Mobile banking and money transfers are growing in popularity. Kenya has more active accounts than it does people. But how exactly can mobile banking make a positive impact on the developing world?

The total value of worldwide transactions made on mobile phones in 2013 was $24 billion. The top five countries with the highest number of active bank accounts are all in the developing world: Kenya, Tanzania, Botswana, Zimbabwe and Cameroon.

Such is the potential of mobile banking that Bill and Melinda Gates have made it their next target, believing that “mobile banking will help the poor transform their lives.”

Instead of storing wealth physically, with things like livestock, jewelry or even stuffing money in mattresses, mobile banking enables people a safer and more “mobile” way to manage their money. There is less potential for depreciation or loss of wealth when money is stored in a bank – a bank cannot get sick and die, unlike a cow.

Furthermore, if only a small amount of money is needed for a minor home repair or a few groceries, it makes sense to use a small amount and pay through a phone connected to your bank instead of taking a cow or piece of jewelry however far is necessary to sell for more money than might be needed in the immediate future. Mobile banking also makes the opposite more possible – again, livestock can die which makes saving money for the long term more difficult, but access to a mobile bank makes it simpler to save for children’s education, a payment for a car or just a rainy day.

Another positive impact of mobile banking is that it reduces the amount of time spent and distance traveled to go to a physical bank, sell livestock or make a payment. Transfers, deposits and payments can be completed in an instant instead of walking to the nearest bank or market.

In the same way, mobile banking also benefits farmers. Without mobile banking, farmers bring crops to town and leave them with a seller who has a vegetable stand before returning home. The farmer then has to return to town, hope that he can find the seller and collect his money. This whole scenario has the potential for loss of money and long journeys. Plus, what if the farmer needs money before he can come to town to collect it?

Mobile banking can eliminate all these potential issues if brought into play. Instead of the farmer making a second trip to collect his money, the seller can transfer it to the farmer as soon as his produce sells, from phone to phone in an instant.

A perfect example of the positive impact mobile banking is capable of having on the developing world is M-Pesa, which was one of the first systems to start enabling payments by mobile phone. Based in Kenya, the company “developed a system for transferring micro-credits via cell phones supported by a network of agents. This system was initially intended to drive local development and its objective was to reduce funding costs, but it found its real niche for its use with the payment options it offers.”

This way of making payments moved around the obstacle of cash access in Kenya, which is relatively difficult due to the technology and infrastructure needed to set up an ATM system. Instead, making a payment via an SMS text saves time and is easier for individuals – the way forward for banking and improving lives in the developing world.

– Greg Baker

Sources: Huffington Post, New York Times, BBVS Innovation Center, CNN, The Economist
Photo: AVG Now