Home' Technology Review : November December 2008 Contents FEATURE STORY
TECHNOLOGY REVIEW NOVEMBER /DECEMBER
the World Bank, traces the trend to 2001 in the Philippines, where a
telecom company, Smart Communications, partnered with banks
to provide financial services. The concept spread; by 2005 the
South African startup Wizzit had launched a banking and payment
platform for mobile phones. And in 2007 Kenya's leading telecom,
Safaricom, launched the money transfer service M-Pesa.
Yet these efforts to graft developed-world banking onto
developing-world mobile networks are not commensurate with
the swelling popularity of the mobile phone itself. The larger story
is one of pilot projects that petered out amid di culties includ-
ing cumbersome national regulations, unfriendly user interfaces,
and an inability to make the right partnerships. "The reality of the
field today is that the promise---which a lot of people understand
is huge---is more in the conceptual stage," says Michael Chu. "The
banking industry is very suspicious of the cell-phone industry,
because they suspect that cell phones will make them obsolete.
The cell-phone companies think the banks are like dinosaurs."
But these players have to work together seamlessly for cell-phone-
based banking to work.
Both mChek's technology and its business model are geared to
avoiding such pitfalls, some observers say. The company got its
start in 2006, when Draper Fisher Jurvetson spun it out from A
Little World---a Mumbai company developing smart cards that the
Indian government sought to use as national ID cards---and gave
it $4 million in funding. From the beginning, mChek has empha-
sized security and usability. The software itself runs on any phone
(even the years-old used phones sold at many storefronts), and the
transactions use simple text messages that work on any network.
Moreover, with two forms of encryption plus the usual PIN protec-
tion, the system is considered as secure as any card-swiping device
in any retail outlet: mChek says it is the only mobile payment plat-
form to have won certification from Visa. And the company isn't
locked into an exclusive partnership with any one bank or mobile
carrier, so it's flexible and able to grow. "What's great about what
they are doing is that they are working with all of the [mobile car-
riers] and banks," says Crystal Hutter, a manager of investments at
Omidyar Network, the philanthropic investment firm established
by eBay founder Pierre Omidyar, which is active in microfinance.
"They are not locking themselves into one operator or one bank.
Having the ability to work interoperably is huge."
Serious growth became more likely in August, when Airtel
decided to incorporate the mChek platform directly into the SIM
card---the device inside a mobile phone that identifies the user and
phone number---on all four million phones it ships monthly to
new customers. This means phone owners won't have to seek out
and download mChek's software. Airtel is marketing the feature
heavily as a way to pay phone bills, in part because it pays mChek
less for each transaction than it pays the 800,000 retailers who now
accept cash payments (mostly prepaid top-ups) on its behalf. For
mChek, then, the task now is to forge more such partnerships and
navigate a shifting regulatory environment. Draper Fisher Jurvet-
son's Jolly says that mChek's achievements thus far are unique in
India. "I often talk about [mChek] as a company that is dancing
with gorillas or behemoths," says Jolly. "You have the banking
sector on one side and the [telecom companies] on the other side,
and then you've got the MasterCard and Visa folks, and finally the
regulatory oversight bodies like the RBI. Trying to corral all of
them, for a startup, is next to impossible. What mChek has been
able to accomplish in India has never been done before."
The company does face some emerging local competition. In
Bangalore, JiGrahak Mobility Solutions has developed a popular
bill-paying and banking platform, but it's sticking to the upper
end of the market; its service requires the Internet connections
available on higher-end phones. In Delhi, Eko India Financial
Services is partnering with a local bank to bring no-frills bank
accounts to the rural poor in a pilot project limited to 5,000 people.
And Obopay India---the Indian branch of a U.S. firm---is work-
ing on developing a mobile microfinance platform in partner-
ship with Grameen Solutions, one of the organizations created
by the Bangladeshi microfinancier Muhammad Yunus, winner
of the 2006 Nobel Peace Prize. (It is not connected with Grameen
Koota in Bangalore: grameen means "rural" or "of the village.")
Obopay's initiative, called "Bank a Billion," was scheduled for a
rollout in Mumbai and Bangladesh by early November, says Vijay
Balakrishnan, chief marketing o cer for Obopay India, which
hopes to enroll a million people in those two regions within 18
months. In Obopay's scheme, the purchase price of a cell phone
would be built into a Grameen microloan; bill-paying software
would be incorporated into the SIM card; and the borrower would
open a no-frills bank account.
CASH AND COWS
The di culty with such e orts is that it's not clear how hundreds
of millions of poor rural people doing mobile banking would actu-
ally deposit and withdraw cash, even if they used their phones for
transfers. No nation has yet convinced its citizens to forsake cash-
stu ed wallets and convenient ATMs. Sabira Khanam, for example,
sells her saris for cash. And she makes cash deposits in a conven-
tional bank account (though from there, she will be able to receive
and repay microloans electronically under the Grameen Koota/
mChek project). "Today, cell-phone companies by themselves can-
not provide the things that banks provide," says Harvard's Chu. "At
the end of the day, if this is to be an e ective platform, you have to
have physical delivery or access to the funds."
See David Talbot s video reports from Bangalore:
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