You normally don’t think of Kenya as being at the forefront of technical and financial innovation – but I was struck by this story I saw recently on CNN:
http://edition.cnn.com/video/#/video/world/2009/04/15/mckenzie.kenya.mobile.money.cnn
What started out as a way to transfer pre-paid cell phone credits to family and friends has turned into an entire micro-transaction commerce platform that is replacing banks in Kenya. And there’s no reason why it wouldn’t work elsewhere!
Think of it as PayPal for cell phones. For example – you want to buy a magazine from a vendor on the street, but you don’t have change. The vendor doesn’t take credit or debit cards. So you just enter their cell phone number, specify how much you want to transfer, tap in your security code, and hit send. Just like sending a text message, but you’re sending cash. The vendor’s phone beeps, notifying them that they just received a payment and he gives you the magazine.
Or, say you are short on money this month and need a loan from your best friend – who happens to be visiting family in another state. Just send a text message asking for some dough, and she can reply back with a transfer. Need to pay your babysitter for a few hours work? No problem.
What a great idea! Very simple, elegant, and technically feasible.
Where does the money come from, and where does it go? Easy – everyone that owns a cell phone would have an “account” of cash, and you’d use it just like using PayPal to buy something on eBay. You could go online and transfer money from your savings/checking account to your cell phone account, and vice versa. And for people that don’t have internet access or bank accounts, this could be their bank account – which is what has happened in Kenya. A street vendor who sells magazines (or whatever) all day long will have a few bucks in their cell phone account at the end of the day – which they could then use at the local grocery store to buy food, or even withdraw cash.
It’s safer than carrying cash. Just like using an ATM card, you’d need to enter a PIN to initiate a transaction, so there’s no motivation to steal a phone in order to try to drain the account.
The hard part would be convincing all the cell phone companies to agree on a single standard, and make sure they keep the fees low – there’s no reason why transactions of any size should cost more than 5 cents or so (well, on the other hand, there’s no reason why text messages should cost more than a penny, but cell phone companies still charge up to thirty cents each – which is highway robbery). Maybe charge 5 cents for transactions up to $25, ten cents for up to fifty dollars, a quarter for up to a hundred bucks, and 1% for transactions over $100 – that’s probably a little high, but it would still be worth it.
As the CNN video says, the cell phone in Kenya has become the wallet, the ATM, and the bank account. ATM’s and debit card transactions are well established here in America, and they work very well for shopping, so there’s no reason to replace that – but the debit card doesn’t work as well for “person to person” transfers, which is a huge opportunity for the cell phone companies in my opinion.