providing banking services to the world’s unbanked, and has already
proved successful in pioneering services such as Wizzit in South
Africa and M-PESA in Kenya. EPI spoke to a number of
industry players to get their views on the opportunities and
challenges that lie ahead.
Banking the unbanked and
under-banked is a challenge developing countries have grappled with
for decades. By and large results have been disappointing as Lars
Thunell, executive vice-president and CEO of World Bank private
sector unit the International Finance Corporation (IFC), spelt out
at the launch of the 2008 IFC/Financial Times Sustainable Banking
“There are 4 billion people at the bottom of the economic
pyramid. Together they represent a $5 trillion market, but few of
them even have a bank account,” said Thunell.
However, what a large and rapidly growing portion of the
unbanked does have is a mobile phone in a world where the GSM
Association, a body representing 924 mobile network operators
(MNO), reported that the total number of mobile phones had reached
3.8 billion in late-2008.
Of this total almost two-thirds were located in what are
generally considered to be developing countries and regions.
For good reason it would appear Dave Birch, a director of UK
technology consultancy Consult Hyperion and the 2009 Visa/Centre
for the Study of Financial Innovation’s research fellow, believes
mobile banking and payments in developing markets have the
potential to achieve “colossal” growth.
There is already abundant evidence supporting Birch’s
confidence, particularly in Africa where some of the world’s most
innovative mobile banking ventures have been established. Among the
most unique of these is South African bank Wizzit Bank, the
brainchild of its three co-founders Brian Richardson, Charles
Rowlinson and Pakie Mphahlele who in early-2002 set out to find a
solution to provide a low-cost, comprehensive banking service to
the country’s then 16 million unbanked adults.
The obvious delivery channel for the service was the mobile
phone – of which there are today, according to United Nation’s body
the International Telecommunication Union, 39 million in use in
South Africa, a country with a total population of 47 million.
“As the only bank focused on the unbanked, we went into
uncharted waters,” Brian Richardson, Wizzit’s CEO told
EPI. “Our objective was to bring the bank to the unbanked
not the unbanked to the bank”, said Richardson. This is not a
problem unique to South Africa.
“The single challenge for developing economies is not to get the
unbanked to the bank but the bank to the unbanked,” he
Not only was Wizzit a pioneer in using the mobile phone to bank
the unbanked, it was also one of the early-movers in mobile banking
in general. Notably, the first mobile banking ventures launched in
developed countries such as Paybox in Germany, Sweden, Spain and
Austria, date back only to the very late 1990’s.
A key element in Wizzit’s formation was the backing it received
from the South African Bank of Athens (SABA), a wholly-owned
subsidiary of the National Bank of Greece. Functioning as an
autonomous division of SABA, a member of the South African
Automated Clearing Bureau, Wizzit gained account interoperability
with the rest of the banking system.
The choice of technology was also a major consideration. Clearly
wireless application protocol mobile internet browser technology
was unsuitable for Wizzit’s target customers, many of who still
rely on older mobile phones equipped with 16KB SIM cards.
Java based technology was also found to be inappropriate due to
its complexity which includes requiring a mobile phone to be GPRS
(general packet radio service) enabled. Opting to shun a Java-based
solution was a particularly wise one, it appears.
“I am not aware of a single successful Java mobile banking
implementation,” commented Hannes van Rensburg, CEO of South
African mobile banking technology developer Fundamo, a company now
in its 10th year.
Wizzit also rejected another technology solution, the SIM
“The challenge in SIM-based applications is getting the
application onto a SIM card that already exists in the market,”
explained Gavin Krugel, the director responsible for mobile network
operator (MNO) industry body the GSM Association’s (GSMA) Mobile
Money Transfer programme.
He explained that the service provider has the option of sending
the application over the air, a process requiring delivery of
several encrypted SMS messages that self-configure the application
on the SIM, or providing a new SIM card with the application
already embedded within the SIM.
“The latter has an economic impact on the network operator and
the existing consumer in that the consumer would have to obtain a
new SIM card in order to use the application, said Krugel.
The SIM card-based solution was initially used in one notable
developing market mobile phone-based payments service, GCash,
launched in November 2004 in the Philippines by telecommunications
company Globe Telecom. This required customers to purchase a new
SIM card incorporating the mobile banking application.
