As developing countries cross the digital divide, they are leapfrogging the traditional developmental process. Among the most visible examples has been the introduction of cellphones to regions across the world where the cost and logistics of installing landlines are prohibitive.
According to Real Money: New Frontiers, a collection of case studies on financial innovation in Africa, there were more cellphone users in developing countries in 2006 than there were in developed ones.
A spin-off is that banks are using these vastly extended communications networks to deliver transaction services to low-income households, often in remote rural areas - a key to economic development.
South Africa has been leading the way in cellphone banking, according to Arthur Goldstuck, the managing director of consultancy World Wide Worx. A number of domestic banks have used cellphones as a platform to develop low-income banking initiatives, reducing the need for bricks and mortar branches.
Goldstuck says South Africa has also made progress in terms of mobile payments, transactions that do not require the recipient of a remittance to have a bank account. But it lags Kenya's successful M-Pesa money transmission product, says Goldstuck.
The remittance market has huge potential as 3.8 million people send money to family and friends in South Africa each year, says Finscope, which monitors financial usage among people with low incomes.
Banks have two imperatives. The mainstream market is saturated and competition is intense, forcing them to explore the wider market if they wish to grow. In addition, there has been pressure on them to improve access for the poor; this was a key clause in the financial sector charter that was put in place between 2003 and 2008.
But for the initiatives to be sustainable, banks will have to make them profitable.
Mark Napier, the editor of Real Money: New Frontiers, says the social benefits of financial access are not the primary concern of banks. "But it is clear that most can combine the primary purpose of delivering a return to shareholders with a sense of social mission."
In the introduction to the collection of case studies, Napier says the examples demonstrate that the market can be "a powerful instrument for doing good".
Standard Bank
"A cellphone alone is not enough," says Coenraad Jonker, the director of Standard Bank's community banking division, set up in 2007. "You have to give people a place where they can get cash out and put it in."
Technology plus a community network is Standard Bank's formula for reaching the low-income market. It is working through local retailers to create a distribution network, and it is using cellphones as a delivery mechanism.
"We are placing basic banking infrastructure in general dealers, spaza shops, taverns, butcheries, hairdressers," Jonker says. "In a typical area like Umlazi, south of Durban, there is no place (where) you can't walk to a retailer and put cash in, take it out, pay bills and buy airtime."
The bank is operating through retailers in Tembisa on the East Rand, Bekkersdal on the West Rand, Rustenburg in the North West, Bethelsdorp in Port Elizabeth and Umlazi. It will move into another seven communities by next year to achieve economies of scale.
"Outlets don't have to be housed in bricks and mortar. But they must have a permanent structure with access to electricity and mobile reception.
"And retailers have to pass a probity test and must have been established for at least three years," Jonker says.
He stresses the key role of "simple banking" for all other financial services. "If you don't get transactional banking right the rest is too expensive," he says.
The bank targets communities with a population of at least 400 000. And in every locale it works through about 100 retailers who each serve about 1 000 customers.
Jonker says the bank expects to have set up at about 1 000 retailers in eight of the nine provinces by the end of the year.
It is targeting an active client base of 100 000 in each area by 2013.
Absa
Absa has been one of the pioneers of electronic delivery of the state's social grants. Lawrence Twigg, the managing executive of the group's entry-level banking unit, says its Allpay division pays out social grants to 2.1 million beneficiaries monthly.
Many recipients of social grants use cellphones and cellphone banking is an increasingly important part of Absa's operations. About half of its 2 million cellphone customers are in the low-income market.
The bank has also re-entered the microlending market. Its previous foray into microlending was through its 61 percent stake in microlender Unifer, which collapsed in 2002. Its new personal loans operation, originally called microlending, was launched in 2006 and has "built up a good solid volume of business over three years", Twigg says. It has 57 loan centres, servicing about 600 000 clients.
"The Absa group last year made a strategic decision to broaden its focus on entry-level banking to include transactional banking, savings, loans for affordable housing and insurance," Twigg says.
The initiative will include a unit to provide finance to microenterprises. He says this is for economically active people who don't have a pay slip, "for instance a spaza shop owner or a taxi driver". The operation will be conducted through existing loan centres and conventional retail branches.
First National Bank
About R1 million in remittances is sent each day through First National Bank's (FNB's) cellphone facility, Send Money, according to Line Wiid, the chief executive of FNB Smart Solutions. The facility, which operates over cellular networks, was launched in October last year.
Wiid says the recipient of the money does not have to have a bank card or a bank account to withdraw the cash from an FNB ATM. Recipients are not charged for the services and can withdraw all the money transmitted or just a part of it. They can also buy prepaid airtime for themselves or send the money on to someone else.
FNB's Easy Plan branch network initiative was launched in August last year for the lower end of the mainstream market, which consists of people earning less than R100 000 a year. It offers a bank account, access to loans and funeral insurance. No cash is handled in the branches, which are open 12 hours a day. But cash can be drawn at any ATM and deposited into any FNB account at FNB ATMs in real time.
With the new ATMs, Wiid says, bank customers do not require a card and no longer have to put deposits in an envelope but can deposit directly into the machine. "There is no delay in the amount being credited to your account," she says.
Nedbank
In March Nedbank and Vodacom announced a joint M-Pesa cellphone banking initiative. Retail managing director Saks Ntombela says it will enable clients to deposit cash into a virtual account on a cellphone, withdraw cash at a Nedbank ATM or Vodacom outlet and transfer virtual cash to a cellphone irrespective of the cellular network they use.
"As the service develops clients will be able to make purchases using M-Pesa at participating merchants and to integrate their M-Pesa accounts with relevant traditional banking products and channels," Ntombela added.