The Wall Street Journal-20080213-Wireless Technology- Money Goes Mobile- via Phones

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Wireless Technology: Money Goes Mobile, via Phones

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Swaleh Said owns two guest houses on the tourist island of Lamu off the coast of Kenya and rents an apartment there from his cousin in Nairobi. He used to send rent payments by a courier service: A person would take the cash by bus, in a transaction that could take several days.

But instead, Mr. Said recently deposited cash into an account at a local shop and finished the transaction quickly on his cellphone: He tapped in his cousin's phone number and the amount he wished to transfer, and, within seconds, he received a text message confirming it had been sent.

"This is much safer and much quicker," Mr. Said, 27 years old, says of the cellphone-based system. And, it works out slightly cheaper in terms of fees for the rent payment of about $142.

The money-transfer service is one of the latest initiatives by Vodafone Group PLC, the world's largest cellphone-service provider by revenue. Vodafone launched the service in Kenya last March and hopes it will become a main plank to increase its expansion in other emerging markets.

Safaricom Ltd., a venture between Vodafone and Telkom Kenya Ltd., has signed about 1.3 million customers who have transferred more than $100 million, says Nick Hughes, head of mobile payments at Vodafone. Spurred by success in Kenya, Vodafone plans to introduce a similar service in India and elsewhere.

The Newbury, England, carrier is one of a growing number of companies building financial services via cellphones in hopes of carving out new sources of revenue. Services include allowing customers to use credit stored on phones to pay for their purchases and cover utility bills.

Mobile financial services generally have had more success in emerging markets such as Africa and Asia, where bank accounts aren't common. Meanwhile, the number of mobile phones is quickly spreading. The Philippines, where cellphones are widespread and many people receive money from relatives working abroad, is among the pioneers of mobile money services.

Globe Telecom Inc. in the Philippines has been expanding its GCash service to allow workers to send money home from overseas, including from Europe and the Middle East. French-carrier France Telecom SA is in the process of launching money-transfer services in Egypt, the Ivory Coast, Jordan, and Senegal. South African upstart Wizzit Payments Ltd., a unit of South African Bank of Athens Ltd., was set up in 2005 to sell mobile money services and is expanding to countries in Eastern Europe, Latin America and South East Asia.

While individual operators are expanding their services to new markets, there is no global system that allows people around the world to send money to each other. In many instances, customers can send money only to other people in the same country. And, in some cases, customers can send money only to customers of the same wireless provider.

In an effort to speed up the development of a global system that cellphone owners can use across different service providers and countries, the GSM Association, a large cellphone-industry group in the United Kingdom, is developing money-transfer services with U.S. credit-card issuer MasterCard Inc. and separately with Western Union Co., the U.S. payment-transfer business.

Vodafone's service in Kenya, called M-PESA, which stands for mobile money, lets customers add credit to their account at many of the shops and kiosks where customers can buy airtime. Customers can send the credit to any other Kenyan mobile phone via a code-bearing text message. Recipients then take their phone with the text message to one of more than 1,500 shops and other designated locations to pick up their cash. By comparison, Kenya has about 580 bank branches, according to Kenya's central bank.

Vodafone, like other service providers, makes money by charging fees on transactions. Customers in Kenya pay a flat fee of about 45 cents to transfer money to another registered M-PESA customer. Transfers to people who haven't registered with the M-PESA service cost between $1 and $6 a transaction depending on the amount sent.

Signing up and depositing money are free, as is transferring airtime credits from one M-PESA customer to another, though purchasing airtime via M-PESA carries a small fee.

One major hurdle for the fledgling industry is regulation, including complying with rules designed to prevent money laundering and other illegal activity. Regulation varies greatly from country to country.

Regulatory complications, as well as technical issues, caused the launch of the service in Kenya to take longer than Vodafone expected.

But wireless companies see potential. Cellphone networks cover some 80% of the world's population, roughly half of which owns a mobile phone. By contrast, only about 28% of the population has a credit card or debit card, according to The Nilson Report, a payment-industry newsletter in Carpinteria, Calif.

Vodafone, like its peers, has its sights set on the hundreds of billions of dollars that workers send around the world in remittance payments. Because such payments often are relatively small amounts, and fees charged by banks and money-wire services can be as much as 15% of funds transferred, a large portion of remittances travel through informal channels such as envelopes of cash sent with friends or family returning home.