Mobile banking has provided financial inclusion for developing countries. A new wave of startups is now taking the tech beyond mobile wallets.
When Ismail Ahmed moved from Somalia to England in 1988, he regularly sent money back home. He experienced exorbitant fees, transfer offices with erratic opening hours, and was often worried about how easily his family would be able to retrieve the money.
In 2010 Ahmed founded WorldRemit, an online service that allows users to send money internationally via a PC or phone. Today, more than 250,000 transactions flow through the system every month.
“We are disrupting this traditional business,” Ahmed said.
In many developing countries, significant majorities of residents do not participate in the formal financial system. They have no bank accounts, no credit cards, and no insurance. In sub-Saharan Africa, just 34% of adults have any sort of formal financial account, according to the World Bank’s Global Findex; in south Asia the number is 46%. The numbers are even lower among the poorest residents.
It is not only the unbanked who are affected. Encouraging financial inclusion can boost economic growth, accelerate entrepreneurial activity, and help shrink yawning income gaps, the World Bank report notes.
However, with the rise of mobile connectivity in many of these countries – in many African countries, for example, mobile phone ownership hits 80% – digital financial services are becoming an ever more popular approach to the problem of including a broader range of people in the financial system.
The grandfather of this movement is M-Pesa, a mobile money system launched in Kenya by mobile phone company Vodafone in 2007. The success of M-Pesa – the system reports nearly 20 million account holders in 10 countries – has paved the way for a new generation of startups. These new companies are looking beyond the basics of mobile wallets, finding ways to make a broader range of services and transactions available from a phone.
This new wave of financial inclusion is being ridden by three startups. WorldRemit is simplifying the process of sending money internationally; DoPay is modernizing the way low-income workers are paid and manage their earnings; and Coda Payments is opening up the online shopping experience to anyone with a mobile connection.
“Banking the unbanked is one of the biggest challenges facing the world today,” said Lawrence Wintermeyer, CEO of Innovate Finance, a London nonprofit organization that represents the financial technology industry. “What [financial technology] innovations are doing is finding unique solutions that are able to target communities and help them to make use of the infrastructure that’s available.”
These new enterprises face formidable obstacles. In many places, people remain distrustful of formal financial services and devoted to cash-centered ways. And once enrolled in new services, they often lack the financial skills to use them effectively, said Han van Dijk, chief marketing officer at DoPay. Education and awareness campaigns are essential to any effort to introduce a new approach, he said.
Entrenched competitors – large banks or money transfer companies – may engage in anti-competitive practices that make it difficult for a startup to get off the ground, Ahmed said. Furthermore, much of the unbanked population also lacks access to the internet, said Wintermeyer, so additional infrastructure development is essential.
WorldRemit, based in London, focuses on the issue of remittances, the money immigrants send to their families in their home countries. Total remittances flowing to developing countries was estimated at $436bn in 2014, according to the World Bank.
Historically, much of this money has been sent in cash through traditional money transfer services like Western Union and MoneyGram. Senders handed over cash, filled out forms, and paid fees as high as €14 ($15.80), Ahmed said. Recipients often had to trek to major cities to retrieve the money, taking time out from work and paying for transportation.
“People spend as much as $20 on travel to collect $100,” Ahmed said.
WorldRemit allows users to send money from more than 50 countries to more than 120 countries. Senders use a bank account or a credit or debit card to send money. Recipients can receive the money in a mobile money wallet, as mobile phone airtime, or directly into a bank account. More than 90% of transactions are received instantly in one of these ways. Recipients can also pick up cash at one of partner collection locations or even have cash delivered to them.
WorldRemit’s fees start as low as €1 ($1.13), a small difference that adds up over time, as immigrants are able to send larger sums more often, Ahmed said.
Fellow London startup DoPay is targeting the two billion people worldwide who have no bank accounts but do have jobs. The company has built payroll software for employers that allows them to pay their employees with prepaid debit cards rather than with the envelopes of cash that are common for wage workers in many parts of Africa. Workers can then use the DoPay app to locate nearby cash machines, check their balance, or view recent transactions.
“It really gives them a sense of control over their money, said van Dijk. “The combination of the card and the app really gives them some empowerment over their own financial situation.”
The service costs 7 Egyptian pounds (less than $1) per month, though the fee will be waived for the first six months. DoPay starts operation in Egypt in June, with plans to launch in Ghana and India in coming months. In the future, the company plans to build on the payroll services with savings accounts, overdraft services, and perhaps even an insurance product.
If WorldRemit and DoPay are exploring new ways for people to receive money, Singapore-based Coda Payments is working on changing the way they spend it.
The company operates in southeast Asia, where banks are so selective about issuing credit cards that just 3% of the population has one, said CEO Neil Davidson. Coda Payments partners with merchants and telecommunications companies to allow the remaining 97% to pay bills and make online purchases that would be otherwise unavailable to them. Consumers can use their prepaid mobile phone balance or link up to a bank account, if they have one. They can also pay in cash at partner convenience stores.
The service is not just about getting access to the latest items on Amazon, however. In countries like Indonesia or the Philippines, much of the population lives in remote and isolated villages; many have no access to the internet beyond their mobile phones. Using Coda means these people no longer have to depend on the shops within walking distance of their homes for the goods they want or need.
“It allows them to make purchases from outside their village or town, which would otherwise be impossible,” Davidson said. “I suspect you would not want to only be able to buy stuff sold within walking distance of your home.”
For Ahmed, the rise in mobile financial services has created a gratifying change from the days when sending money in developing countries was an arduous and uncertain process.
“Fast forward to now – the same customers are getting money on mobile, any time, any day,” he said. “A transformation is taking place with the introduction of mobile money.”