The power of price: extending electronic payment to the poor

Mobile payment 03

According to a paper on the Social Science Research Network, in 2012, 16 percent of the world’s population sent, delivered, or received an informal cash payment, or remittance. These people reside in Southeast Asia, and the individual money amounts transferred are small. So small, in fact, that financial institutions don’t bother providing services to support this activity.

And yet, the overall volume of economic activity here is immense. In 2010, international remittances totaled $307 billion, which surpasses international foreign aid and foreign direct investment combined. Consider, too, that the vast majority of remittances occur domestically, within a country’s borders, and are far less documented and studied than international remittance.

How can financial institutions pass up a market this large? Grabbing just one percent of the international remittance market, as a fee for service, represents a $3 billion opportunity. The larger domestic markets, which contain the vast majority of transactions, would be easier to serve, since service would be governed by just one set of national financial laws.

And this market needs services. The remittance process is slow, unpredictable, risky, uninsured, and expensive.

At the same time, financial innovation continues in the U.S. I have a house that I rent out, and my renter pays me through Dwolla. Each transaction on Dwolla, regardless of size, costs me a quarter. Sure, it takes six business days to finally land in my bank account. But that’s the same amount of time it takes my renter’s check to physically travel to me, with the potential of being lost or stolen in transit.

I’ve used Square as well, which lets anyone accept credit card payments. I loaned a stranger money for BART fare. He asked for an email address, so he could pay me back. I gave him my business card. Two days later, I received email through Square with my money.

I hope that the marketers for folks like Dwolla and Square see the potential of taking their innovations to the billion people on planet that send hundreds of billions in cash annually through expensive and risky channels.

(Thanks to inspiration from a blog at Nextbillion.)

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