Can Mobile Payments Reduce Corruption and Help Workers in the Developing World?
BY Lisa Goldman and Nick Judd | Thursday, July 12 2012
Back in May, federal officials revealed a sweeping new "digital government" strategy that included an international flavor: technologists coming to the federal government through a fellowship program would work on projects related to an initiative by USAID, the U.S.'s international development agency, to push for more people in the developing world to get paid by mobile phone instead of in cash.
The basic premise is that mobile payments offer a way for people without a lot of money or access to a bank to make financial transactions at lower risk of fraud, usurious fees or other loss. As cellphone use skyrockets around the globe, SMS-enabled mobile phones can serve as access to digital wallets, the keys to basic financial services that the "unbanked" can use without getting involved with a traditional financial institution. Mobile money is gaining speed in the developing world, and USAID wants to help it along by putting its clout behind payments systems in countries with accelerating cellphone use like Afghanistan, the Philippines, and Colombia, USAID Chief Innovation Officer Maura O'Neill told techPresident this week.
This is a trend that's likely to continue with or without the U.S.' intercession. O'Neill was en route to Haiti Tuesday to celebrate the five millionth mobile transaction made in that country since the 2010 earthquake there, a number that includes person-to-person transactions. A Kenyan service, M-Pesa, is widely regarded as a success, with almost 19 million subscribers by the end of last year. By USAID's count, 1.8 billion people in the world have access to a mobile phone but not to basic financial services, meaning there's a big potential market. USAID has partnered with Citi, which is already involved in mobile payments, to encourage adoption.
And USAID has a lot of buying power. The agency already pays its contractors electronically and is pledging to ask more of those contractors to pay their employees electronically in turn, making it easier to account for the "last mile" traveled by USAID money — and USAID allocates between a few million dollars in some countries to more than $1 billion in others — put towards development and aid in the name of the American people. Meanwhile, mobile providers are still working out industry security standards and even USAID's own pilot programs have shown that trying to bring a new financial system into a country without a lot of infrastructure, even with the help of widespread mobile adoption, is very difficult.
USAID is going through with it anyway. So let's dive deeper into how, and why.
While admitting mobile payments are no panacea, USAID still explains mobile money in simple terms through videos like this one:
When federal Chief Information Officer Steven VanRoekel and Chief Technology Officer Todd Park rolled out a new digital government strategy in May, they also trotted out a by now well-worn story about mobile money in Afghanistan: During a pilot program for Afghan National Police officers, members of the police getting mobile payments thought they had received as much as a 30 percent raise because officials standing between them and their paychecks were skimming a cut for themselves. But VanRoekel and Park made their announcement long after researchers had done a deep dive into many problems with mobile money in Afghanistan and while federal officials knew full well that mobile payments could be just as susceptible to corruption as cash payments.
In April, citing a State Department cable released by Wikileaks, Foreign Policy reported that a senior Afghan National Police officer whose subordinates were in the mobile pilot project tried to register fraudulent accounts in his subordinates' names. In another case, the same officer forced his subordinates to turn over their SIM cards and tried to redeem them for cash from an M-Paisa agent. The agent refused to hand the money over, but had to go into hiding for fear of retribution.
"Working in Afghanistan is a humbling experience," O'Neill, USAID's chief innovation officer, told techPresident earlier this week. Later on in the conversation, she added, "It's a complicated place to work and so I want to be humble about our success but bullish on what is [a] huge opportunity for Afghanistan."
Asked about reports of the mobile payment system being abused, O'Neill said that officials responded by changing the rules — for instance, so that participants could only bring in one cellphone to get cash at a time. USAID is working with people in the U.S. Treasury Department, Afghan central bank and others to combat fraud, she said.
"Just like with credit card fraud, one has to be ever-vigilant about ways that one would want to game the system as they have already in cash and other ways," O'Neill said. "Our hope is to stay one step ahead of most of the bad guys. But you're never going to be able to stay ahead of every single one of them."
Meanwhile, the pilot with Roshan, the local telecommunications provider, and M-Paisa, its mobile payments program, is set to expand. There are now about 2,000 Afghan National Police using mobile payments as the program approaches a new target level of 4,000 people. It was 500 people only a few months ago. Meanwhile, according to USAID, 350,000 Afghan government employees are still paid in cash.
Even if corruption was not a problem with mobile payments, in Afghanistan, at least, creating accessibility to the system still would be. In order for mobile payments to work, clients need to be able to cash in and cash out using a network of agents with money on hand. In remote or rural areas, agents have no reason to set up shop or keep paycheck-level amounts of cash on hand without a big customer base. Similarly, customers — who in Afghanistan and elsewhere in the Arab and Muslim Middle East have other systems for cash transfers, like hawala, in which trusted brokers move money around the country or the world based on their own networks of personal connections — have no reason to adopt mobile payments if there are no agents nearby with enough money to cash them out when they want to. And mobile payments are harder to use for people who are illiterate.
"The most important thing is to make sure that there's enough agents out there to make sure that people can actually get cash when they need it and also allow people to use this in a cashless way, meaning to buy goods and services," O'Neill said. "That's a bit of a chicken and egg issue. We're working with the big payers, not only us but the NGOs, governments, et cetera, and fast-moving consumer product companies, so that collectively we can create enough economic activity for these mobile money or mobile payment systems to be profitable and be self-sustaining."
Still, as with many parts of the developing world, mobile money in Afghanistan is picking up. As of March 2012, Roshan had 1.2 million registered users for M-Paisa — out of a total population in Afghanistan of 30 million — and has new competition from Gulf-based mobile service provider Etisalat, which has launched its own mobile payments system in Afghanistan called mHawala.
O'Neill expects adoption in Afghanistan to pick up after two or three years. The development agency is hoping to make mobile payments central to the country's economic growth, and lessons learned there might be of use as the agency also pushes for the adoption of mobile money systems in the Philippines, Colombia, and in a number of countries in Africa. By working with private companies to create viable systems in six to eight countries, O'Neill theorized, reaching a "tipping point" in each one — say, involving 20 percent of mobile phone users — that might put mobile payment providers on track to establish a stable financial network spanning the entire globe.
Federal officials aren't saying it's going to be easy. They're just saying it'll be worth it to set up another means for people to store and move their money, even if they don't have access to financial institutions.
This post has been updated.
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