Money Changers

What are the basic tools in your personal financial toolbox? Cash, of course. A debit card tied to a checking account. Credit cards. A savings account. And then there are a whole bunch of comparatively passive tools designed to stave off disaster - health and life insurance, retirement account, mortgage, stocks, and bonds.

Now imagine you were born and raised in rural Tanzania, or Thailand, or Brazil, and you have none of the pre-conceived notions about those financial tools. There are no banks in the village, and even if there were, you're not sure the bank can be trusted. No one owns a credit card, or insurance, or stocks or bonds. You're paid in cash for the work you do. Your daughter convinced you to sign up for mobile money when she moved to the capital to work, and it was the easiest way to send money home. Then, it seems overnight, you could use your mobile wallet to buy food, or pay for a taxi. Now you have a better phone, and your daughter says you can use it to find information about the weather or yesterday's game, open a savings account, buy insurance, apply for a small loan, and pay bills.

The fact is, the concept of money is undergoing a fundamental transformation, and different players are stepping in to offer financial services where there were none before. (Think M-Pesa and its imitators, Google Wallet, and Facebook's quiet, impending launch of mobile money in Ireland.) New financial services by any company will have to gain the trust of wary consumers and navigate a tricky set of regulatory and business-model obstacles. Still, the relatively open regulatory environment, the greenfield technology and banking landscape, and a clear willingness by consumers to adopt technologies that improve their lives make developing countries fertile ground for the introduction of new financial services. Emerging markets are already out in front of a brave new financial world, and villagers in Tanzania, Thailand, and Brazil are starting to look at our paper checks and credit cards with a mix of confusion and humor.

Microinsurance: Rising Star or Tough Sell in Emerging Markets?

A report released last month by the insurance company Swiss Re claims that there is a $40 billion market opportunity for targeting microinsurance to low-income people earning less than $4 a day in emerging markets. Microinsurance products can include life, health and weather insurance and feature lower premiums and coverage levels than traditional offerings. According to the report, the Asia-Pacific region is the largest and fastest-growing microinsurance market, though the segment is also growing in Africa and Latin America. Many companies are already in the process of extending insurance to low-income customers in both rural and urban areas. China Life Insurance Company has provided 4 million microinsurance policies covering approximately 8 million farmers, while Bradesco Seguros, the largest insurance provider in Latin America, hopes to add an additional 20 million new clients on the strength of its microinsurance products. Panama's Nacional de Seguros recently announced that it will be launching a number of microinsurance products in 2011, and Malayan Insurance is expanding its reach in microinsurance by partnering with other organizations to develop new insurance products for the poor in the Philippines. 

Microinsurance products can benefit low-income clients and insurers alike.  Poorer individuals targeted for microinsurance tend to by very risk averse. External shocks such as a death in the household or a drought can force them to sell off the few assets they have to stay afloat, stifle their future investments and ultimately cause them to fall even further into poverty. Microinsurance can help the poor guard against events that could otherwise wipe out their family's assets overnight. Meanwhile, microinsurance allows insurers to enter a new market and build a brand image, paving the way for microinsurance policyholders to become conventional insurance customers as their assets grow.

Despite these benefits, there are many challenges to making microinsurance profitable, including customer perception and price sensitivity. Low-income customers, who may not be aware of insurance or may perceive it as a luxury item, need to clearly understand the value added to their business or families before purchasing the insurance product. Conducting in-depth research can help insurance companies develop compelling products and messaging. Additionally, technology could be utilized to both educate customers and bring the products to market. Since the brick-and-mortar model is not always feasible for reaching poor, rural consumers, insurance providers would benefit from technology solutions that both market and sell policies, particularly as mobile payment systems develop.

From 'E' to 'M': Banking Goes Mobile

International high finance may still be down in the dumps, but the market for mobile banking is starting to look up in a very big way. A recent KPMG survey in India found that 64% of Indians are "at least somewhat likely" to conduct banking over a mobile device in the next 12 months. Growth in the Indian market is reflected globally, with a Gartner report predicting that the number of people using a mobile phone to make payments would rise from 43 million in 2008 to over 73 million in 2009, with the total reaching nearly 200 million by 2012. More affluent customers who want to access their bank accounts using their mobile device may represent the most immediate market, but the billions of unbanked consumers in emerging markets around the world are the ultimate prize, as mobile banking allows people who have not previously had bank accounts to join the formal financial sector.

The pervasive use of electronic ("e") transfer systems for financial transactions has essentially obviated the term eBanking. The use of digital computing equipment in financial services is so firmly ingrained that eBanking is now simply banking. However, the concept of banking through one's mobile phone, or mBanking, is still in development and warrants a separate label. Other verticals ripe for digital forms of delivery – health, government services, and commerce – may also manifest initially through stationary electronic IT systems. But in many countries where mobiles are leapfrogging computers as an access point, the "m" version of the service – mHealth, mGovernance, mCommerce - will lead. This will impact the development of the services themselves as well as the computer infrastructure that supports them.

The influence of mobile devices, especially in emerging markets, will reach across industries. Traditional IT companies, as well as health and commerce-related corporations will do well to consider the ways in which the pervasiveness of mobile phones will affect their marketing and delivery channels. Firms that tailor their products and services to the mobile channel might end up ahead of the curve.

Universal Financial Services - Opportunity for IT firms and mobile operators

by Karen Coppock
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Sanjay Bhargava, previously a Reuters Digital Vision Fellow at Stanford and one of the initial brains behind the PayPal business, is now spearheading a movement for universal financial services in India.

Millions of people in India, and in emerging-markets around the world, do not have access to formal financial services and pay obscene amounts for access to cash via loan sharks, check cashing services and even pawn shops. Without access to credit, individuals cannot build up a credit history and continue to be relegated to informal financial services. Without credit, or the ability to save, consumption is hindered.

Sanjay lobbies for a technology-centric solution to providing universal financial services - one that firms should keep an eye on and understand. Firms could potentially play a role in pushing Sanjay and its own agenda forward - or at least use the momentum he may be creating - for the good of society and the bottom line.

Mobile Banking Lacks a Global High-Tech Leader

Using mobile phones for financial transactions, or m-banking, has seen rapid adoption in countries like the Philippines and Japan. Though the service remains fragmented and country-specific, this week’s CIO magazine points out the growing opportunity for m-banking in Africa.

CIO bases their assertion on survey results from South Africa, where local bank subsidiaries are already processing thousands of mobile transactions each month, and the biggest barrier to wider adoption seems to be a lack of consumer awareness.

Finding signs of m-banking success in South Africa is not surprising. Vital Wave Consulting research reveals that the mobile phone saturation rate among South Africans living at or above subsistence is comparable to the level in European markets. Saturation in South Africa (and Nigeria), together with rapidly increasing mobile penetration rates in other African countries, create a fertile user base. And mobile phone-based financial services are particularly attractive when poor roads and public transportation systems make a trip to the bank an expensive, all-day journey.

There are ample, quantifiable business opportunities in the m-banking value chain for multiple players, including banks, international credit companies, carriers, and software designers. While financial service providers are moving quickly to realize these opportunities, no global technology leader has stepped forward. A multinational high-technology company capable of providing such mobile solutions has much to gain by enabling comprehensive m-banking across emerging markets.

Also in the news:
• Microsoft is putting their money on smart phones as the next computer
• GSM and CDMA search for the best foothold in developing countries
• Vodafone unveils handsets designed for emerging markets