The Economist published a report on how mobile phones are starting to become banking tools for the poor. In South Africa, 16 million people, over half of the adult population, have no bank account. Yet 30% of those people have mobile phones almost all of which are used on a pay-as-you-go basis.
You might think — why do poor people need/want bank accounts? The report highlights Andile Mbatha, who owns a hair salon in Soweto. He used to have to travel more than 2 hours by minibus to send money to relatives … a personal delivery. He also used to have to keep what ever cash he had on hand at the salon or with him as he travelled. He now uses a new mobile banking service called Wizzit which enables him to instantly transfer money to his relatives for a very low fee which enables him to spend more time earning money. He also now receives payment for services at his salon via mobile phone from more than half of his customers which means that he doesn’t have to manage a lot of cash.
The reality is that the poor, with by definition fewer resources, have needs (often more so than wealthier people) to transfer their monies to support other dependents and family members who out of necessity live significant distances from each other. Without bank accounts, the transaction cost of making these payments (recurring ones are often referred to as remittances) are very high … even higher than what it costs wealthy people to transfer even much larger sums. This is often referred to as the the “poverty tax” where the less well off pay a premium because they are not able to use more economical service options due to their economic and/or social status.
I am a big fan of scalable models like this which provide valuable services to the poor at a price point that works for the poor. This enables increased productivity and therefore enables more earnings capability which is a core element in increasing wealth (another way of saying decreasing poverty levels).
And, I’d like this kind of service too!!
See NPR story on Wizzit.