Grameen Solutions and Obopay are working on. (See

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