“The uptake was dismal, and after a year, GCash moved to develop
an application that did not require the user to swap their SIM,”
said Krugel. Globe Telecom switched to an SMS-based mobile banking
Notably, this experience was not repeated in the highly
successful M-PESA mobile payments service in Kenya which utilises a
SIM-based application that requires a customer to replace his or
her existing SIM card.
Wizzit banks on USSD
Wizzit’s technology choice was unstructured supplementary
service data (USSD) which has similarities with short message
service (SMS) technology.
However, unlike SMS, which is a store-and-forward solution, USSD
enables a real-time interactive session between the mobile phone
and service provider.
“USSD is as standard a feature as SMS and is available in an
estimated 95 percent of handsets today,” noted Krugel.
“USSD has proved to be absolutely the appropriate technology,”
said Richardson. “There are no personal banking details loaded on
the phone, a security feature that consumers like,” he added.
Additional transaction security is provided by a four digit
“We have not had a single fraud or attempted fraud,” noted
Richardson. He added that Wizzit’s system has been audited by
MasterCard and professional services firm KPMG.
Initially Wizzit used a technology solution from technology
developer Cointel. However, it subsequently switched to a fully
in-house developed solution. Notably, Wizzit is what Richardson
termed system agnostic and is interoperable between all South
African MNOs and banks.
Officially launched in April 2005, Wizzit is an affordable
service with a real-time transactional capability. To open an
account a ZAR39.99 ($4) once-off fee is charged and thereafter, it
is a pay-for-use service, with no monthly fees, no minimum balance
requirements and no penalties for non-use or excessive use.
Customers receive an optional MasterCard Maestro-branded debit
card when they open an account. The card provides domestic and
international access to ATMs and facilitates POS purchases and
cashback transactions at numerous major South African national
In addition, Wizzit backs up its service by enabling customers
to make deposits at any of ABSA Bank’s 800 branches and the South
African Post Office’s 2,600 outlets. Salaries and wages can also be
deposited directly into a Wizzit account.
Typical fees are ZAR4.99 for recurring debit orders and stop
orders, ZAR2.99 for Wizzit-to-Wizzit account transfers, ZAR4.99 for
Wizzit-to-non-Wizzit account transfers and ZAR0.99 for bill
payments, prepaid electricity purchases and balance enquiries.
Indicative of the potential of person-to-person money transfers
alone, private development agency FinMark Trust estimates that in
2005, ZAR12 billion was transferred by migrant workers to their
families in rural areas.
This was largely via informal means at costs of up to 25 percent
of money transferred. However, benefits of mobile banking go beyond
costs, particularly in a developing country.
“It takes the average South African 47 minutes to access a
financial services point, while it takes an average of 15 seconds
to do a mobile transaction,” said Richardson.
A sound business model
Technology was not the only major consideration when developing
Wizzit. Equally important was the overall business model.
When strategising Wizzit’s founders took into account what
Richardson termed five powerful parties: Regulators, payment card
associations, big banks, MNOs and global remittance companies such
as Western Union and MoneyGram.
“They will not just sit back and let someone eat their lunch,”
The result was business model which does not disenfranchise any
of the five, said Richardson.
“We will work with all of them,” he explained. “It places Wizzit
in a very powerful position.”
Another key element in Wizzit’s business model is its marketing
strategy. This does not rely on advertising but, rather, an
extensive network of “Wizzkids” trained by Wizzit to open accounts
for customers at their homes or work.
Richardson declined to disclose how many customers Wizzit has
garnered. However, he conceded that it is a market that requires
considerable time to build a sustainable, commercial venture.
“There are no quick bucks to be had,” he stressed, adding that
Wizzit should breakeven by mid-2009.
Undoubtedly, Wizzit is also in what has become a highly
competitive market in which South Africa’s big-four banks, numerous
smaller banks and joint MNO/bank ventures are clamouring for market
Indicative of the uptake, van Rensburg noted that it took eight
years for the total number of internet bank users to reach 1
million in South Africa.
“It took eight months for mobile banking to reach the 1 million
mark and there are now about 5 million consumers in the country
using mobile banking,” said van Rensburg.
