Combining mobile telephony and electronic payments technology could have an incrementally larger impact on economic growth and GDP in developing countries says Craig Sakes, chief operating officer, Fundamo
A study released by Vodafone in 2003 (Africa: The Impact of Mobile Phones) that compared data including GDP, fixed line penetration and human capital stock from 98 countries between 1980 and 2003 concluded that the introduction of mobile telephony into a country had a positive impact on GDP. This effect was increased (nearly doubled, in fact) in developing countries where mobile telephones substitute for fixed lines, instead of being supplementary to them as in developed economies.
A Visa International white paper, (The virtuous circle: Electronic Payments and Economic Growth
), conducted in the same year stated that: "Based on an analysis of a cross-section of 50 countries, increasing the existing share of electronic payments in a country by a margin of just 10 percent will generate an increase of 0.5 percent in consumer spending. For example, in a country that has a 20 percent card share of US$30 billion in consumer spending, enlarging that share to 22 percent will generate roughly US$150 million in incremental consumer spending."
Additionally, it says, "Electronic payment networks have the potential to provide cost savings of at least 1 percent of GDP annually over paper-based systems through increased velocity, reduced friction and lower costs."
Electronic payments systems facilitate economic growth through providing a traceable, predictable, reliable and efficient and transparent means for payment transactions to take place.
Mobile telephony likewise facilitates such growth. Says the Vodafone study: "A developing country which had an average of 10 more mobile phones per 100 population between 1996 and 2003 would have enjoyed per capita GDP growth that was 0.59 percent higher than an otherwise identical country."
In developing countries with little fixed line infrastructure, mobile telephones provide the economic and social benefits that developed countries gain from fixed line networks, i.e. access to information, improved social contact and lower costs of production, particularly in rural areas as people no longer need travel large distances to obtain market prices for goods - they can make a call, find out which market is offering the best prices, and sell or buy goods there. Medical and educational benefits have also been demonstrated due to the obvious advantages of being able to remotely contact doctors or educational institutions instead of traveling to and fro to see them.
It stands to reason then, that combining mobile telephony and electronic payments technology could have an incrementally larger impact on economic growth and GDP in developing countries.
These enabling technologies come together in mobile payments and mobile banking solutions. These enable person to person payments, lessening the need to carry cash, provide banking services to the un- or under-banked, thus introducing them to the formal economy, and enable payments to be made to people who are geographically distant, family in rural areas, or suppliers in the city, for example. In many ways, two basic needs of people in emerging countries come together in the mobile device - the need for access to communications and the need for access to financial services.
Additionally, mobile payments and mobile banking technology offers convenience, real-time/instant payments, highly secure banking, direct control over banking and payments, affordability, new functionality and access to new transactional opportunities.
Mobile payment solutions serve to bridge the gap between emerging and first world economies, opening up economic opportunities to rural communities and bringing the informal sector closer to the formal. This in turn stimulates further economic development and growth, and the cycle continues.