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This report contributes to the policy debate by analysing the potential hurdles to the extension of mobile transactions from the present small base, and thereby suggesting possible actions to lower the barriers to transformational m-transactions. Though mobile telephony has spread so rapidly, this does not automatically mean transactions services spread by mobile can penetrate low income markets just as fast. A number of obstacles need to be overcome, the most important being the development of suitable cash-in and –out mechanisms. Through a set of case studies, the report shows that there is sufficient evidence to suggest that policy makers should ensure there is an appropriate regulatory environment so that innovation with respect to business models and partnerships can occur.

Context:

•  Lack of access to basic financial services in the developing world
• The growth of microfinance
• The importance of remittances

Within this context, the following key issues are raised:

• Customer needs lie at the heart of the potential for mobile transactions. A clear message from the experience of M-PESA, Vodafone and Safaricom’s m-transactions scheme in Kenya is that developing countries will remain cash-based economies for the foreseeable future, so the mechanism for making cash deposits and withdrawals is central to the potential of m-transactions schemes. Therefore it is both the widespread adoption of mobile, and also the extensive distribution networks of the mobile operators, that create the foundation for the transformational potential.

• The cultural reactions to such fundamental economic innovations as means of payment are important and will influence the pace of adoption in some societies.

• It is important that policy makers recognise that commercial innovation and experimentation will be key to developing viable business models. Regulation should not seek to impose specific outcomes at this stage of market development.

• An important issue for m-transactions schemes in developing markets is the impact of know-your-customer and anti-money laundering rules, particularly in the context of very low income customers with limited documentation and lack of access to facilities such as photocopiers.

• Mobile transactions inherit two regulatory environments, telecommunications and banking. It is clear that there will need to be a continuing dialogue between the two sets of regulators, if the potential of mobile transactions is to be realised.

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