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Mobile Banking and the Dictator’s Dilemma: The Piggy Bank Theory of Digital Activism

The term “mobile banking” was not something I expected to hear during Berkeley’s recent Technology and Human Rights conference. But in his closing speech, Eric Brewer briefly mentioned mbanking in the context of repressive regimes shutting down cell phone networks. More specifically, as mobile banking services continue to grow in developing countries, so do the opportunity costs of interrupting access to mobile phone networks. While Eric didn’t refer to the “Dictator’s Dilemma” or Ethan Zuckerman’s “Cute Cat Theory”, he was describing those dynamics.

The Dictator’s Dilemma suggests that repressive regimes are incurring increasing opportunity costs when they decide to cut access to the Internet and/or cell phone networks. The theory suggests that doing so incurs financial and ultimately political costs. The term was coined by Christopher Kedzie who wrote that an increase in the relevance of digital/networked technologies will force repressive regimes to face a dilemma, where they will have to choose between open communications, which encourage economic development, and closed communication, which may help control ‘dangerous’ ideas but may hinder access to the information economy.

Ethan’s “Cute Cat Theory” relates to the notion that most web (and mobile phone) users access online content for entertainment purposes, e.g., to look at pictures of cute cats. If repressive regimes block access to socially entertaining sites like Flickr, YouTube, Facebook, etc, this may backfire by possibly politicizing a large user base that until then was largely apolitical. In his recent talk at the Share Conference, Sami Gharbia described a related dynamic. The regime’s decision to block social media sites drove a large number of new users to Facebook as this remained one of the only non-censored social networking platforms available to Tunisians. This in turn made it near impossible for the regime to shut access to Facebook without serious blowback.

So how does this relate to mobile banking? As our favorite online encyclopedia states, “mobile banking is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device. [...] Mobile banking has until recently (2010) most often been performed via SMS or the Mobile Web.” In a recent article entitled “4 Trends Shaping the Emerging ‘Superfluid Economy,’” CNN noted that “within a few short years, we may see billions more people connected to the Internet and capable of participating in economic transactions.” For example, “the ‘unbanked’ are being brought into financial inclusion through innovative services like M-PESA [in Kenya] that enable transfer of money via mobile phones.”

I was surprised to learn that several banks in Iran, such as Parsian, Tejarat, Mellat, Saderat, Sepah, Edbi, and Bankmelli offer mobile banking services. Such services also exist in Bahrain (2008), China (2008), Egypt (2010), Pakistan (2009) and Thailand (2005), for example. Kenya’s M-PESA service was launched in 2007 and now includes more than 12 million users. According to a colleague of mine at the World Bank, the compound annual growth rate in mobile banking over the past four years has been over 90%. So while user figures may be low for some of the more recent initiatives, they may very well increase significantly in just a few years. This may thus increase the opportunity costs of shutting off access to SMS. I call this the “Piggy Bank Theory of Digital Activism” to piggy back on Ethan’s “Cute Cat Theory”.

As noted earlier, however, new mobile banking systems don’t use SMS. Instead, they increasingly use a mobile phone’s USSD functionality, which is more secure. So shutting down SMS would not necessarily impact mbanking transactions. Only if cell phone networks are completely blocked would this impact mobile financial services. That said, it is still unclear whether doing so would necessarily create a dilemma for our hypothetical dictator, even in a country with a relatively large mbanking sector. The financial cost may still be negligible in the grand scheme of things. On the other hand, preventing access to mbanking services could backfire if millions of low-income households find their livelihoods at greater risk. We’ve seen that raising taxes on staple goods has prompted serious riots against governments in various countries, for example. So perhaps blocking access to mbanking could create a similar response.

Still, it remains to be seen whether the “Piggy Bank Theory of Digital Activism” is actually valid. On a slightly different note, however, writing about this did prompt the following thought: since USSD functionality is not interrupted when SMS is shut down, could digital activists communicate by exchanging money using mbanking services? For example, transferring $2.3 could be code for meet at location 2 at 3 o’clock. Communicating via numbers does certainly limit the type of information exchanged but the advantage of USSD transactions is that they are secure and encrypted. They also allow for mobility, which is important for digital activism.

ps. many thanks to Fletcher alumni for helping me with the mbanking research!