The Technium

Pocket Banks

As the prophet Gibson said, “The future is already here, it is just not very evenly distributed.”

For Exhibit A in the unevenly distributed future take M-Pesa, found in Afghanistan, Kenya, South Africa, and Tanzania. M-Pesa (called M-Paisa in Afghanistan) is a way to send cash from one mobile phone to another.

There are plenty of mobile payment systems in Asia and Europe, and promises of ones to come from Apple and others in the US, but none so far have been as successful and ubiquitous as the simple direct systems of M-Pesa in the developing world. The money is transferred as a SMS message, and is paid out in cash by a local agent or an ATM. It can be used for peer-to-peer payments, to pay bills, to pay salaries, and to deposit and withdraw money from a bank account. In industry jargon it is called Branchless Banking.

Few people in these developing countries have banks, so they have to either hide or carry their savings, such as they are. Getting robbed while traveling, or robbed at home is a constant worry. With M-Pesa they think of their money as being stored in their phone. Which it kind of is. To move money in or out, they use their phone number and a PIN, almost like it was a pocket ATM.

Here’s how it would work in Afghanistan. Say Abdul in Kabul wants to travel to Herat, but he is afraid he might be robbed along the way — a very reasonable suspicion. So Abdul sends 400 rupees to himself, or to his friend Haji who lives in Herat. Abdul gives his local money agent the 400 rupees which is entered into his account. Abdul can then travel with no cash. When he gets to Herat, he goes to the local agent, and gives his number and pint to redeem his cash. In Kenya, which is a little more developed, the agent can be a corner ATM. The recipient types in their phone number and PIN and out comes the cash.

M-Pesa takes a cut, but it is one third of what a Western Union type of money transfer would charge, and a lot cheaper than having a bank account. You can also send cell phone “air time” to a recipient instead of cash.

This kind of mobile banking has also been a source of livelihoods for agents, which start out simply as human-ATMs but can eventually grow into offering more banking-ish services.

An academic study of the service gives a bit of the flavor of one agent’s booth in Kenya:

“Our busiest time is in the evenings, though at times we have customers lining up as early as 10 a.m. to use the service.” Mwanzia has been running the business for two months and says that so far business has been good. The Ngummo area is adjacent to Kibera, believed to be one of the largest slums in Africa. Most residents of Kibera are low-income earners, usually casual laborers earning an average wage of KShs. 210 (approx $US 3) a day. Many of them cannot afford a bank account; an M-PESA account serves as a substitute. In the evening, after a hard day’s work, residents can be seen queuing at the various M-PESA shops to deposit some of their wages into their M-PESA accounts to use later when work is hard to come by.

In practice M-Pesa is widely used to pay school fees, pocket money, and drinks at a bar (where you may not want to carry a lot of cash), or while traveling. Also, it has a much lower minimum and so encourages micro-payments of everyday purchases. It’s reliable enough that bus drivers in Kenya, and the Afghan National Police in Kabul are paid this way. In Kenya the system generates 2 million transactions per day. The growth of M-Paisa in Afghanistan is supported by the Gates Foundation as a substitute for a nearly non-existent banking system.

Jan Chipchase, of Frog Design, visited Afghanistan last summer (2010) to see how M-Paisa was used on the ground. Photos and his report can be found here. One example of his findings:

Ahmed is a day laborer who is unable to make enough money to pay his electricity bills, his father’s healthcare costs, and the fees for his two younger brothers’ schooling. nevertheless, he is trying to save up for a mobile phone because it will help him on the dating scene, which will hopefully one day lead to marriage.


The west and the US will have mobile payments eventually. There are a number of different schemes vying for prominence. The technology exists and works in prototypes and pilot programs. The question is wide-spread adoption. But since we have so many banks and ATMs and PayPal and credit cards up the kazoo, mobile peer-to-peer banking may take longer here to reach the kind of ubiquity a money system needs.


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