Jake Kendall and Rodger Voorhies (“The Mobile-Finance Revolution,” March/April 2014) argue that the principal benefit of mobile finance is the ability to deliver basic banking services to the world’s poor. Although they describe well this one facet of mobile banking, they do not examine the full range of effects -- both positive and negative -- that this development will have in other critical areas, such as good governance and international security.

Consider Afghanistan’s experience in 2009. When Kabul began using mobile cash transfers to pay the salaries of its national police force, most recipients thought they had received a 30 percent raise. In actuality, the government had circumvented corrupt middlemen; the police were simply receiving their full pay for the first time. The move also improved accountability: Kabul could more easily identify and stop depositing salaries in so-called ghost accounts, which belonged to police officers who did not exist.

Elsewhere, however, the record has been more mixed. In Nigeria, where the country’s central bank introduced measures to encourage mobile money transfers in 2012, mobile banking has failed to curb widespread corruption. And in Kenya, which Kendall and Voorhies hold up as a model for other countries, cash transfers by cell phone have become a convenient means of bribing corrupt police officers.

Such cases suggest that mobile banking can carry significant drawbacks, particularly in the developing world. Indeed, mobile cash transfers provide an easy means of “smurfing,” whereby criminals break up large illegal transactions into multiple smaller transactions to conceal the total sums from law enforcement. And since mobile cash transfers typically do not require any personal interaction with service providers (not even to open an account), they make customer verification nearly impossible.

Mobile-based financial tools are thus highly vulnerable to abuse by money launderers and terrorist financiers. But if governments and financial institutions find ways of addressing these security issues, the mobile-finance revolution could provide benefits far beyond helping the poor.

This is particularly true in parts of Africa, the Middle East, and South Asia, where people have historically transmitted funds to friends and family through the largely unregulated hawala system, a cash-based money-transfer network that terrorist financiers regularly abuse. Mobile banking can reduce the amount of cash that travels through hawala dealers and put more of that money into formal financial systems, through which it is easier to trace and monitor illicit transactions. This is one reason why Washington has supported efforts to expand mobile banking in Pakistan, where al Qaeda and the Taliban commonly use the hawala system to move money.

Kendall and Voorhies argue convincingly that governments and banks should further expand mobile banking in developing countries. But before speeding ahead, mobile finance’s backers should understand the many potential impacts of their investment.


Research Fellow, Belfer Center for Science and International Affairs, Harvard University