What will smart phones mean for mobile money?

As $80 Android smart phones take off in Kenya, with around 350,000 sold to date, people are beginning to ask how long it will be before they spread around the world. All kinds of possible development benefits have been forecast, including applications to deliver farming advice and medical services.

Smart phones are good business for telcos, who stand to profit from the extra money that consumers spend on internet access, regardless of whether mobile money is involved. 

What might smart phones mean for the future of mobile money? Will they strengthen the ability of telecommunications companies to expand mobile money markets, or will smart phones introduce stronger competitors into the market?

At a brief glance I can see two major possibilities. The first is that increased ownership of Android phones (such as the Huawei IDEOS) will expand mobile money markets because the technology creates opportunities to transform mobile money into fully-fledged online banking. It may also provide more ways to protect mobile banking security: because the Android operating system is open source, it can respond faster to security threats.

The second possibility is that smart phones will make nationally-based mobile money services redundant, as people can find ways around them. Smart phones will bring the internet to places that have never had it before, and with it, increase access to different ways to send money.

For example, let's say that I live in a remote village. It's too far to travel to my nearest Western Union office, and even if I could, the fees they charge are beyond my reach. But my entrepeneurial neighbour has invested in a smart phone and a bank account, and will send money for me via Paypal, charging a small fee for the service. Her cousin, who lives in the city two hundred kilometres away, receives the money and pays the recipient.

This kind of transaction relies on social ties and may be unlikely to take off in a place like Kenya with an extensive mobile money network, but it could easily work in a country where mobile money services are non-existent or in their initial stages of development.

The point is that people in developing countries find all kinds of creative ways to make an informal living out of the needs of the people around them, and in ways that often do not correspond with what service providers and legislators expect to happen.

Furthermore, circumvention of formal, nationally-based mobile money services will make transactions very difficult to regulate and monitor. Governments who wish to use mobile money as a way to collect data about the domestic movement of currency will find that they are unable to do so.

Given how fast technology markets change, and how much they adapt to local circumstances, I suspect that while we can predict that smart phones will help mobile money adoption expand, we cannot predict what kind of mobile money platform will come to dominate the market.

We are likely to see an increasing variety of mobile money platforms as people adapt the available technology to their local markets and cultural practices. It will certainly be very interesting to watch how mobile money plays out as smartphones spread around the world in the next few years.