Mobile money: an industry primer

Mobile money is driving payments and money transfers across the developing world, bringing financial inclusion to billions of new customers. How does it differ from mobile banking, and what are its limitations?
Mobile money is a digital wallet allowing users to send and receive money with a secure account linked to their mobile phone number.

Available to both prepaid and postpaid subscribers, it is an easy-to-use, secure alternative to cash, providing instantaneous payments and peer-to-peer transfers, without going through middlemen or banks. The service is widely popular in Africa, Asia and Central & South America, where there are large unbanked populations and bank branches tend to be few and far-between outside of major cities.

Different from mobile banking, which involves accessing banking services via a mobile app, mobile money allows customers to store and manage money in a mobile account, send money to other users, pay bills, and make purchases, including calls, texts and data. Users can also withdraw cash without needing an ATM and deposit money via a network of mobile money agents, who service their local communities. In fact, mobile money has spawned a whole new generation of entrepreneurs setting up their own micro-businesses for this very purpose.

Usually offered by a mobile service provider, mobile money services are compatible with basic phones and smartphones without the need for an internet connection or additional apps. Every transaction requires entry of a secure PIN, and the service provider or agent must verify the user's identity.

Mobile money began in Kenya in 2007 with the launch of M-PESA, developed by Safaricom in partnership with Vodafone Group. The latter received funding from the UK Department for International Development's Financial Deepening Challenge Fund, established to encourage private sector projects for generating economic growth and reducing poverty in developing economies.

The GSMA Mobile Money programme defines mobile money services based on a few key criteria, including:

• The service must be readily available to 'unbanked' people - those without access to services from a typical bank or other financial institution. As of 2020, the unbanked population is estimated to be some two billion people worldwide; though the majority of these live in the developing world, there remains an estimated seven million unbanked in the US and over a million in the UK.
• The service must offer alternatives to ATMs and bank branches in the form of agents, who can onboard new customers, and process physical withdrawals and deposits. The GSMA Mobile Money dashboard reports 9.12 million agents worldwide as of 2020.
• Mobile banking services as another channel in a traditional banking product are not considered to be part of the mobile money ecosystem - this includes mobile payment apps such as Venmo and Cash App, and digital wallet services connected to bank accounts such as Google Pay, Apple Pay and Samsung Pay.

The number of registered mobile money accounts grew by 13% in 2020 to reach a total of more than 1.2 billion users worldwide, according to the GSMA's annual State of the Industry Report on Mobile Money. The report also identifies over 300 providers of mobile money services.

Meanwhile, the value of daily mobile money transactions has increased to $2 billion, fuelled by international remittances, despite the overall drop in such payments through other means. The increase in transactions has no doubt been driven by the COVID-19 pandemic, with lockdown closures restricting access to cash and in-person banking facilities.

More than just enabling customers to make easy payments, mobile money services are increasingly providing access to more complex financial products too; Kilimo Salama (or 'Safe Agriculture') is an insurance scheme for farmers in Kenya to protect themselves against excessive rain or drought. In exchange for a 5% premium on their agricultural purchases made through mobile money, farmers can obtain coverage from insurance provider UAP Old Mutual.

However, mobile money hasn't been a success in every market. Vodafone launched M-PESA in Romania in 2014, only to withdraw the service three years later. Despite being one of the world's most unbanked countries - with almost 42% of citizens going without an account - uptake of the service remained low, owing to the country's cash-oriented culture, which sees 70% of transactions till made in cash and even those with bank accounts opting to withdraw their entire monthly salary to pay for all goods and services in cash. M-PESA operations in India and Albania were also closed down.

Even where mobile money is successful, customers can be confronted with liquidity or access issues from agents, who are often little more than a single person running a kiosk or out of another business and can be faced with the same issues accessing financial services in isolated rural areas as their customers. These agents have also found themselves targeted by criminals, with a spate of robberies and killings in Uganda highlighting their vulnerability.

Nevertheless, developing economies and the private sector can make immeasurable improvements to people's lives and their own businesses by widening access to the financial system. Each market has its own challenges, but with the world increasingly turning away from cash payments and transactions, mobile money ensures that digital financial services are still accessible to those outside of the traditional banking system, while lowering the costs of handling cash for small businesses and enterprises.

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