Money & Cell phones in Africa

Many cell phones in Africa can send and receive small amounts of money. More recently money can be moved between certain cell providers.

(If the following is not true, it should be.) One story I heard is that one cell system operator didn’t have a good distribution system so he changed the software to allow any cell phone user, using his phone, to transfer some of his minutes (prepaid talk time) to any other phone from the same operator. With this simple change one person, in town from a remote village, could buy some cell phones and return to the village with those phones and sell them to villagers along with minutes. This required no further technical changes or central policy for minutes to become money as minutes had thereby acquired all the necessary attributes of money.

The ultimate record of who has how many minutes is kept in the cell system control computers—tampering with a phone may steal but not counterfeit money (Unlike Mondex). The phone is like a wallet regarding security; only the current content plus the value of the physical wallet/phone is at risk to physical theft.

Cloned phones offer an attacker access to accounts of other phones but a PIN and simple air link encryption suffice for this threat. A phone might have two tiers of money, the larger protected by a PIN, making small transfers quicker and less tedious.

Unless a PIN is required to transfer money, physical custody of the phone provides access to the money so physical tampering is unnecessary to steal the money. A PIN and simple air link encryption should protect larger amounts of money.

This is a significant step towards the Digital Silk Road.

Platform Security

Cell phones with the authority (according to control computer logic) to send their minutes, or money to other phones represent a natural target for virus writers with a business plan. A security savvy robust kernel can support general applications and money in the same phone.

Macro Economics

The creation of money is fraught with moral hazard. The cell operator is tempted to create more money for his own benefit. Indeed cell users will buy more minutes for the convenience of payment. If cell service competition requires lowering cell rates, the cell operator whose system is providing ersatz money is tempted to merely lower cell prices and thus ‘inflate’ the money supply by making current cell accounts, denominated in minutes, lose value in trade. The cell operator with a long run view may choose to double the minutes of each subscriber as he halves the price of minutes thus preserving the value of his customers accounts. The cell system operator has thus become a bank, even a ‘central bank’. This would tend to preserve his reputation as a bank. Here is an account of cell minutes as money, and another.

Some press accounts: USA Today, BBC. A UN report.
trade journal

Cell systems that advertise monetary use of cell phones (see links below) denominate values in local currency. I suppose then that the cellular account has two balances, minutes and local currency units.

There are several such services now in Africa but it is not generally possible to transfer money between such services. Even without such money interconnect third parties with accounts on two such systems can pass money between the two in the classic pattern of money changers. This seems to be a service available to US persons (at least) to send cell money into cell systems in many countries.

Cell phone money needs to be compared to the logic of classic banks.

Jana has an exciting tangential business.

Safaricom’s M-PESA System in Kenya, South Africa’s Wizzit, Golis in Somalia (including user manual), Instructions on how to do this in Zambia

India:
Cellular Banking in India, too; Eko
Obopay any text-message phone.
mChek Payments

Maxis & Globe Telecom with emphasis on international transfers; $1.47 charge per transaction. Another report.
Remittances to India

2006: Here are reports of heavier weight American services designed, perhaps, to produce bigger profits.
2007: Controversy and Insight on moving larger amounts.
2010: Verizon?? It sounds like very limited payees and without the payer being able to specify the payment amount via a trusted channel.
2011: Late to the game?. Who needs kiosks? Surely there are money savvy commuters from one town to another that will carry cash in their pockets, one way, when a ‘currency value’ gradient develops. I think that the big banks fear disintermediation. To perform other traditional banking functions, such as loans, they will need a physical personal presence.
2012: Afghanistan corruption
2012: Input portal?
2012: Now Cuba
2014: The Economist mentions crop insurance and micro loans built on cell money.
2015: bKash in Bangladesh
2015: Telesom ZAAD is South Africa

Canada?

ANZ’s Cambodia service (2010 Sept)
Russia

Phone banking

Some of these systems don’t do phone to phone transfers. Instead they do phone to cash and back at special geographic transfer points, and also payments to selected payees.

Quoting quotes from here regarding village cash terminals connected with traditional bank accounts:

Such approaches have their critics; Swamy is one. He says that India could, in fact, become utterly cashless; a man like Karehanumaiah could be paid for his farm labor electronically and buy goods and services the same way. Given that many areas of India have no banking infrastructure at all, he argues, it makes no sense to try to build kiosks and machines. “Those are nonscalable models and very labor-intensive models,” Swamy says. “If he can do it in his village, he can do it in his pocket [with his cell phone]. That is our perspective.” Still, most experts say a wholesale changeover to electronic transactions is unrealistic, and that mobile banking will require some connection to the cash economy. Concerning a connection with a cash economy, anyone you trust, even briefly, with cash in his pocket and a cell phone can make this connection.

Nokia gets involved. Their story

The 2009 Sept 26 issue of The Economist magazine has marvelous extended coverage of new cell phone developments in Africa and other poor countries, including cell money.

GSM’s perspective
Premium-rate telephone number
25% of GDP in Kenya, yet resistance

Since 2015 Apple-Pay is a service whereby a user with an iPhone can connect it to his credit card to become a payer. He does not become a payee thereby. The money stays in the card issuer until the payment. An map from an Apple-Pay account to a credit card number is maintained in the cloud and the merchant is notified of payment in seconds. Special application software is required on the iPhone. In these regards Apple-Pay is less flexible than the original African model. The phone app makes paying easier, perhaps since near-field technology eases identifying the payee.