Parker A. Howell

Smartphone users in New York City now can purchase their morning Starbucks lattes with mobile devices under a program the Seattle-based coffee chain recently rolled out.  Whether the lure of this cashless service in the gift- and credit-card saturated U.S. market wins over consumers remains to be seen.

But for poor people in developing countries, real-time mobile payments may be a financial lifeline where access to banks is rare.  That is the message researcher Ignacio Mas gave practicing lawyers and scholars Friday afternoon during a conference on mobile banking at the University of Washington School of Law.

Mas, deputy director of the Bill and Melinda Gates Foundation’s program for Financial Services for the Poor, sees mobile payments as a means to foster saving among people without easy access to banks.  In these systems, retailers accept electronic payments via mobile applications provided by financial services institutions; transactions happen in real-time and are drawn against retailers’ accounts.

As other presenters at the day-long conference made clear, the challenges facing developing countries differ from those in the U.S. market, where numerous technological and regulatory questions remain.

Yet in the developing world, fostering adoption of these systems simply is a matter of economics, Mas said.  Individuals must see the service as a “compelling value proposition” offering benefits, such as an easy ability to send money long distances and to develop a financial history.

“What people want is immediacy,” he said. “If there’s no savings point between where I live and work, forget it.”

Mobile phones make sense as a platform because of their ubiquity, Mas said.  In many regions, phones vastly outnumber bank accounts.

Merchants, who would receive a cut of transaction fees, must be incentivized to carry more cash in their facilities and make frequent trips to banks.

Financial institutions will develop credit programs for mobile platforms, Mas said.  His program focuses on savings instead of credit – although he noted both are future propositions.

“It’s bridges to cash.  That for me is what financial services is,” he said. “Build these bridges and I have no doubt that financial services providers will contribute.”

Kenyans have widely adopted one such system, M-PESA, which has 13 million users and accounts for 70 percent of e-payments in Kenya.

“This is not just theory,” Mas said. “This is happening.”

For regulatory purposes, Mas argues, micropayment-service providers should not be treated like banks.  Rather, he recommends posters making disclosures at merchant shops.

“It’s very important to get this into regulatory thinking because there’s no one-size fits all solution,” Mas said.

Mas also stressed the need to sign up users at merchant locations, rather than forcing customers to sign up for new accounts at banks – what Mas called “like original sin.”

While “errors will be made” and “people will send money to the wrong account number,” Mas said, he argues against automatic reversals of payments, saying they would undermine consumer trust.  (Contrast this with recent European e-money regulations, which require automatic reversal and require banks to prove a user actually made a transaction, according to Thaer Sabri of the Electronic Money Association in Surbiton, UK.)

Mas’ talk may have domestic implications as well.  UW Law Professor Jane Winn said commentators have discussed innovative banking models flowing into developed countries rather than those countries exporting their banking models; those new models could be a real threat to banks, she said.

“Ignacio’s presentation was the best example I’ve seen of that,” Winn said.

[Interestingly, the conference was funded as the result of a settlement against a large bank caught selling information improperly, according to conference organizers.]