The Mobile Money Cycle: How Is It Driving Financial Inclusion?

By Chanel Smith EMEA Editor

In many developing countries, the number of consumers with mobile phones far outnumbers those with bank accounts.

Transferring money through mobile phones were virtually unheard of until more recent years, but it is now a service that is offered in over 70 countries and shifts billions each month. According to John Villasenor from Brookings Institution, an independent research organization, the disproportionate nature of mobile versus bank accounts has directly led to the growth of mobile money services in the emerging markets. It is evident that the mobile money market has become a key contributor for improving financial inclusion, but Brookings Institution’s research argues that the growth of mobile money has other implications.

Mobile money is accessible to any consumer, which is especially valuable for the unbanked living rural areas across developing countries. Retail bank branches are far and few between, and sometimes even non-existent. And while many people in these regions do not have a bank account, many of them do own a mobile phone. Mobile money services opened the opportunity for these people to transfer money—most transactions are P2P—without the need to visit a branch. Since the introduction of mobile money, providers have vastly expanded financial capabilities, such as bill payments, work-employee payments, cash withdrawals at ATMs and shopping.

The research confirms that mobile money services are having a positive impact for improving financial inclusion, however the results also highlight broader implications: namely the growth of digital inclusion and its effects. The rise of mobile money has helped to increase the motivation for unbanked consumers to purchase mobile phones. According to Villasenor, this momentum has become akin to a supply and demand cycle that has now encouraged mobile phone companies to expand the phone-based financial services that they offer.

As the mobile money market matures, so do the mobile applications and financial offerings. In 2012, telecom firm Safaricom, in partnership with the Commercial Bank of Africa, launched M-Shwari. M-Shwari offers customers interest bearing saving account options and the option to take out small loans. While these services can be done through standard mobile phones, it is much easier for users to enter personal information with a smartphone that has flexible user interfaces and displays. Thus, the research indicates that advanced services such as M-Shwari, inevitably influences more consumers to purchase smartphones.

According to Villasenor, the high cost of Internet-capable phones remains a prominent barrier to financial inclusion. The reality is that smartphones are still too much money for the majority of under banked consumers. However, smartphone prices are starting to decline, which is expected to continue to a point that allows even unbanked consumers to afford them.

To read the full research report at Brookings Institution click here.