Study casts doubt on m-banking for poor

By Leon Engelbrecht, ITWeb senior writer

Johannesburg, 16 Mar 2007

A new study, conducted by the Consultative Group to Assist the Poor (CGAP) in SA, has found mobile banking (m-banking) may not be the panacea hoped for in "banking the unbanked".

The study, funded by the UN Foundation (UNF) and Vodafone Group Foundation (VGF), found 59% of a sample of 300 "unbanked" poor South Africans had no bank accounts because they had no money to put in them.

"The study reveals some South Africans who are unemployed and earn no personal income seem to believe they do not need banking services [including m-banking], cannot afford them, or are ineligible to have them," the study found.

The research was conducted to verify the thesis that "the real potential of m-banking may be to make basic financial services more accessible to millions of poor people across the world". This belief has been spurred by the proliferation of cellphones in the developing world - and among SA's poor. Last year, the mobile phone became the first communications technology to have more users in developing countries than in the developed world.

"As mobile phone usage expands, so may opportunities to bank the unbanked," says the report's authors in their introduction. Gautam Ivatury and Mark Pickens, both of CGAP, argue that "with m-banking, low-income people no longer need to use scarce time and financial resources to travel to distant bank branches. And since m-banking transactions cost far less to process than transactions at an automated teller machine or branch, banks can make a profit handling even small money transfers and payments."

Perceptions

The reports' findings are based on interviews last July and August with 515 low-income black South Africans. Three hundred of the sample do not use m-banking and 215 are clients of the Bank of Athens' virtual subsidiary WIZZIT. The subsidiary advertises by word-of-mouth to the 16 million South Africans who lack - or have difficulty - accessing formal banking services.

The authors found many WIZZIT customers are indeed poor, "but they are not among SA's poorest people. They tend to have more income and assets, and be more financially and technologically sophisticated than other low-income South Africans."

The study also brings some understanding about perceptions surrounding banking, technology and m-banking among low-income South Africans: "Both WIZZIT customers and non-customers say they are open to using new technology, but still value human interaction. Most non-customers surveyed know little or nothing about m-banking and perceive it as expensive and complicated. Some who are unemployed see themselves as ineligible for bank accounts," the study found.

The authors aver that these perceptions must be dispelled if m-banking is to be adopted by a broader base of low-income South Africans.

"Ultimately, all poor people need financial services to increase household incomes, build assets, and become less vulnerable to crises. With millions of mobile phones already in poor people's hands, CGAP, UNF and VGF see tremendous potential in the power of network operators, banks, and new entrants to deliver financial services through this channel," the authors conclude.