Sooner than you think, it won't matter when you forget your wallet at home - as long as you've remembered to grab your mobile phone. As Ethan, Sarah, and I have discussed previously, mobile banking is coming, and it's coming fast. Broadly speaking, mobile banking means conducting formal financial transactions using a mobile phone. Sounds simple, right? As with many seemingly worldchanging ideas, the devil with m-banking is in the details.

M-banking is a regulatory nightmare. Banking regulators are (rightfully) worried about fraud, money laundering, identity theft, and a myriad of other security issues. Meanwhile, the telecom regulators are wary of the banking guys stepping on their toes and telling them how to manage networks, frequencies, and customer safeguards. For this to work, you've got to get two groups of regulators to agree on a whole new set of rules - not an easy thing to do.

It seems like Kenya has overcome this barrier with Safaricom's launch last week of M-Pesa, a new money transfer and bank account service. The Guardian reports on how M-Pesa works:

There is no need for a new handset or SIM card. To send money you hand over the cash to a registered agent - typically a retailer - who credits your virtual account. You then send between 100 shillings (74p) and 35,000 shillings (£259) via text message to the desired recipient - even someone on a different mobile network - who cashes it at an agent by entering a secret code and showing ID. A commission of up to 170 shillings (£1.25) is paid by the recipient but it compares favourably with fees levied by the major banks, whose services are too expensive for most of the population.

So far, so good. A bit of context: M-Pesa was developed by Vodafone, who owns 35% of Safaricom, and is part of Vodafone's larger strategy to reach the base of the pyramid with new goods and services. They're not alone -- the GSM Association, in conjunction with Mastercard, recently announced a partnership to link local banks and local mobile carriers to enable m-banking. And at the CTIA (Wireless Association) conference in Orlando, Visa USA President John Coghland spoke of the convergence between mobile communications and payments, signaling Visa's entry into this space.

Of course, the epicenter of m-banking is the Philippines, where Smart Communications' Smart Money and Globe Telecom's G-Cash essentially serve everyone who has a mobile phone - which is almost everyone. The Philippines is a bit of a regulatory outlier, in that the banking regulators more or less got out of the way, but it still shows just how much potential there is for m-banking worldwide.

Notice that the m-banking phenomenon is not taking place in the United States, Canada or in Europe. We already have an established credit card infrastructure, and most of us have addresses and credit histories - allowing us to open bank accounts. The untapped market here is at the base of the pyramid - all the people who have no formal address, no credit history, living in rural areas without credit card machines but with good access to the cellular network. It's a perfect storm for leapfrog technology. A couple projects are off the ground - the latest being M-Pesa - so only time will tell the impact of m-banking. Considering how many people have access to a mobile network, and how many don't have access to a bank account, I'd be willing to bet that the impact could be considered worldchanging.

I wanted to correct your statement that “The Philippines is a bit of a regulatory outlier, in that the banking regulators more or less got out of the way…” Actually, the Bangko Sentral ng Pilipinas (BSP), the Philippine Central Bank, has been very active in analyzing and reviewing both Globe’s G-Cash and Smart Communication’s Smart Money. The BSP Monetary Board actually issued resolutions that specifically recognized both payment platforms. Since then, the Rural Bankers Association of the Philippines, with the support of the Microenterprise Access to Banking Services (MABS) Program, has developed several mobile phone banking applications that utilize the G-Cash platform and each of these applications went through extensively reviews by the BSP’s Core Information Technology Supervision Group (CTISG). In fact, the BSP established CITSG to proactively analyze the applications of all proposed electronic banking applications including mobile payment and mobile phone banking services. This group is composed of bank examiners from various departments as well as certified systems auditors.

As evidence that BSP is serious in its regulatory functions, CITSG has been active in reviewing, evaluating and commenting on each of the various mobile phone banking applications that we developed over the past two years. These products include Text-A-Payment, Cash-in Cash-Out services, Text-A-Deposit, and, recently, Text-A-Withdrawal. The BSP has also conducted field inspections and even made visits to Globe and SMART to review their systems and procedures.

While the BSP has been quite active in regulating electronic banking, including mobile phone banking, they have also been excellent to work with and should be held up as models for other Central Bank regulators to follow rather than be considered outliers.

Posted by: John Owens on April 2, 2007 7:15 AM

I believe that all of you humans have finnally got it right as to how to handle this world wide politicall system by changing this banking system overnight the sooner the better why do I say because humanity has allready wipped the playing field in many area,s of the econemy and needs fast change overneight and what better way to manage this globel econemy then by using this technoligy to manage a more civil system throughtout the world it looks like humanity has finnally got it right as to creating a more civil likeable and loveable world and end all this doom and gloom that both islome and isreal have created you see religion is not at a end as a matter of fact faith in god has only begon god will win this war of terror that both of these sides have created humanity will win ever time that means god is still hear now and god was in the past present and future god will win this war of terror islome and isreal will not man or women will not capitalisiom and comunisiom will not win either humanity and god will win this war over this globel war of terror created by both islome and isreal god will take power away from those leaders who use islome isreal and all other faiths that use there faiths to control the derection that god and humanitys is going you see religion faith and god is eturnally built in each and every soul on the planet including out in into the stars of heaven humans will win this war that evil has created how do I no this because humans can now see all the evil that humanity has created humanity can now end all this evil that humanity can now control how does humanity do this big change of ending evil overnight by changing the worlds banking systems now today and leive no human behind each and every soul will now reach the stars of heaven and end this root of evil that humanity can now do just by changing this banking system humanity and common sense now and forever will control the destiney of each and every soul on this planet earth and can now move forward and spred gods words out in into all the stars of heaven and end this evil rooted deeply all by ending this evil banking system humanity no,s that all this evil is deeply rooted into this baking system and because this world is now so aut0mated its time now today now to change this banking system now this is and should be the first thing that humanity should change evernight want to end this war on terror then humanity must end this evil banking system and give humanity a new more civil human system overnight all by changing the banking system there is only so much water humanity humans can drink humanity can and should change this sssssssytem of banking first and leive no human behind as a matter of fact all humans can now all be rich and humanity can and should end this poor and middle class and make all humans rich this is the price that the rich now should be willing to pay in order to end this evil otherwise the rich will end humanity and humans alltogether its time for the rich humans to change this evil banking system now otherwise this evil will turn onto the rich the rich should change this banking system overnight and make all the world rich overnight and let humanity leed this world out in into the stars of heaven instead of leeding humanity into the holes of hell itsnow all up to the rich humans as to weather they want to reach the stars of heaven rather then ending up in hell the rich can and should have a globel confrence as soon as possable and end this evil banking system overnight its all now in the hands of the rich humans as to weather humanity will reach the stars of heaven rather staying in hell banking systems must change now or never and never means never reaching the stars of heaven it really is the rich humans call so maybee its time that all this rich wealth gettogether now before they run out of time and end up in eturnall hell

Posted by: Richard McQuarry on April 5, 2007 8:59 AM

"Banking regulators are (rightfully) worried about fraud, money laundering"

Seems like an entire electronic record of the transaction exists - places, phone owners etc. So it would seeem to me that money laundering would not be a problem. Maybe it's privacy we should worry about.

Posted by: David Neubert on April 7, 2007 12:07 AM