As recently as two years ago, mobile banking in the developing world was an object of skepticism among financial insiders. While proponents argued that cell phones could revolutionize personal finance in poorer countries, regulators warned of money laundering and most bankers worried that low customer balances wouldn't be worth the transaction costs. Many thought of "m-banking" as a niche product that, at most, could maintain the loyalty of existing traditional bank customers. Few imagined it might bring savings, credit, and liquidity to those who don't belong to a bank in the first place.

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Now, however, the doubters have been proved entirely wrong. The spontaneous and unplanned explosion of m-banking in the developing world has gone well beyond expectations. And the effects for development could be monumental.

M-banking began with the widespread use of prepaid cell-phone airtime as an informal currency. Migrant laborers across the developing world would text the serial numbers on prepaid airtime cards to loved ones elsewhere in the country; the recipients of the text messages would then sell the serial numbers to local mobile airtime vendors in exchange for cash, minus a small commission. By remotely selling their airtime this way, laborers were able to avoid taking long bus rides home to the countryside to hand over cash in person.

Three years ago, Safaricom, the Kenyan subsidiary of Vodafone, launched "M-Pesa," a mobile money-transfer service that essentially allowed vendors of mobile airtime cards -- there are apparently 100,000 such vendors in the country -- to institutionalize what they had been doing informally. M-Pesa wasn't the first service of this kind, but it has become the most successful by far. Today, M-Pesa has roughly 10 million customers in Kenya, 40 percent of the adult population. It's the top vehicle for money transfers in the country, with $10 million a day in transactions. Safaricom posted record profits in 2009, some $250 million. Other m-banking products that have met with surprising success are Celpay in Zambia and Gcash and Smart Money in the Philippines.

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