Can Cell Phone bring Credit to Credit less people?

Everyday technology redefining the way we do business. In fact technology in some cases dictate how we live, work and do things. I am delighted that BTRC is considering some financial transaction activity available through cell phone for licensing. This will enable business community to tap the new opportunity to increase productivity and ease of account payable. I foresee the outmost benefit for the day labor or street vendor as well as small business.

The only technical activity needed in the area is the software API (application programming interface) development for the cell phones, some infrastructure development or upgrade needed for the client server community. The cell phone industry in Bangladesh is well established to take this small challenge in house.

However a full scale financial transaction activity would require more liberalization of policy and active enforcement of the rules of engagements. There are several statistics on how many new customers can be reached for financial activity over cell phone. One data shows that there are 17% of the population has bank accounts. Another data point estimates that there is 30% of the population covered by the cell phone consumer. Thereby, roughly 13% new customers can be served by cell phone financial transaction.

What is transaction with cell phone: Financial transaction with cell phone technology is not a new phenomenon in Bangladesh. Truth of the matter is that, the technology was developed due to local demand and ease of cell phone penetration. To comprehend the idea, let us think about the “top up” concept. Your loved one may send some unused minutes from his SIM card to your SIM card. What is means is transferring some credit from one account to another account. Just simply substitute the word “minutes” with “money”; eureka, you get the idea! It is that simple!

So as a consumer point of view, if two party agree to transact financial activity between their accounts; than the technological capability is in place. The rest of the puzzle could be solved by the policy of Bangladesh Bank and BTRC. They will ensure that the consumer are protected, loop holes are guarded and enforced against misdeeds as well as corruptions or extortion.

Let me give you an example of simple checking service that can be done via cell phone. You want to buy something and you went to the store. You want to pay for the product that you picked with the click of few buttons of your cell phone, like placing a phone call. You can call the transaction as “mobile payment”.

Good for small transaction: In my opinion I consider mobile payment suitable for frequent and small transactions. We should take many baby steps before we consider for large transactions. For the poor credit less population this “mobile payment” could be a big boost to the credit flow. This scheme could bring this vast majority to the national credit activity. For example if the transaction amount is between 10 to 500 taka per day or up to 500 taka per transaction then if could be safely implemented with out a major money laundering or extortion.
A day labor may get their payment at the end of the day with a simple transaction of txting with secure code attached to it. The “Phone lady” or the Curd lady” may get their payment right at the place of exchanging goods. A basket maker or handy-craft artist may instantly top-up their “reserve account” and don’t have to handle cash, which could get snapped off by the patty theft.

Suppose you stopped a street vendor for some vegetables or fish at your door step. You chose your fish or vegetable and fix the prices. The vendor txt the invoice to the buyer and the buyer replied back through his “account reserve”. If the buyer has enough cash on his “reserve account” than transaction goes through and deducted from his account to vendor’s account.

This “reserve account” may be serviced by the subsidiary of Cell Phone Company or an intermediate banking company for small fee for their service. The vendor could get instant cash from their account from little street shops where SIM card is sold. The same simple SIM card transaction methodology may be implemented for this transaction.
If properly implemented it could emancipate the credit less hard working class of citizens who could get benefited of banking service without stepping to a bank. No new education is needed to get then landed in this liquidity market as they are used to cell phone in the first place.

You are in charge: Your son took his friends to a café for some ice cream or sandwiches to celebrate an accomplishment. They enjoyed the food and fun; however his wallet is empty. He called mom and mom called the café to pay for the bill. They could easily acknowledge the account payable and “top-up” the café’s reserve account. Now for the Tiffin at the school canteen, fare to the taxi cab, take out order for pizza all could be done through exchanging credit through your cell phone from your private comfort zone.

Credit Card vs. cell phone: Sometime I wonder if cell phone came before ATM or Credit Card, what the developed world would look like with respect to their daily transaction. How would the develop world would build their financial package around it? There are reasons to believe that lot more financial application might get done in the western world via cell phone if it were before ATM or Credit card. But the potential are huge for the poor people in so called least developed country to adopt latest technology to make a giant leap of progress. We in the developing world may learn from the fast world and think out side the box to get more efficient and compete for business.
In context of Bangladesh, it is obvious that cell phone could bring more monetary transaction than credit cards. Due to the absence of credit monitoring capabilities and limited tracking of credit history, credit cards are difficult to penetrate; however “mobile payment” delivered by cell phone may instantly accessible by everybody, including the less fortunate poor people.

Cell phone in developed country vs. developing country: I believe the cell phone, WiFi or WiMax technology as well as genomic or hybrid seed technology are blessing for the developing country. The developing world did not have to invest heavily to innovate these technologies in the first place; however they may get the productivity benefit as well as economic benefit out of it simply by embracing them. One thing they have to do however, to start adapting and customizing for their needs. They have to continuously innovate development around it, so that they don’t have to heavily depend on the developed country for the service and expensive new hardware.

In the developed world like USA or UK, cell phones are not as widely used as in Bangladesh. These applications around cell phone are not as broad as in Bangladesh. In the developing world these technology are being used for vehicle of more income, directly contributing to the bottom-line of household economic freedom. Less your credit worthiness is, more you get benefited from these new technology. Ironically it started a luxury gadget and now helps bring food to the poor families.

Individual vs. institution transaction: A set of policy need to put in place for small and institutional transaction. To foster the goodness of technology and improve productivity amount the credit less small individual entrepreneurs and street vendors, the policy should be simple and easily implement able as well as enforceable.
There should be two categories of transactions. First one is for the small frequent transaction, like 10 TK, 20 TK, as much as 500 TK exchange. This would enable the low income, daily labor, street vendor to actively participate in the broader economy. They would establish a credit flow and over the period will develop credit history.
The second category may be for business to business or medium level transaction. This should follow more strict regulation and enforcement.

Challenge: The biggest challenge is Extortion. With a clear simple policy and technology based enforcement may minimize some risk; however there is a learning curve that may be steep and error prone. As an engineer I know for sure that Engineering is always a trade off. I would definitely trade off the risk of extortion for the benefit for those 13% credit less low income population. They will get one more tool in their disposal to get out of poverty and gain economic freedom.

Summary: Cell phone is a productivity tool, although has some negative impact with respect to usage model of the user. Using cell phone to bring the capability of small financial transaction could help the less fortunate demography. That particular part of the population could participate in the credit flow without making a trip to the bank. The key to minimize extortion is limiting the amount of transaction or putting a cap. Moreover to bring the productivity advantage of the technology to low income population, it is prudent to have the minimum amount to 10Tk and maximum to 200-500 TK depending ton the users choice.