M-Commerce boosts commerce, replaces cash

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 the Information for Development Program (infoDev) in partnership with the International Finance Corporation (IFC) and the GSM Association.


The report focuses on the use of mobiles for micro-payments in the Philippines , and finds that mobile-enabled commerce, or m-Commerce, 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 key success factors in the Philippines model identified by the report include the ability for users to load prepaid airtime credits and to transfer both cash and airtime credits between customers, plus the low values set by the operator for prepaid top-ups or credit transfers. Typical top-ups of US$47 to US$0.57 are allowed (equivalent to around four to five minutes of calls) while transfers between customers of both cash and airtime credits were permitted as low as US$0.04, serving the target market's familiarity with 'sachet purchasing' - the practice of purchasing goods in very small quantities.

 The experience in the Philippines shows that m-Commerce has the capability to bring advantages to all stakeholders.

 For users there is 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.

 Operators enjoy a significant increase in text messaging revenues and a large drop in customer churn, while for consumers m-commerce is more secure and flexible than cash, allowing consumers to make payments remotely. In turn, retailers benefit from added business opportunities through the sale of prepaid account credits. 

In the finance sector banks see an increase in their customer reach and the added cash float available to the bank. Micro-finance institutions have the ability to advance funds in to remote areas and have regular repayments that do not significantly inconvenience the user.

 * infoDev is a multi-donor partnership with close ties to the global operational capacity of the World Bank, and equally strong relationships with a number of key donors. It helps the donor community and developing countries address the opportunities and challenges of ICT for development.

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