beyondbrics

70 per cent of the BRIC population don’t have bank accounts. But what many of them – and an estimated billion people in all emerging markets – do have are mobile phones.

So investors are eyeing big growth in “mobile payments”, where people use their phones to perform transactions. Last week Actis bought out Egyptian chip-maker MSCC to get in on the action.

Now Arthur D Little is forecasting the market in mobile payments will be worth $60bn by 2015. It predicts that, within five years, the number of people using mobile banking will rise from 32m people today to 290m. That’s more than a million new users each week.

Ambitious, yes, but the basic premise of mobile payments is solid.

First, as suggested above, it should allow banks to reach new consumers. The chart below outlines how mobile phone penetration is outstripping access to financial services in the BRICs, Mexico and emerging countries. It shows that up to forty per cent of the population may own phones but do not yet have bank access.

Second, banks will be able to expand cheaply. As the FT’s Sharlene Goff wrote a few weeks ago, banks can reduce costs by up to 50 per cent if they rely on gadgets instead of branches.

Third, that may lead banks to cut their charges – and thereby make bank accounts more attractive to low and middle-income consumers. In Mexico, for example, where the average real annual net return on savings accounts is -3.5 per cent for popular sector savings accounts and -2.8 per cent per cent for commercial savings accounts, according to the Center for Financial Inclusion.

Arthur D Little’s report highlights those wishing to be serious contenders in the future to invest now in local BRIC infrastructure. But doing so will requires patience: regulation is as plentiful as social and technological infrastructure is lacking. In India, for example, the government’s ambitious UID program, which aims to give every Indian a personal identification, is still at a very early stage.

But increasingly people in emerging markets may decide that the best place for their savings is not under the mattress.

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