Banking without banks in the developing countries today.
While most people in the developing countries still don’t trust their government and banks, because of the development of technology the price of a cellphone has been steadily going down since the introduction of the first cellphones to the market, and more and more people in the developing countries have been getting cellphones.
In some cases, cellphone service providers were able to build more sophisticated systems and provide better coverage than in the developed countries because in the developed countries the providers had to upgrade their existing systems while keeping these systems running and in the developed countries companies were able to create better systems from scratch, which turned out to be faster and less expensive.
This is why it was possible for Kenya, a country with the population of about 50 million people, to build excellent systems and coverage for cellphone service. Today, about 38 million of people in Kenya have active cellphone subscriptions, The situation is very similar in South Africa, where according to the estimates about 80% of the population will have smartphones by 2020.
This is occurring becausewWhile companies such as Apple keep innovating and keep introducing new expensive feature-rich models to the market and people in the West often feel that a good cellphone costs $700-$1000, in reality basic smartphone models are also feature-rich and much less expensive, especially compared to the phones that were on the market as little as five to ten years ago.
The drop in cellphone prices is one of the main reasons why people in countries such as Kenya went from not having any device to owning a smartphone. In the West, the process would different. People have been buying appliances such as TVs, microwaves and washing machines for decades. In the developing countries, people often wouldn’t have such devices because they are expensive and not every household has electricity. Then, when the computers started appearing on the market, people in the West started buying computers. For them, electricity was not a problem and the price of a computer wasn’t a problem. People in the developing countries in many cases still couldn’t afford to buy a computer.
However, things have changed drastically with the introduction of cellphones to the market and the dropping prices of smartphones. A phone can be affordable to people in developing countries and even when electricity is a problem, it is possible to charge a phone not a home because the device is very portable. In many developing countries busy markets and areas have kiosks that are in business of letting people charge their devices, and so a person can leave a phone for a few hours at a kiosk while doing shopping or being at work and charge the device even if the person doesn’t have electricity at home at all times.
Because of the proliferation of cellphones, today many people in the developing countries don’t have a bank account and can’t get one because the process is very complex, but they do have cell phones. This is the reason for the popularity of systems and businesses that allow people to send money using their phones without having an access to a bank account, such as M-PESA, which has quickly become the most popular money transmitting service in the developing countries.
M-PESA has launched in Kenya and Tanzania in 2007, two years ago the Bitcoin network came into existence. The service has later expanded to a number of other countries, including South Africa, India, Romani and Afghanistan.
The service provides its users with the ability to deposit and withdraw money to their accounts via a network of agents. It is important to underline that these agents are not banks. An agent would typically be a small kiosk that provides a number of various services. Such a kiosk would be smaller than, but somewhat similar in functionality to a store such as CVS or a Walgreens or a small deli in the United States, many of which are located all over cities and suburban areas of the country.
By 2012, Kenya had about 17 million active M-PESA accounts and Tanzania had about 6 million active accounts by 2016.
The difference between M-PESA and a bank account is that M-PESA allows for instant micro-transactions. People do not have to deposit large amounts of money or keep them in their accounts for a long period of time.
The original vision for M-PESA was to build a system that would increase the number of microloans in the developing countries by allowing micro borrowers and lenders exchange funds by using a network of mobile airtime sellers. It was only later that the service refocused on a different goal, the goal that made it the most successful mobile payments system in the world, which has been sending funds to other people and making payments of various sizes.