Mobile operators seeking the killer application that customers can't live without should look again at emerging markets, where mobile money is proving a valuable tool for connecting the unbanked.

Carriers in Africa, Asia and Latin America are finding that offering customers the chance to use their phones to transfer money to family and friends, pay bills or make purchases brings the kind of loyalty that Western counterparts can only dream of.

Although the sums of money involved are mostly tiny, many of these customers have no bank account, meaning their handset is their first and only connection to the financial system, and changing telecoms provider is extremely disruptive.

Once you get to a critical mass, if you've got customers, you've got customers for life, Brian Richardson, chief executive of South African mobile banking company Wizzit told an industry conference in Barcelona last week.

Western carriers have largely pulled back from adventurous acquisitions in emerging markets, which became unpopular with shareholders and were then stymied by the global credit crunch.

Instead, seeing the success of Apple's (AAPL.O) iPhone and fearing the prospect of becoming mere dumb pipes for valuable media content, they have become preoccupied with trying to boost profits by driving up data usage in developed markets.

The industry's hottest M&A news is the $23 billion attempt by India's Bharti Airtel (BRTI.BO) to merge with South Africa's MTN (MTNJ.J), while Kuwait's Zain (ZAIN.KW) blazes an acquisition trail through 24 Middle Eastern and African markets.

Zain has created a multi-national network by scrapping roaming charges across its markets, and is rolling out its mobile-money service Zap across the network, which it reckons will help it double customer numbers to 110 million by 2011.

PAIN LEVEL

In Western economies, using mobile phones for banking seems an obvious next step, but in fact the obstacles are greater as both banks and telcos both want to own the consumer, while the need for new ways of delivering services is not urgent.

The pain level to move money in developed countries is low. The pain level to move money in emerging countries is high, Eric Duprat, general manager of PayPal's mobile business, told the conference organized by industry group the GSM Association.

With Internet banking, ATM machines and ample bank branches available in most developed markets, the focus of mobile banking in the West is on near-field communications technology that makes contactless payments possible with the swipe of a phone.

To make this possible, banks and telcos would have to collaborate in an unprecedented way, with each wary of giving up any control over their prized customer base. I don't who's greedier, the banks or the network operators, Richardson said.

Banks such as HSBC's (HSBA.L) First Direct are adapting existing Internet-banking platforms to make them more suitable for mobile use, for example on Apple's (AAPL.O) iPhone -- but would ideally do much more.

We certainly believe that phones could eventually replace credit cards, Jenny Southwell, First Direct's head of digital marketing, told Reuters.

The main thing that's holding us back is the manufacturers aren't putting phones in the mass market. It's sort of chicken and egg. You need the retailers to accept it as a form of payment before the manufacturers will put it on the phones.

In the end, consumer demand will probably bring about mobile banking via contactless payment in the West some time in the next few years, but neither banks nor mobile operators may make money out of it, Andrew Bud, CEO of mobile transactions firm mBlox, believes.

It gives you a disadvantage if you don't participate, but there's no upside if you do, he told Reuters.

MOMENTUM

In the developing world, the number of mobile-money deployments is expected to double to 120 by the end of 2009.

Some of the biggest are M-PESA in Kenya, run by part Vodafone-owned (VOD.L) Safaricom (SCOM.NR), Zain's Zap, MTN's recently launched MobileMoney, which it will deploy in over 20 countries, and PLDT's (TEL.PS) Smart Money in the Philippines.

Momentum, as the unbanked seize the chance to get financially connected, seems unstoppable. For many, it means an alternative to long queues or dangerous journeys to send and receive remittances from work abroad.

The profitability of these deployments is still unproven -- but M-PESA brought in 4.1 percent of Safaricom's total revenues last year, and increased the number of signed-up users to 6.2 million by the end of March, up from 2.1 million a year earlier.

Philippines operators in a GSMA study made 74 percent more revenue per user on average from mobile money clients.

Estimates of the current size of the mobile-money market vary widely. The chief executive of Fundamo, the leading provider of mobile-banking software platforms, estimates that some 25-30 million people might currently be using it.

But the GSMA estimates 364 million people without bank accounts could have access to mobile money by 2012, making $5 billion in fees for mobile operators.

About 3.5 billion people or more than half the world have no bank account, but 1 billion of those do have a mobile phone.

South Africa India Sudan Mtn