Callahan & Associates' Blog
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Jun 04, 2012
More than half of Kenyans are using mobile payments technology. Can credit unions in the U.S. learn something from this developing country’s strides?
By Bailey Reutzel
More By Bailey Reutzel
Over the past 10 years, Kenya has been a forerunner in financial inclusion, making the developing country one to study. They’ve set an amazing pace for financial inclusion, which makes Jamie Zimmerman, director of the Global Assets Project at the New America Foundation ask, “Is Kenya a beacon of hope for developing countries or an irreplaceable outlier?”
Zimmerman and four other speakers – Eric Tyler, program associate on the Global Assets Project, Scott Gaul, director of analysis at Microfinance Information Exchange, Leora Klapper, lead economist for the development research group at the World Bank, and Billy Jack, associate professor in the department of economics at Georgetown University – participated in the “Tracking Progress Toward Financial Access” conference last week at the foundation’s headquarters in Washington D.C. The conference featured the latest financial data on Kenya and revealed how the developing country can give us a glimpse of the future of financial inclusion through mobile technology.
The advent of such growth in financial inclusion can be attributed to M-Pesa, a remote mobile account storage system that uses SMS technology to transfer money. M-Pesa was first launched in Kenya in 2007 and by the end of 2008 it had more than 5 million subscribers. The number of subscribers had increased to more than 14 million by March 2012, according to Safaricom’s M-Pesca Timeline.
M-Pesa has 35,000 agents — airtime resellers — in Kenya. Jack compared that to the number of bank branches in the country: 1,200. The number of people making $1.25 per day using the mobile payments technology is nearing 75% in Kenya.
When a financial institution reaches the 75% penetration mark, it’s a time for celebration. These numbers are amazing to say the least. Kenya is a developing country and on the forefront of financial innovation, while many financial institutions in the U.S. are taking a watching and waiting approach.
Credit unions started to become more popular in Kenya around the 1960s, dwarfing the growth of banks in the country. Over the past 50 years the number of cooperative financial institutions grew about 30 times, says Gaul. The climate was looking good for credit unions.
Then came M-Pesa. Credit unions can’t even swim in the same wading pool as M-Pesa.
Where were credit unions when the mobile technology was exploding? Banks noticed it. In 2008, in an effort to slow M-Pesa’s growth, a group of banks lobbied the finance minister to have the company audited. But the audit found the company’s service robust.
What if credit unions would have jumped on board with mobile technology? Is there a way for credit unions in Kenya to get in the game now that M-Pesa has a virtual monopoly in the mobile technology market?
If credit unions had partnered with the mobile technology company, credit union penetration numbers would most likely have skyrocketed like M-Pesa’s.
Plus, Jack is already envisioning M-Pesa or a product like it providing business services, transactional services, and personal finance, instead of only being a “cash-in, cash-out” service for transferring money.
These are products credit unions offer. Kenyan credit unions should jump onboard, especially since Kenya has a 68% mobile technology usage. But most Kenyans are unbanked, which means they’re using mobile technology as an alternative, says Klapper at the World Bank.
As my colleague Aaron Pugh says in his blog Mobile’s Missing Link: The only issue with a wait-and-see approach is that many mobile Point Of Service (POS) payment options propagated by third parties are shaping up without much emphasis on the specific roles or benefits for financial institutions.
And U.S. credit unions watching the whirlwind of new payment technology should look to Kenya as an example. When something new and innovative takes shape, be a part of it.
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