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How mobile money is changing Asia

For emerging Asia, paying your friends, family and retailers from your mobile is set to explode thanks to the region's heavy smartphone usage and an ever-increasing number of companies looking to tap into the action.

Asia has been a world leader in mobile usage for three straight years. The region was home to more than half of the world's mobile phone subscriptions in 2013, data from the International Telecommunication Union (ITU) shows.

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"The main driver clearly is the Asian consumer, who is generally younger and [more] highly urbanized than European and U.S. counterparts. There are other cultural reasons, such as high technology affinity, a popular culture that promotes the mobile as a status symbol, and in emerging markets, the lack of reliable internet infrastructure which forced consumers to leapfrog directly to mobile," said Thomas Zink, research manager at IDC Financial Insights Asia-Pacific.

A shopkeeper (L) transfers money for customers using text commands on a mobile phone in New Delhi.
MANPREET ROMANA | AFP | Getty Images
A shopkeeper (L) transfers money for customers using text commands on a mobile phone in New Delhi.

Banks have largely dominated traditional mobile banking in Asia's towns and cities by offering applications that customers can download onto their smartphones and as IDC notes, they face little competition from outside the industry.

However, in rural areas with little access to banks – the so-called "unbanked" sector – platforms that offer money transfer and payment services are rapidly gaining traction. In this non-bank based model, the customer's money is recorded in a virtual account.

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According to 2012 data from the World Bank, the countries with the lowest percentage of formal bank accounts in Asia are as follows: Cambodia ranks first with 3.6 percent, Pakistan second with 10 percent and Indonesia third with 19.5 percent. Vietnam and the Philippines have 21 and 26 percent, respectively.

Within South Asia, 33 percent of individuals aged 15 and above were estimated to have an account at a formal financial institution in 2012, the World Bank estimates. That leaves 67 percent of the population unbanked, making the region one of the world's top potential growth areas for the mobile commerce industry.

"For the unbanked sector, banks are not in a leadership role. This area is being driven primarily by telecoms that have wider coverage in terms of distribution network and better customer relationships with people using their mobile services," stated Sandy Shen, research director at Gartner.

Pakistan's Easypaisa is one such mobile service. Launched in 2009 by Telenor Pakistan and Tameer Micro Finance Bank, customers can register for a mobile account and have access to a full range of services without the need to travel long distances to banks.

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After customers sign up for an account, they receive an enabled handset and key in a unique pass-code, similar to an ATM password. To pay bills or transfer funds, individuals bring cash to the authorized retailer who completes the transaction on their behalf.

By the end of 2012, Easypaisa processed more than 100 million transactions with a throughput of more than US$ 1.4 billion.

But competition in the market differs from country to country, primarily due to government regulation.

"In India, regulators have different attitudes toward mobile banking services. The central bank requires telecom firms and banks to work together with banks holding licenses to transaction platforms," Shen explained.

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As a result, Indian lenders have been among the quickest to embrace a mobile-first strategy. Last year, the country's largest private sector bank ICICI teamed up with Vodafone India to bring Africa's famed mobile payment service M-Pesa to customers.

Last year also saw Indonesia's central bank inviting commercial banks and mobile network operators to introduce hybrid products in certain rural areas.

While both banks and alternative financial platforms race to pioneer ways to offer more mobile-based services, IDC's Zink says the real disruption to the industry will be the ability to guide consumer preferences.

"Contextual marketing, offering the customer what he/she needs at the right time, in the right place and based on his/her individual needs, will be the battlefield of future commerce. This will not only increase the income from more transactions, but also generate new revenues from value-added services around the transaction," he said.

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