Online Payments & Money Transfer

Constructing new cash ecosystems through mobile money

By Ignacio Mas-Ribo, Deputy Director, Financial Services for the Poor, Bill and Melinda Gates Foundation

This is the third of three-part series of blogs titled “Mobile money”. The authors explore and explain all about mobile banking and how it can make a difference to the rural population.

It sounds paradoxical, but the success of a mobile money scheme depends on how well it can handle physical cash. This is particularly true if it is aimed at the unbanked, for whom everything happens in cash. They need bridges between the cash economy in which they live today and the electronic money world that they are being wooed into. Those bridges are the retail stores acting as business correspondents (BC). How well those bridges work –how reliably these stores are able to meet customers’ liquidity needs, on-demand, conveniently near where they live and work— will in the end determine how customers judge the convenience and trustworthiness of the mobile money system.mobile payment ecosystem

Mobile money doesn’t make the cash problem go away, but it does make it a lot more tractable. BCs pool the cash requirements of the community they serve, and there will be some netting locally as deposits and withdrawals offset each other to some extent.  Moreover, the BC model turns the resulting net cash handling problem into a revenue-making opportunity for local businesses.

The liquidity of the system will depend on three things: (i) how matched customers’ cash in and cash out needs happen to be; (ii) how much support the stores get in managing their liquidity; and (iii) how incentivized the store is to hold an adequate stock of both cash and electronic value at all times.

Read the rest on the IFMR Blog

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