Naturally, many of the country’s mobile banking users are drawn
from the ranks of what would be the equivalent of banking customers
in developed markets. Richardson stressed that there are few
“meaningful competitors” in Wizzit’s target market.
“It requires a special mindset to get the bank to the unbanked,”
While stressing that in no way was he being critical of big
banks, he noted that they “cannot be all things to all people.”
Wizzit captures global attention
Wizzit’s business model has stirred up considerable interest
worldwide, with recognition including the IFC’s acquisition of a 10
percent stake in Wizzit in 2007. The IFC is actively involved in
promoting the mobile phone as a solution to banking the world’s
Adoption of the Wizzit model is also spreading beyond South
Africa’s borders. A new service has already been launched in an
unnamed African country and another is set to launch within a few
weeks in an unnamed Eastern European country.
“We have proved that the Wizzit model is easy to replicate,”
Richardson has also found himself in demand as a speaker at
numerous conferences worldwide. Of particular significance he said
was the Clinton Global Initiative (CGI) conference held in
September 2008, at which Wizzit was the only South African bank
Formed in 2005 by former US president Bill Clinton, the CGI’s
objective is to improve the lives of the world’s underprivileged.
Among outcomes of the September conference was an initiative to
provide 50 million people with access to mobile financial
It is not just in the service delivery arena that Wizzit has
attracted attention but also in what is still a grey area in the
development of mobile banking and payments – regulation.
Among countries that have called on Wizzit is India, where
Richardson was invited by the Reserve Bank of India (RBI) to
present the Wizzit model to key executives of the Indian banks. The
RBI, said Richardson, indicated that the bank-led Wizzit model was
what they had in mind in the introduction of mobile banking.
In particular, the RBI was not in favour of MNO-led mobile
payments services and the regulatory problems this implies. This is
clearly evident in operating guidelines for mobile banking and
payments issued by the RBI in June 2008.
In its guidelines the RBI noted: “The long term goal of the
mobile payment framework in India would be to enable funds transfer
from account in one bank to any other account in the same or any
other bank on a real-time basis irrespective of the mobile network
a customer has subscribed to. Restriction, if any, to the customers
of particular mobile operator(s) may be only during the pilot
Richardson believes strongly that the bank-led model is the
correct one and that regulators in most countries will ultimately
adopt this approach. His view is supported by Liisa Kanniainen, an
executive director of mobile banking industry body Mobey Forum and
vice-president, mobile banking, at Swedish bank Nordea Bank.
While Kanniainen said that the mobile banking and payments
market could still have three to five years to go before there is
industry-wide agreement on a standard business model, it must be a
She stressed that regulators must oversea the mobile banking
market: “It must be part of the system and not a special case.”
However, indicative of diverse thinking, van Rensburg believes
that a mobile banking service can be MNO-led.
“They must just think like a bank and comply strictly with
regulations,” said van Rensburg.
He added that he believed the RBI’s guidelines represent
over-regulation and would restrict growth. By contrast he had high
praise for mobile banking and payments guidelines issued by
regulators in Pakistan and Nigeria. Both, he commented, were
M-PESA comes under attack
Undoubtedly rivalling Wizzit for global attention is M-PESA, a
SMS-based payments service launched in mid-2005 by UK MNO Vodafone
in Kenya in conjunction with local MNO Safaricom and microfinance
organisation Faulu Kenya. A bank account is not required to become
an M-PESA customer.
M-PESA’s services include depositing cash into and withdrawing
cash from M-PESA accounts, mobile-to-mobile transfers, buying
Safaricom airtime, paying bills and making repayments on loans from
M-PESA agents, of which there are some 5,000, provide account
loading and cash withdrawal services while cash can also be
withdrawn at specially equipped ATMs. Maximum transaction amount
per day is KShs70,000 ($880) and the maximum transferable per
transaction is KShs35,000.
A roaring success, M-PESA reached the 5 million customer mark in
January 2009, a total representing some 16 percent of Kenya’s total
population. M-PESA processes about 280,000 transactions per day
with a total monthly value of about $125 million.
