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Communications and information, Finance, Malta

Payments on the go

Advertising the M-PESA service in Tanzania
Advertising the M-PESA service in Tanzania. Photo from sociate on Flickr

Some time ago I had looked into the development of mobile money for a Maltese news magazine. It was, then, a hot topic. At least, I thought so and with luck, you may agree with me.
Now the European Union is drawing close to a rework of its eMoney Directive. In place since 2000, this was a prescient piece of regulation. It aimed to put so-called “e-money institutions” on to a firm footing, hopefully thereby getting the services off to a flying start.
In that, it failed. The idea did, in fact, catch on. The problem was, it did not use the provisions of the e-money directive. In Malta, for example, there were exactly ZERO registered e-money institutions; across the EU I believe the number did not top 30.
Yet services doing some if not all the things an e-money provider was supposed to, sprang up and became extremely popular. Just look at PayPal. What went wrong?
That was, it turned out, a relatively simple question to answer. The market developed in a very different direction to that imagined by the Directive. This, I suppose, will always be a problem when trying to anticipate needs.
One of the main problems was that, despite the very different types of organisation that could be offering e-money, and the relatively low values when compared to traditional financial services, e-money institutions were to be required to adhere to solvency and capital rules more suited to traditional banks.
The new incarnation of the Directive, which is set to come into effect over the next couple of months, deals with this; it should therefore succeed.
This is a very exciting development. E-money is a pretty broad, ill-defined term. But the promise it holds is enormous. The most exciting end of it is the way mobile telephony operators have adopted it, talking about “mobile money”, a subset of the broader e-money.
As it happens there is now experience of what this sort of service can mean. I do not want to go into the discussions of the variety of technologies that are being proposed – compatibility with NFC (near field communication) sim cards is one. This, because in fact the technology is secondary. Effective mobile money services have and are being run on nothing more complex than SMS.
What is important is what this sort of service allows people to do, and how it can empower them. Safiricom (in which Vodafone has a 40% stake) has been running its M-Pesa service for years now. It has extended simple banking services to rural areas that no traditional, bricks and mortar bank could service cost-effectively. By doing so, it is allowing poor farmers to manage their cash flows more effectively, allowing them to invest in new equipment and seeds. It is thus proving a powerful force for development, a lot more effective at getting people out of the poverty cycle than many other development initiatives.
The M-Pesa service has evolved since 2007 and continues to develop (read this news story, and this one as well). It has spread beyond Kenya, as Vodafone has taken this service to Afghanistan and Tanzania, and since 2008 has been running regular screening on its millions of clients according to anti-money laundering regulations.
This is what good technology should do. It is not, ever, about the technology itself. That is contingent. What it is all about is the things it allows people to do. I personally look forward to seeing this develop.

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