The development of information and communications technology is opening up the opportunity for providing essential financial services to most people. Indeed, many mobile money or branchless banking schemes are currently spreading across the world. However, these schemes can only be sustainable if they are built on a commercially viable business model. In this respect, the jury is still out. The paper describes one commercially viable initiative in more detail, M-PESA in Kenya, and analyses in detail the transactions involved. It argues that in order to harness the potential of financial inclusion it is vital to permit experimentation with different business models. Regulation is therefore required that enables such experimentation by being calibrated to the type of service offered, but which can be tightened if and when such schemes become bigger with the potential to impact financial stability: risk-proportionate regulation by service type. Traditionally access to financial services has been a rich person’s privilege. The poor had to rely on informal arrangements within their family or close community. While the linkages between a well-functioning financial sector and economic development have been well documented (World Bank (1989)), generally efforts have been focused on developing a formal banking sector in order to mobilize savings and convert them into investment. Extending banking services beyond well-off urban areas seemed costly, the demand for them low, and the ability and willingness to pay of poor country folk was considered nonexistent. In the 1990s things started to change. Two developments started to converge. The experience of micro-credit since the mid-1970s showed the feasibility of new business models that could provide specific financial services to the poor profitably. And the rapid development of information and telecommunications technologies promised to enable new cost-effective ways to build business models to reach poor people.

Developments did not stop with micro-credit. Experiments with other financial services started to emerge including saving and insurance products. More recently the action has shifted to payment services. The enabler for this has been the rapid development and spread of information and communications technology, making it possible to offer tailored services profitably to population segments and in areas where full-fledged traditional banking services were not available. Technology such as mobile phones could very well unleash far-reaching change in developing economies. As a result, business models using new technology may allow financial services to emerge and be profitable without going through more traditional stages of development. Mobile money or “branchless” banking schemes are spreading across the world. One scheme was launched in 2001 (GSMA (2011)). By 2006, there were just 10 globally. Initial trials were scattered across the world. The success of M-PESA in Kenya, which was launched in 2007, appears to have added impetus. 25 schemes started in 2009 and 38 in 2010. 2011 is on course for over 50 deployments. By the end of the year over 140 mobile money ventures would be operating globally, up from 95 in mid-February 2011. The current boom is focused on Africa with 45 schemes so far, followed by Asia and the Pacific with 25 in operation and Latin America with 12.