How the U.S. government's market activities can bolster mobile banking abroad.

• Author: Richard, Colin C.

To combat corruption and increase the effectiveness of foreign aid, the United States should require that all of its foreign aid distributions, reconstruction projects, and payments for services abroad go through banking channels--that is, the U.S. government should strive to eliminate cash transactions whenever possible. In U.S. operations in many parts of the developing world, this will mean utilizing nascent mobile banking industries, an event that will have numerous positive results for these economies.

Mobile banking is "any kind of payment or transaction undertaken using a mobile phone against a bank account that is accessible directly from the user's mobile phone." (1) Mobile banking is the function most central to the concept of branchless banking, "the delivery of financial services outside conventional bank branches using information and communications technologies and non-bank retail agents." (2) For example, a customer living in Freetown, Sierra Leone, could send money home to his family in Kabala, a five-hour drive away, simply by sending a text message. Upon receipt of the text message, the family member would only need to walk into one of several mobile money agents in Kabala--two pharmacies, a restaurant, and a merchant--to cash out the transfer. The total transaction, from sending the funds to the funds being cashed out, typically takes only a few minutes and is often a fraction of the cost of other available options.

Mobile banking, while built on the foundation of a domestic transfer product, has the potential to develop into a platform for delivering the full spectrum of retail banking to rural and poor communities that have traditionally been unbanked or underbanked. Worldwide, "[one] billion people do not have a bank account but do have a mobile phone," a figure that is expected to grow by 70% by next year. (3) The reach of wireless availability is also rapidly increasing. The availability rate for Africa in the first quarter of 2003 was under 5%. (4) It grew to nearly 31% by 2008 and is expected to reach 50% in the first quarter of 2012. (5) Mobile banking reduces the reliance on physical banking outposts and greatly expands the reach of banks by leveraging these preexisting mobile and retail networks. Reach expands significantly without a commensurate increase in service costs. This is especially important in developing countries where mobile availability often extends much farther than banks.

Both the military and...