WHEN Hans Snook proclaimed he wanted Orange, the mobile-phone company he ran, to become a bank, onlookers thought he had been spending too much time gazing at his New Age crystals.

The notion that a gadget used for talking and texting could be getting into the rarefied world of finance was dismissed as crazy talk, on a par with the advertising agency Saatchi & Saatchi’s grand, overreaching plan in 1987 to take over Midland Bank.

A decade on, Snook’s airy prediction that the mobile phone would become “your remote control for life” is showing signs of coming true. His vision of mobiles used to buy, sell and transfer cash has proved uncannily accurate and has increasingly become a focus for operators wanting to carve out new revenue streams and improve customer loyalty.

For Vodafone, the innovation is coming in developing countries in Asia and Africa.

In Kenya, its M-Pesa system, introduced in March, allows phone users to transfer small sums of money between one another by text message. In a country where relatively few people have bank accounts and the journey to the nearest bank branch can take hours, it has been little short of a revolution, giving people in poor, rural areas direct control over their finances.

Corner shops, where customers traditionally went to top up their phone with airtime credits, have been transformed into virtual banks by becoming registered M-Pesa agents. A customer deposits money with an agent who sends a text-message alert to the intended recipient.

To receive the cash, they then go to another agent’s outlet – which could be hundreds of miles away – and enter a four-digit Pin at the counter. They are then credited with the transfer, neatly circumventing the banking system. The service is popular with city dwellers sending money home to rural communities.

“The take-up we have had in the first nine months is astonishing,” said Nick Hughes, head of international mobile-payment solutions at Vodafone.

“It’s a simple, convenient, secure way of moving money round and it seems to have hit a sweet spot in the market.”

Some 1m customers – from a total base of 7m – have registered at Safaricom, Vodafone’s part-owned operation in Kenya. In October alone, £7.5m was transferred, mostly in small sums of about £10.

Vodafone takes some 5% commission, worth £375,000 of October’s dealings. But that is far less than would be charged by money-transfer firms such as Western Union.

Some users are texting money to themselves so they don’t have to carry cash on long journeys. Vodafone has begun a trial with two companies to pay staff wages via text message.

The M-Pesa platform has also been exported to Afghanistan and Tanzania, with giant markets such as India the ultimate prize. Hughes even has plans to get into savings and loans via text message – although he would take a banking partner for that so Vodafone does not need to apply for its own banking licence.

Importantly in a market where few users are locked in to mobile contracts, Hughes reports that churn – the proportion of customers quitting Safaricom – is falling.

The mobile industry’s body, the GSM Association, sums up the financial opportunity for the sector. While 3 billion people worldwide have a mobile phone, only 1.8 billion have a credit or debit card. In addition, it believes that the value of cash sent home by migrant workers to developing countries could quadruple to £400 billion by 2012 if transfer by text message becomes the norm.

“The pie is certainly going to be big enough for everyone,” said Hughes.

Of course, Vodafone is not the only operator with dollar signs in its eyes. Orascom Telecom, which has more than 56m customers in developing markets such as Pakistan, Bangladesh and Egypt, is planning its own financial debut.

Orascom’s chief executive, Naguib Sawiris, promises a “unique” financial application, to be unveiled in the first quarter of next year. But rather than money transfer, he is eyeing mobile payments in markets such as Egypt, where he said credit-card penetration is only 1.5%. Even in developing markets where subscriber growth is still explosive, Sawiris is planning for the day they hit maturity.

“What happens in five years when our growth is done?” he asked. “We have to find a new growth route and we’re going to have to invest heavily to do that.”

Further east, these sorts of simple payments using a mobile phone as a surrogate credit or cash card have long been a way of life in Asia.

Japan’s DoCoMo incorporated a credit card into a mobile phone 18 months ago and has attracted 3m subscribers so far. This innovation followed on from phones that could withdraw cash from a cashpoint without the need of a bank card.

Embedded with its FeliCa microchips, DoCoMo’s handsets can be used to pay for items such as coffee, newspapers or a taxi ride by being passed over a scan-ner to trigger a transaction. Anything costing more than £40 needs a Pin as well. There are 190,000 such payment terminals in Japan, with 250,000 forecast by next March. The system grew out of a travel card for the East Japan Railway.

Hoping to emulate its success, 500 London commuters last week began a six-month trial led by O2 that lets them use their mobile phone as an Oyster Tube pass, debit and credit card.

Its partners, Barclaycard, Nokia and Visa, are watching progress closely. The phones make use of “near field” communication technology, designed to speed up the time it takes to complete a transaction.

Using a phone as a mobile wallet for small purchases is much more likely to work in Europe than money transfer, where it is virtually redundant because there is a bank on every street corner and most people have a bank account. But both innovations face challenges, not least from banks, which will not want to cede their cut from transactions.

“The problem with person-to-person mobile payments systems is that they’re technological inventions that compete with far simpler options such as cash and bank transfers, which are widely engrained in people’s everyday behaviour,” said Michelle de Lussanet, an analyst at Forrester Research.

Consumers’ addiction to bank cards could hit the progress of the mobile-payments market. Even so, Juniper Research believes it will be a £20 billion-a-year industry by 2009, fuelled by the volume of micropayments rather than major transactions.

That success could offset the mobile-phone industry’s limited progress in breaking into banking outright. Forrester estimates that only 3% of people bank via their mobile – and most of those do no more than the basics, such as receiving mini-statements sent by text message.

“The opportunity is significant,” said Joe Gallagher, head of communications at KPMG. “However, the device and the ease with which people can use it are paramount. And, clearly, the concern in people’s minds is security.”

But at least the phone operators should carry on trying, added Gerben Mak, director of innovation at the IT consultant Logica CMG.

“For telcos, there is a necessity to develop these new applications because their market is saturated and margins are declining,” he said.

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