Online Payments & Money Transfer

Kick-starting mobile money system with payments and transfers

This is the second 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.

– By Ignacio Mas, Deputy Director and Dan Radcliffe, Program Officer, Financial Services for the Poor, Bill and Melinda Gates Foundation

Many mobile money payment schemes around the globe are treating remote payments and money transfers as the entry point for the unbanked. There is an underlying hypothesis that the need to make payments and transfers will lead people onto transactional savings accounts, and these in turn will lead them to more structured savings and credit products.

There are four main reasons why remote payments and money transfers may be a good way to kick-start a mobile money system. First, because mobile payments are completed in real-time, customers can test the system by calling recipients after sending the money. Trust can be built up experientially rather quickly: “I see that it works, I don’t really need to understand how it works.” Savings and other financial services require building trust over much longer periods of time.

Second, mobile payments address a key pain point of people living in a cash economy. The need for remote payments is often large, whether it is spurred by migrant labor remittances, informal support in networks of friends and family, entrepreneurs’ commercial transactions, or bill payments. And there is a degree of immediacy about the need, since people must make such payments with some regularity, and each such occasion represents an opportunity to try the new service. People need only be convinced to switch from current alternatives rather than to form new financial behaviors. Moreover, the benefit of the new payment mechanism relative to the alternatives (in terms of fees, proximity and convenience, delays in availability of funds at the receiving end, service reliability, etc) is readily apparent to users, which creates a willingness to pay for the new service.mobile payments money india

Third, a focus on remote payments allows the mobile money provider to market more intensively among senders, who tend to be richer, more educated and financially aware, and more likely to be urban. This group is more easily addressed by normal marketing channels, and can be counted on to pull their poorer, more rural relatives whom they send money to, into the service. In other words, the provider can direct the marketing dollars to the higher-end customers, and let viral marketing do the job on poorer customer segments.

Read the rest on the IFMR BLOG

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