The world is being dramatically transformed by technology such that the digital revolution includes everyone. This is a radical change from the industrial revolution, where only those rich enough to cover the costs of physical service could be included. In a digital world, digital service is cheap, fast and global. This is the transformation we see happening right before our eyes. Have you noticed?
Until recently, only one-third of people living on earth had a bank account. Two-thirds of humanity were excluded from financial services. The result of this inequality is that, for those who were unbanked, they had to pay more for any financial service as a percentage of their transactions. Then, in 2007, Vodafone’s subsidiary Safaricom launched M-Pesa in Kenya, and the world changed. Not only was M-Pesa a roaring success, but its concept was copied in most countries across Africa, Asia and South America. I say concept because M-Pesa itself has failed to repeat its success in other countries. This is a reflection of the reach, breadth and depth that a mobile operator needs to make such services work, and is why Orange dominates the mobile money market in Mali and EcoCash in Zimbabwe. More on this later. But the concept is the same across all nations: use the mobile phone to move money.
This is a wonderful change we see in the world. We see the sudden rise of the poorest people in places mobile financial inclusion touches. Now, people in areas decimated by drought can get micro-insurance services to enable them to avoid starvation; people in the remotest areas can get micro-loans to start new businesses; and people with no accessible physical financial services can save their money safely and easily through micro-savings.
People in areas decimated by drought can get micro-insurance services to enable them to avoid starvation; people in the remotest areas can get micro-loans to start new businesses; and people with no accessible physical financial services can save their money safely and easily through micro-savings.
All of this is driven by the mobile telephone revolution, and is best illustrated by Alipay, the Chinese mobile money giant. In 2013, China had no mobile money system as such; five years later, the Chinese transact over $15 trillion a year via Alipay and WeChat Pay. Based upon this success, Alipay is exporting their expertise, technologies and capabilities to other countries where financial inclusion is a priority: Indonesia, the Philippines, Pakistan, Thailand and more. In fact, if you didn’t know it, Alipay is the backbone partner of PayTM, the Indian mobile wallet that aims to bank 500 million Indian citizens by 2020.
This is the core change taking place, but what is it that Alipay got right and M-Pesa got wrong? Why can Alipay power financial inclusion in so many countries, but M-Pesa cannot? What is the right infrastructure play for financial inclusion, and what are the mistakes that are made?