M-PESA offers the perfect example of the potential of mobile
payments in developing markets, commented Birch. Consult Hyperion
was closely involved in development of M-PESA together with
Vodafone, owner of the technology which it has also deployed in
Afghanistan and Tanzania.
“M-PESA provides a valuable case study of digital money in
action,” stressed Birch. “It involves replacing cash with
electronic money, it is for the mass market, it radically reduces
transaction costs for the least well off, it provides new
functionality including remote payments and, most of all, it
provides an infrastructure that delivers capability and efficiency
to the microfinance world.”
However, for all the positive attention received by M-PESA it
has also drawn the attention of Kenya’s minister of finance, John
Michuki who announced in December 2008 that Kenya’s central bank
would conduct an audit of M-PESA. His announcement came three days
after Western Union and Vodafone announced that they were to launch
a mobile phone-based remittance service between the UK and Kenya in
which M-PESA would play a central role.
The decision to audit M-PESA marked an about turn by Michuki who
had two weeks earlier defended M-PESA in parliament, commented Mark
Pickens, a microfinance analyst with World Bank affiliate the
Consultative Group to Assist the Poor.
“This could be the latest sign of a growing backlash against new
entrants – like mobile network operators – into traditional banking
space,” said Pickens. “Banks have put pressure on the [Kenyan]
central bank to put a heavier regulatory yoke on M-PESA. We’ve seen
a similar trend in other countries where mobile operators are eager
to offer mobile financial services.”
The 48 commercial banks in Kenya have a total of about 3 million
customers and 750 banking outlets. Pickens noted that M-PESA has
also come under heavy attack in the local media. A recent article
in the East African Standard, for example, commented that M-PESA
“could be a disaster waiting to happen.”
In addition, said Pickens, Michuki is on record with the East
African Standard as saying: “I am not sure M-PESA will end well. We
want to protect wananchi [citizens] from the sharks who want to
make money from the misfortune of others.”
The remittance conundrum
International remittances – a $280 billion annual market – is
another major opportunity for mobile phones in developing and
developed markets. It has become a focus of organisations such as
the GSMA which is aggressively pursuing its Mobile Money Transfer
programme with the backing of payments industry players such as
Western Union and MasterCard.
“The GSMA’s initiative makes great sense,” said Richardson. “The
technology is available but the big barrier remains regulatory
This barrier was no better illustrated than by a report
published by the US Department of State (DoS) in March 2008 in
which it warned that there are already indications that money
launderers and those who finance terrorism will avail themselves of
The DoS stressed that “digital value smurfing” represents “a
very clear threat”. Digital value smurfing refers to dividing large
sums of money into multiple transactions in a way that ensures each
transaction is below the value that would trigger financial
institutions’ reporting requirements.
Van Rensburg dismissed the DoS’s report as ill conceived, a view
shared by Birch.
“The main argument against mobile payments, naturally, is that
these new services can be exploited by criminals, terrorists and so
on, and these issues will clearly need to be addressed if we want
to win over the general public and see any significant growth in
mobile transactions,” said Birch.
He added that an argument people might use false identification
to obtain a mobile subscription or use a prepaid phone is no
different from the argument that criminals obtain bank accounts in
“Which I’m sure they do,” said Birch.
“However, suppose the CIA notices that my prepaid phone is
sending money to Osama bin Laden a couple of times a week,” he
continued. “The fact that they don’t know who I am, but that they
do know my phone number – and therefore the phone numbers of
everyone else I’ve been talking to or sending money to, and pretty
much where I am – sounds pretty useful to me. Much more useful, for
example, than knowing that I showed up a Western Union office with
a bogus ID and walked out with some untraceable cash.”
For good reason it seems Richardson noted: “Mobile payments is a
tough mountain to climb. There are many questions yet to be
However, this is not preventing a proliferation of new mobile
banking and payments services in developing countries worldwide. In
Africa alone at least four new services have been announced since
late-2008 and include one by UK bank Standard Chartered in Uganda
in a venture with MNOs Warid Telecom and Zain. Proliferation of
mobile payments services raises a particular concern for van
Rensburg: a shortage of people with the necessary technology
skills. For any would-be vendor it would be difficult to muster 20
people skilled in mobile banking technology to undertake a project,
“The industry really needs some form of training academy or
degree course,” he concluded.