Econ_May_05

The Economist

May 5th 2018

FINANCIAL INCLUSION

SPECIAL REPORT

IT IS Ameasure of how fast and unpredictably technology

and finance have developed that the two most influential

newpayment systems of the 21st century so far both came about

more or less by accident.

M-PESA

, Kenya’s mobile-payment sys-

tem, evolved out of a pilot scheme in 2005 by Safaricom, the

country’s biggest mobile operator, financed by

DFID

, the British

government’s aid agency. Its researchers had noticed that Ken-

yanswere transferringmobile-phone airtime between each oth-

er as ifitweremoney. They thought thismight offer away to han-

dlemicrocredit repayments, reducing costs.

Alipay, a smartphone-based payment system now ubiqui-

tous in China and spreading fast abroad, has its origins in a ser-

vice devised for Taobao, an online platform run by Alibaba

where small businesses sell direct to Chinese consumers. Cus-

tomers were reluctant to pay for goods before they had received

them. So buyerswould send their orders by fax to Alipay to hold

their money in escrow and release it when delivery was con-

firmed. In 2008 this system was transformed into mobile “wal-

lets” inwhich themoney is held.

Safaricom turned

M-PESA

into a general money-transfer

systemwhich became the most popular way of moving money

around in Kenya. Account-holders (who now number nearly

30m) pay money in by handing cash to one of Safaricom’s

148,000-plus agents, typically corner shops that were already

selling scratch cards to top up mobile phones. The cash can then

bewithdrawn at another agent or transferred to another

M-PESA

account-holder. That allows people working in the cities to send

money back to their home villages faster, more cheaply and

more securely. Other services have been added over the years.

M-PESA

has expanded abroad and spawned dozens of imitators.

Almost all of them are tiny compared with Alipay, which

has 520m active users, almost as many as all the mobile-money

accounts held in the rest of the world put together. It hopes to in-

crease its customer base to 2bnworldwide by 2025. Ant, founded

only in 2014, is expected to list on a stock exchange next year. It is

reported to be seeking an earlier round of funding which would

value the company at $150bn (for comparison, Goldman Sachs is

valued at about $100bn).

The volumes its systems handle are staggering. On Singles’

Day (November11th) last year, a dayoffrenetic online commerce,

Alipay processed $25bn in transactions, 90% of them via mobile

phones. The only mobile-payment service that comes close to

Alipay’s scale isWeChat Pay, offered by its Chinese rival Tencent,

a social-media giant. It has reducedAlipay’s share ofthe Chinese

mobile-payment market from above 80% to just over half. Most

Chinese use both systems.

M-PESA

and Alipay follow very different models.

M-PESA

was designed for a simple feature phone, working from a text

menu of options (though it is now also available as an app). Ali-

pay is available only as a smartphone app, linked to a bank ac-

count, reflecting the rapid uptake of internet-enabled phones in

China. Payments are made by Quick Response (

) codes, the

square black-and-white dot matrices that have become ubiqui-

tous in China. Even some beggars accept them.

Both systems havemade big inroads

into financial exclusion. A study in Kenya

quoted in the Findex by two economists,

Tavneet Suri of

MIT

and William Jack of

GeorgetownUniversity, found that access

M-PESA

increased consumption levels

and lifted194,000Kenyanhouseholds (2%

of the total) out of poverty. In China the

absolute number of adults without an ac-

count, at 225m, is still larger than any-

where else in theworld. But 82%ofthe un-

banked have mobile phones, compared

with about two-thirds globally. Already

40% of adults in China make mobile pay-

ments, and 85% of those who make pur-

chases on the internet pay for themonline

(globally, more than half of online buyers

pay cash on delivery). In a recent paper

the Consultative Group to Assist the Poor,

a partnership of development groups

based at the World Bank in Washington,

, pointed out that 44% of China’s peo-

ple live in rural areas, where connectivity

can be a barrier. In the countryside 71% of

residents still do not use the internet, com-

paredwith 33% in urban areas.

Both the “Chinese” and the “Ken-

yan” models have crossed borders. Most

developing countries have a mobile-pay-

ment service, but Sub-Saharan Africa is

the only region where the share of adults

with a mobile account exceeds 10%. Ten-

cent has an e-payment licence inMalaysia

Mobile money

Paying respects

The payment industry is undergoing a revolution

On Singles’

Day last

year, a day

of frenetic

online

commerce,

Alipay

processed

$25bn in

trans-

actions,

90% of

them via

mobile

phones

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