The Decade’s 12 Greatest Developments in Payments: #2 Mobile Payments

The Marriage of Mobile and Payments Make the World a Better Place

The marriage of mobile phones and payments has improved the lives of millions of people in the poorest parts of the globe over the last few years. That’s why, for me at least, mobile payments is the second greatest development of the decade for the payments biz: it illustrates just how this industry can drive progress and really make the world a better place. I also think that it is a harbinger of a revolution that will take place over the next decade.

The mobile phone has taken the world by storm in the last decade. By the end of 2008 there were 4.1 billion mobile phone subscriptions in the world according to the U.N.’s International Telecommunications Union. That was an increase of more than four-fold from just six years before. Today, six of ten people have a mobile phone subscription and even more have access to one. Importantly, mobile phone technology has enabled the lesser developed world to close the gap in telecommunications systems. At the beginning of the decade just two in 100 residents of Africa had a mobile phone. By the end of 2008, 28 out of every 100 did. A lot more people have mobile phones than have bank accounts just about everywhere.

Not surprisingly, it didn’t take long for entrepreneurs to figure out that mobile and payments were the perfect couple. The Philippines pioneered the use of mobile phones to provide banking and payment services to a widespread and underserved population. Starting early in the decade they developed a far-flung and highly used system. Take a look for yourselves at how small merchants in the Philippines use the G-cash system on their mobile phones there to accept payments. That’s spurred entrepreneurship and economic development.

In the last couple of years mobile payment providers have set their sights on Africa which has some of the poorest and least developed countries on the planet. Vodafone teamed up with Safaricom to create M-PESA in Kenya. Its customers can make payments with their phone and withdraw cash from gas stations, shops and Safaricom shop around Kenya. And do it all without a bank account. Others have entered Kenya and the phenomenon is spreading across Africa. MTN, the African telecommunications provider, has introduced “Mobile Money” services that enable Ugandas to transfer money via text messages on their mobile phones. Between March and June of 2009 about 40,000 people had subscribed to its service and completed about 180,000 transactions. MTN has announced plans to roll out the service in many other African countries. Many other mobile payments companies have entered in Africa.

Other parts of the world, such as India, are also at the forefront of helping the unbanked use their mobile phones. Mobile payments innovator Obopay has partnered with YES Bank in India to roll out its solution in that country, providing alternatives to cash and check in a part of the world for the first time.

These developments have the promise of spurring economic development and improving the well-being of billions of people around the globe who have easier access to mobile phones than bank accounts. And, what’s more, all of this transformation is via text-based solutions and not the whiz bang stuff they have had in Japan, in Korea, and that we obsess about in the U.S. For the lesser-developed countries, what might seem backwards and low tech to an iPhone user is, in fact, revolutionary.

Slick mobile payment solutions will come to the fat and rich parts of the globe in the next decade. I wouldn’t hazard to predict how this will play out because I believe we will see rapid and unpredictable innovation in the next few years. The catalyst for the deployment of mobile payments is the development of software platforms on mobile phones — “invisible engines” — that enable entrepreneur-developers to quickly create applications that run on Apple’s iPhones, Google’s Android-based phones, Blackberries, Palm’s and others. A recent example is Square which relies in part on the ability to write apps for mobile phones. I suspect that thousands of entrepreneurs around the world will take a crack at developing payments applications for mobile phones that will help merchants or consumers or both. With all that innovation it is impossible to even guess what will develop — only that it will.

For the next decade one should think of the mobile phone as a computer, with a screen, and a wireless connection to the Internet. It is the software — and the business models — that will turn that connected computer into a powerful tool for making payments and enabling commerce in places and among people. Most importantly, mobile payments may help raise the living standards for billions around the world.

Previous Great Developments in Payments During the Last Decade:


#3 Debit Takes the Plastic Throne in the U.S.

#4 The New Kid on the Block: PayPal

#5 Innovation Driven by Prepaid Cards

#6 What Has a Bigger Head and Longer Tail? Card Issuing

#7 How the ACH System in the U.S. is Encouraging Electronic Payments Innovation

#8 The Magstripe Lives On

#9 Shanghai Surprise

#10 Collateral Damage from the Financial Crisis – Consolidation and Regulation

#11 How the World War on Interchange Fees Transformed the Card Industry

#12 American Express Goes Global

David S. Evans bio

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