Cellphone Money

I read about an interesting technique for people to transfer money in less developed countries. Let’s say that you live in the big city, a hundred miles away from your parents. You want to send them some money but there is no bank where they live. Recently, though, somebody in your parent’s village got a phone. What you do is buy a phone card for $10. Then you call the person with the phone and read them the numbers from the card. They give your parents $9.75, and use the numbers from the phone card to pay for their calls. The person with the phone is leasing it out to all the villagers for their calls, so he or she needs a lot of minutes.

Obviously this requires a level of trust which is only available in a relatively small society. If you cheat on the phone card by using it yourself, or if the person with the phone cheats by not paying your parents, then everybody in your parent’s village eventually finds out one way or another. This is a sufficient deterrent that I expect that few people cheat.

Money transfer is an essential part of entering the modern economy. It’s been around in the west for hundreds of years in the form of letters of credits, and probably even longer in the Islamic world. Using cell phones to bring it to the less developed world is an interesting feature of a new technology. No doubt it will be replaced fairly soon by some more formal infrastructure, probably still somehow built on top of the cell phone.