Micro-Payment Systems and Their Application to Mobile Networks

Paper on mobile-enabled financial services for socio-economic development in the Philippines
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The proliferation of mobile communications in developing countries has the potential to bring a wide range of financial services to an entirely new customer base, according to a new report commissioned by infoDev in partnership with the International Finance Corporation (IFC) and the GSM Association. The report, which focuses on the use of mobiles for micro-payments in the Philippines, found that mobile-enabled financial services, or m-Banking, can address a major service gap in developing countries that is critical to their social and economic development.

In many developing countries, particularly in rural areas, access to financial services is limited. A large proportion of the population are excluded from formal banking systems and make payments entirely using cash, which is far less secure and flexible than electronic payment mechanisms. However, in the Philippines, 3.5 million people are using a service that allows them to transfer money over the two major mobile networks operated by SMART Communications and Globe Telecom.

The experience in the Philippines shows that mobile-enabled financial services has the capability to bring advantages to all stakeholders:

  • For users: an opportunity to become engaged in the formal banking sector, to facilitate and reduce the costs of remittances, and to enable financial transactions without the costs and risks associated with the use of cash, including theft and travel to pay in person;
  • For operators: a significant increase in text messaging revenues and a large drop in customer churn
  • For consumers: m-commerce is more secure and flexible than cash, allowing consumers to make payments remotely;
  • For banks: an increase in their customer reach and the added cash float available to the bank;
  • For retailers: added business opportunities through the sale of prepaid account credits;
  • For micro-finance institutions: the ability to advance funds into remote areas and have regular repayments that do not significantly inconvenience the user;
  • For service industries and utilities: the ability to get payments electronically from a significant portion of the overall population.

[Author's abstract]

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