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Banking without a bank


In a rural village in Kenya, a woman sets out to do her food shopping. She needs cash, but the nearest bank is several days’ walk. Instead, she takes out her phone and texts a password and a request for money. A few minutes later, she meets a man with a phone and receives cash from him. She goes shopping.

Welcome to the world of mobile money banking.

In much of the world, people don’t live near banks or have bank accounts. In Senegal, for example, only 8 percent of the people have a bank account; in Uganda, it’s 11 percent. That means millions of people are locked out of the financial system, unable to easily send money, save it, buy things without cash, or get loans. But in the age of the mobile, it’s now possible to do so without having a formal bank account.

First taking off in Kenya in the early 2000s, mobile phone banking has in many ways surpassed payment systems commonly used in the West. Research suggests the fast spread of these systems has led to significant economic growth. More than a decade later, mobile money systems are ubiquitous throughout Africa. In Uganda, 43 percent of people have a mobile money account; in Kenya, it’s 72 percent.

Mobile money systems are pretty simple. You don’t need a bank account or a credit card. To make a deposit or get cash, mobile money systems use human agents — people who hang out at key locations throughout the country, including remote rural areas — with cash and a mobile phone. You can also use mobile money for cashless transactions, including buying groceries or paying for services. Agents function like an ATM: you go up to them and give them cash to get money deposited in your mobile money account, or transfer money out of your account to get cash. Agents help make cash available when you need it and a safe place to deposit it when you don’t.

In Kenya, which has seen the biggest uptake to the point where 96 percent of households have a mobile money account, you can find an agent almost anywhere. Before mobile phones became widespread, people in rural Kenya had very few options to manage money. The nearest banks were far away, and they weren’t meant to serve rural customers who had very little money anyway. Carrying cash left people vulnerable to theft. Family members who worked in the city wanted to send money home but had to either send it through couriers, which were expensive, or make the long, sometimes hazardous trip themselves.

While there were early attempts to set up systems in South Africa and the Philippines, the breakthrough came in 2002 with Kenya’s M-Pesa, a texting-based system for storing and sending money. (“Pesa” is Swahili for money, the “M” stands for “mobile”.) Phone companies had been noticing they had unintentionally invented something that almost resembled a currency. Users were buying and reselling “airtime” — phone data, or minutes — transferring it to relatives, and in some cases effectively using it as a savings account by putting most of their wealth into airtime they could resell later. It was safer than carrying cash, and more convenient than a bank because airtime vendors were everywhere.

M-Pesa was meant to be used to repay microloans — very small loans made to very low-income earners, often by NGOs and international charities. However, M-Pesa was being used in new ways: businesses were using it as an overnight safe because banks closed before agent shops; people were using it to move money between places, depositing cash at one end and withdrawing it a few hours later at the other; and families were sending airtime directly to their relatives in villages.

In other words, people were using it as an overnight safe, low-friction and low-fee transfer of money, saving money for later, and avoiding a long trip with cash. In communities where basic needs like these were going unmet, M-Pesa took off. By the end of 2009, it had more than eight million subscribers in Kenya. By 2012, it had 15 million and more than 30,000 agents.

Being able to send money to a family member without needing to make a potentially dangerous trip, or keep savings in a smartphone instead of under a mattress, is easy to take for granted. For billions of people around the world, however, having alternatives to carrying all your wealth in cash is new. Mobile money has changed that, and the economic effects have been profound. 

By 2016, M-Pesa was everywhere in Kenya and quickly benefitting families. A 2016 study estimated that M-Pesa’s sudden takeoff had lifted 194,000 households out of poverty. The extra money — maybe 10 cents a day — was enough to lift households above the extreme poverty line. Another study found that if a family in Kenya happened to live near a mobile money agent, they were much less likely to be living in extreme poverty (under US$1.25 a day) and less likely to be living in poverty (under US$2 a day).

Researchers found similar effects in other countries. A 2016 study of households in rural Uganda found a significant uptick in household consumption among those using mobile money. Sending money home was not only safer and easier, it was much cheaper than paying for wire transfers or postal services — so more money was making it home, and people in rural communities were less likely to go hungry. Another Ugandan study in 2019found mobile money helped reduce households with very low food security from 63% to 47%.

Mobile money also made it likelier people were able to get medical care when they were sick, according to a 2019 paper. Since people were more likely to save money when they had a convenient and safe way to do so, they were more likely to have savings as a cushion if a household member got sick. Greater ease of sending money also meant they were more likely to be able to get help from friends and relatives in an emergency. 

Over the past decade, M-Pesa and its competitors have worked to replicate the Kenyan experience across Asia and Africa. Today, M-Pesa says it has 42 million active customers and 400,000 agents in seven countries. Its success has inspired others to follow. One is Wave, a sleeker low-fee mobile money app founded and run by people who want to bring M-Pesa-like programs to people without bank accounts in other countries. However, replicating that early success has proven difficult. “When mobile money succeeded in Kenya, it lifted about a million people out of poverty. And yet, over ten years later, most Africans still lack access to affordable ways to save, transfer or borrow the money they need to build businesses or provide for their families,” Wave’s homepage notes.

No two countries are the same, and convincing an entire society to adopt a new way of doing financial transactions hasn’t been easy. In some countries, it’s a chicken-and-egg problem: Agents need to be widespread for the service to be useful, but putting agents everywhere isn’t viable until the service is widespread. Which is why mobile money hasn’t take off in Niger, according to a 2020 paper. Despite many without bank accounts and much interest in a better money transfer system, M-Pesa and competitors have failed to get a foothold. In other countries, mobile money systems have been shut down by governments at the behest of central banks or competitors.

That’s been Wave’s experience as well. “In terms of mobile money deployment, every country is different,” Lincoln Quirk, a co-founder and head of product at Wave, told Vox’s Kelsey Piper. That said, despite being relatively new and relatively small, the sheer volume of transactions on Wave already makes up three percent of Senegal’s GDP, according to the company.

ABOVE A business owner and customer in Kenya conduct a transaction using M-Pesa

PHOTO Intersect

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