The future of microfinance?
The way Ben Lyon sees it, the finance world is in the middle of a revolution, and the simple text message is at the heart of it.
Lyon created a system to bring formal financial services to microfinance institutions and poor entrepreneurs via a mobile phone. He believes the new software, to be launched by the organization he founded, FrontlineSMS:Credit, could change the world of microfinance by changing the way the poor interact with the institutions.
The self-described “ideas man” will be among the first speakers at this week’s annual PopTech conference, held in Camden, Maine.
“We’re in the middle of a financial revolution,” Lyon said. “The way the global poor interact with the global financial system is completely shaking up the world. It’s changing everything. There’s nothing more anonymous than a cash transaction. As more people find it useful to use mobile money, the data from those transactions will be housed forever and it’s no longer anonymous so we become less susceptible to fraud and all sorts of efficiencies and transparencies are gained.”
In Africa, over 300 million people have cell phones but for many access to banks is quite limited, or non-existent, especially for those living in remote regions.
So far, there are over 13 million users of a mobile phone-based service in Kenya called M-PESA that allows users to open a virtual bank account, send money, check balances, pay bills, and save. An average of just under $2 million is transferred through M-PESA each day, mainly in small amounts ranging around $20 per transaction.
Lyon’s Payment View program provides a single database for all the money payments made via mobiles so that microfinance institutions are able to have all the transaction data in one place. It also enables regulated institutions to leverage mobile money. By 2012, about $8 billion is expected to be generated in revenue for mobile money managers.
“It’s really just a text message parsing tool,” Lyon said. “It gives a time stamp of when the payment was sent, a transaction ID number, the amount sent, and who the sender is.”
Since Payment View tracks payments, it provides a new level of transparency that was not available with payments and loans made with cash. It’s not the transparency, though, that Lyon thinks is revolutionary — it’s the data that’s collected that has the most value.
“In the Information Age, one of the most valuable things you can have is a huge database of information and this is exactly what this system does,” Lyon explained. “SMS:Credit is the first step of collecting data in a central place.”
SMS:Credit will not have access to all of that data though. Nor will any of the data from each microfinance institution be aggregated. Instead, it will remain on the computers of individual institutions since the program only runs on a desktop. A beta version is expected to be released in the next several months.
“People smarter than me will create a more robust system that will integrate it better with the global financial system — it needs to be online and in local databases,” Lyon said.
So, with an idea that is poised to be successful, what will Lyon be talking about at a conference whose theme is success from failure?
“I had to learn how to fail fast,” Lyon said. “I was naïve going in — and still am — and I’m learning how to deal with it. I’m an ideas guy, not an operations or manager guy, so due to my own kind of failure as a leader, we’ve moved much slower than we should. We’re a year old but haven’t released our first version yet and that weighs really heavily on me. We need to produce and execute the first version of Payment View. People need this program and a lot of institutions are asking for it.”
The good news is that there is a demand for SMS:Credit. As for the supply-side of the business, Lyon is trying to keep his ambitious expectations a bit more realistic.
“I’ve heard that if you’re not dissatisfied with your first product, you waited too long to launch it. So we keep improving it and will make it better as we go.”
Photo: Hormuud Telecom customers register to the new Zaad mobile phone service at the company’s headquarter in Mogadishu, Somalia. REUTERS/Ismail Taxta