Child development organization ChildFund faced two problems: how could it quickly and safely get cash to the under- or unbanked in remote regions of Africa and elsewhere in the developing world? And how could it do this and comply with Patriot Act requirements? The answer was mobile banking.
Until mobile, ChildFund had to rely on a virtual parade of uncertainties to get cash to where it was needed. Further, it called on the fund’s treasurer, Sassan Parandeh, to do things that required the knowledge of a seasoned United Parcel Service pro, not a finance executive.
“We always faced a ‘last mile’ problem” when it came to getting cash to its destination, Mr. Parandeh said in an interview at the AFP’s Annual Conference. “We could get the cash to the major city, but then it required all sorts of things to get it to where it was needed,” Mr. Parandeh says. He found that ChildFund would have to buy trucks, “but not just any truck, it had to be a Toyota, it had to have a bull bar, it had to have a snorkel [over the exhaust] to traverse rivers.” The fund would also have to plan different routes on every delivery, “so we wouldn’t get profiled [by thieves],” Mr. Parandeh says. It would also have to pay for drivers and a security detail. “All these things that have nothing to do with treasury but we had to do them.”
But then came mobile banking. While not everyone has a bank account in Africa (in fact most don’t), most everyone does have a mobile phone. “They might not have anything else,” says Gautam Jain, a managing director and global head of client access, transaction banking at Standard Chartered Bank, which is helping ChildFund with its mobile banking. “But they will have a cell phone.” And payments are as simple as a cell phone text. It’s also a familiar concept in parts of the developing world, as they have adopted near field communication (NFC) more readily than the West. “They already use their phones for all sorts of payments,” Mr. Parandeh says. So getting paid in this way was more a more familiar concept than using a bank.
Also, in most countries, the cell phone is someone’s official identifier. In other words, if a person has a cell phone, it is registered to that person and that person only; this helps mobile banking comply with strict Know Your Customer rules with which banks and global MNCs must comply. ChildFund, which is partially funded by the US government, must follow KYC rules.
And that’s important too because the mobile banking that ChildFund and other companies are engaging in obviously requires teaming up with telephone companies to send the money. One of the early worries expressed by many was the security of the telecos. Although most of the payments are small, cumulatively they are very large and many bankers and others wondered about those millions coursing through an unregulated, possibly unsecure telephone company. But that has been dealt with, Mr. Parandeh says, by using a bank as the trustee. The telecos merely are channels by which the money moves but the actual cash is with a third-party trust bank like Standard Chartered. “If the teleco goes bust, the money is still safe with the bank,” says Standard Chartered’s Mr. Jain.
Mr. Parandeh acknowledges that in terms of major treasury transactions, this form of mobile banking has a ways to go. But for petty cash and “nuisance payments” this form of mobile banking is the way to go. And it might be a way to get the ball rolling toward it playing a larger role.