Citi’s Killer App Gives Hope to iPhone Sweatshops

May 15 (Bloomberg) -- The iPhone has become a symbol of something Steve Jobs never envisioned: Chinese sweatshops.

Were the late Apple Inc. co-founder still with us, he would surely dispute that. But facts are facts, and any of us (full disclosure: this includes me) who use one of Apple’s smartphones, iPads or iPods is, at least indirectly, supporting the exploitation of electronics factory workers in China.

Yet what if the iPhone is a key to ending the poverty that forces so many Asians to toil in such abhorrent conditions?

The buzz phrase “financial inclusion” is getting increasing attention these days. It refers to the world’s unbanked masses, what bankers like to call “the other 3 billion.” That’s the estimated number of people who lack access to the most basic of financial services. And in nations such as India and the Philippines, a key answer may be mobile phones. Poor Asians who lack bank accounts often have one.

That has banks turning to experts on mobile-device networking systems, such as Jay Collins. Working for Citigroup Inc. in New York, Collins is one of modern finance’s true alchemists, endeavoring to find ways for the poor to move, pay, collect and store money on mobile devices.

No more wasting an entire day at the bank or paying various bills in person. No more being scammed when remitting cash to families overseas. No more getting robbed while carrying your weekly wages. No more public officials skimming money off the top. No more black-market money changers. No more turning to loan sharks.

Cutting Out Middlemen

That also goes for small and midsize enterprises, which account for almost half of all employment in developing Asia. Owners and managers could make payments to suppliers and employees directly into accounts connected to mobile-phone SIM cards, eliminating any number of middlemen all looking for their cut. The more cash and credit these businesses get their hands on, the more Asians they can hire.

“We view this as our killer app that could transform banking and reduce poverty and corruption at the same time,” Collins says.

Citigroup isn’t an altruistic venture. It’s championing this revolution because of the potential profits: loads of new customers, deposits and, of course, fee income. Just as George Soros’s Quantum (M) Ltd., Goldman Sachs Group Inc. and Nomura Holdings Inc. invested in microfinance, Citigroup realizes there’s money to be made even from those with little of it.

The potential of mobile banking deserves far more attention than it’s getting from governments. It could enable billions to leapfrog from no connection to the global financial system to becoming productive participants. Asia’s poor would suddenly have a way to manage income, build assets, invest in the future and buy insurance to prepare for risks like health crises or natural disasters.

Political leaders should facilitate the technology’s growth with regulations and oversight to ensure security against hacking and scams. They should commit to distribute certain salaries, benefits and subsidies on mobile systems. They should step up efforts to raise financial literacy in the region.

“The perfect-world, mobile-finance ecosystem would sound like a symphony orchestra, where the various industry and government participants show up at the same time, with the same sheet of music, and play in harmony,” Collins says. “That is not today’s reality. Currently, players appear at different times and places with their own music and tempo.”

Big Benefits

There are big benefits here for governments. Phone transactions create a cyber trail to give tax authorities and national-security officials greater insights and influence over the movement of money. It adds a level of transparency that Asia’s current cash-based environment doesn’t.

India’s potential is a great example. Boston Consulting Group reckons increased mobile finance would be a boon to growth. In a 2011 report, it predicted a 5 percent jump in gross domestic product, a $50 billion increase in tax revenue annually and the creation of 600,000 new businesses by 2020. We’re not talking sweatshop jobs, but decent-paying ones in air-conditioned buildings.

The Asian Development Bank’s experience in Afghanistan also is instructive. Since the middle of the last decade, the Manila-based lender has made more than $100 million in loans to help mobile-phone providers extend coverage to parts of the nation with no telecommunications infrastructure. The financing also supported the creation of mobile-phone banking services.

It had a couple of unanticipated consequences, both for the better. First, fewer government soldiers were going AWOL. It was feared that they were conspiring with local tribal leaders who might be supporting terrorism. It turned out that they had been disappearing to take their pay back to their home villages. Second, soldiers suddenly were getting more money. Superiors could no longer pocket big chunks of their wages.

Mobile phones are hardly a quick fix. The causes of poverty, and the ways to address it, are as diverse as they are complicated. For many, though, exclusion from the banking world is a formidable barrier to better lives. Imagine the ripple effects should mobile-phone consumer finance take hold.

Banks once gave out toasters to new customers. Free iPhones, anyone?

(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)

Read more opinion online from Bloomberg View.

Today’s highlights: The View editors on French-Turkish relations and the lessons of JPMorgan; William Pesek on online banking in Asia; Jeffrey Goldberg on Obama and Iran; Ramesh Ponnuru on driving while distracted; Betsey Stevenson and Justin Wolfers on the economics of gay marriage; Tim Judah on Serbia's elections; Edward Conard on what drives the U.S. economy; and Rachelle Bergstein on the history of women's shoes.

To contact the writer of this article: William Pesek in Tokyo at

To contact the editor responsible for this article: James Greiff at

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