Mobile banking and financial inclusion: The regulatory lessons

By: Michael Klein and Colin Mayer


Mobile banking is growing at a remarkable speed around the world. In the process it is creating considerable uncertainty about the appropriate regulatory response to this newly emerging service. This paper sets out a framework for considering the design of regulation of mobile banking. Since it lies at the interface between financial services and telecoms, mobile banking also raises competition policy and interoperability issues that are discussed in the paper. Finally, by unbundling payments services into its component parts, mobile banking provides important lessons for the design of financial regulation more generally in developed as well as developing economies. —

Keywords: Banking,Regulation,Microfinance,Payments System,Mobile Money

JEL: G21

Through the case study of M-PESA in Kenya, Klein and Mayer argue that a “revolution” in payment systems is taking place. It is emerging amongst poor people in less industrialized nations rather than the well-off and technologically savvy in the US-Europe-Japan triangle. And, they conclude, it illustrates how banks need not be the sole administrators of payment systems, that there is yet another process of bank disintermediation in the make.

The M-PESA case resembles that of the Octopus card in Hong Kong, where the transport authority has been the main driver and today about 40% of its use relates to micro-payments other than transport. Banks were not interested in helping develop it and today they have been either marginalized or had to respond offering hybrids (that is, cards with dual VISA/Mastercard chips and Octopus). While Turkey offers an example where only a combination of banks and telecoms results in the right mix of capabilities to bring about change. There telecom operators (Turkcell), banks, authorities and a private e-identity service-providing company (E-Güven) have agreed upon a common SIM-based identification solution. As a result, Turkish customers can use their mobile phone for secure connections to online banking, government services etc.

I take it that there is a case of path dependence in industrialized nations for banks to be the most successful creators of means of payment. Early forms of fiat money and London coffee houses are two examples that readily come to mind. Therefore, an non-industrialized nation is closer to the “natural state” and alternative forms are easier to flourish, particularly if, as in the case above, deploying say a large network of cash machines involved a substantial investment (with the price tag of each individual device requiring some three to ten thousand dollars). Mobile phones offer a cost effective alternative, among other things because they are a platform that already has a large number of users.

But however much retail payments and consumer credit are “hot topics” (see call below), we know very little about financial transitions. I can be wrong in this comparison but I think of co-existing payment systems just like there are co-existing alternative energy supplies. According to Roger Fouquet’s studies in energy transitions (see, it takes at least 50 years to move form one source of energy to the other. So I am not totally clear how cases in Kenya, Hong Kong or Turkey are the dawn of a new era. The same reasons that have made them successful could bring about their failure in other geographies. Klein and Mayer admit that it is too early to tell whether most experiments in mobile payments will be financially successful. But to the best of my knowledge, we know little on transitions in financial payment systems. An area where it seems we banking historians could make an important contribution.

PS A conference on the economics of retail payments and consumer credit has been organized by the Federal Reserve Bank of Philadelphia in September 2011 (see

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About bbatiz

I have edited NEP-HIS since 1999 and its blog in 2010. My background is economics and business history. I am currently at Northumbria University (Newcastle) and my research interests are broadly in applications of computer technology, retail banking and the cashless society.

2 thoughts on “Mobile banking and financial inclusion: The regulatory lessons

  1. David Stearns

    This was a very interesting article Bernardo…thanks for highlighting it. I had heard briefly about M-PESA before, but this article gave a nice explanation of it. I was especially interested to see how they decoupled the “agents” so that they actually have very little special authority in the system.


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