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When Mobile Telecommunications Routes Become Banks

Lately, I have been puzzled by the proliferation of bank-mobile operator partnerships in the developed and emerging countries.  The mobile carriers provide the remittance or payments instructions, and the banks move the money, conduct the foreign exchange (e.g., into/out of U.S. Dollars) and deliver the cash or credit to the intended recipient.  

Are the banks really necessary in this money transfer process?  No, they are not, and have not been for years - try over a hundred years!

Founded in 1885, the ITU:  International Telecommunications Union, operates as a global clearinghouse for calls and data exchanged through telecommunication pipes between countries.  In that role, the quality of interoperable telecommunications are regulated, and less noticeably, the rate structure for clearing inbound/outbound traffic between telephone operators in the countries are also regulated, or the market mechanisms for clearing such surplus/deficit minutes at a stable rate is determined.

What's fascinating in the evolving mobile banking context is that the ITU is not the BIS:  Bank for International Settlements, nor administratiively anything remotely akin to it.  In a sense, though, as 99% of the world's money is digital, and by 2015 a majority of us will use mobile banking globally, that means more than one billion people will be trusting their mobile carriers to be their bank.

My dealings with mobile carriers in the developed countries suggest that their customer service, billing practices, "game of gotcha" rate structure hocus-pocus tariffs, and other schemes are nowhere up to the task of directly serving as consumer-facing "banks" or bank intermediaries for payments, foreign exchange or the more advanced loan and investment products offered by a bank.

My dealings with banks in the developed countries suggest they have yet to embrace the rapid innovation of business model and competitive threat of mobile carriers and their software developer partners who can offer "a bank in a phone" simplicity.

(Notably, mPesa in Kenya demonstrates the booming innovaiton in trustworthy mobile banking that is taking hold in the emerging countries, leapfrogging their developed country colleagues).

Banks and mobile carriers create digital currency out of "nothing:"  Banks through value of credits loaned on the strength of the fractional reserves, and mobile carriers through the minutes of calls/data running on their systems.  Both are exchanging virtual goods, digitally.

"Payments" and "remittances" running on mobile networks, largely reflect "money" created elsewhere in the banking system based on collateral value, cash-flow debt service, securities pricing and other factors.  As mobile banking strengthens and evolves into all realms of traditional banking (including developing sources of deposits, float, loans and investment products), mobile carriers will have the means to create "money" on their on terms, pricing it according to factors unique to ITU-era regulatory purview, and blinders.

Surprisingly at this moment, the opportunities for Apple, Facebook, Google, Square and other hardware and web services providers to innovate, include partially bypassing banks and bank regulatory structures, using the ITU and its telecommunication clearinghouse functions.

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