The Mobile Money Ecosystem

Financial inclusion and the concept of the unbanked has become a buzzword when it comes to mobile payments innovations. Who are the unbanked, who are the mobile money companies reaching, and where are there still gaps? And why?

These are the questions mobile money companies are working rapidly to solve as they attempt to wade through regulatory and economic hurdles to find faster and cheaper methods to reach the unbanked, and to bring those on the outside of traditional banking and financial systems to the inside. This was one of many topics discussed (and debated) at Innovation Project 2015 last week (March 19) in Cambridge, Massachusetts, where a panel of mobile money experts weighed in on where mobile money schemes are and are not working.

Opinions abound about how to do that.

David Luther, EVP Business Development at Mozido, recommends starting with making it a focus. Luther believes that there’s been so much focus on mobile payments that the concept of enabling consumers in the most unbanked nations to have access to mobile money is sometimes lost in the clutter. Luther and Mozido believe that “it takes an ecosystem” to ignite mobile money.

Ignition that is illusive. David Evans, economist and MPD Founder, presented the results of looking, in detail, at 22 countries which have initiated some sort of mobile money scheme. Evans concluded that of those, mobile money schemes have grown rapidly in eight; mobile money schemes have grown but not rapidly in three; and mobile money schemes have largely failed to take hold in eight. Based on a detailed investigation into the similarities and differences between these countries and across the categories, Evans reached the following key findings:

Heavy regulation, and in particular an insistence that banks play a central role in the schemes and heavy KYC requirements, is generally fatal to igniting mobile money schemes.

Mobile money schemes have been more likely to succeed in the poorest countries that lack basic infrastructure such as good transportation and banking systems.

The send-receive platform and the cash-in/cash-out platforms must grow rapidly simultaneously; slow growth in one restrains growth in the other.

Ignition and explosive growth appears to occur quickly—within the first 2-3 years after mobile money schemes start—or not at all.

So where are the unbanked? It’s not just in emerging or developing nations, as one would think.

60 Million | The Amount Of People In The U.S. Estimated To Be Unbanked

As the conversation on mobile money schemes at Innovation Project shifted deep into emerging countries where mobile money is working and where it isn’t, Luther reminded the audience that companies don’t have to look far in the U.S. to find the unbanked. In fact, according to Luther, 60 million people in the U.S. are unbanked.

Yes, in a country where most of the conversations on mobile money have turned to debates about Apple Pay versus Android Pay, etc. — or about getting the banks on board behind mobile payment options — there’s still 60 million, or so, that don’t have proper access to banking services. And it isn’t because of lack of resources.

“Banks have had the opportunity for years to reach [unbanked] people but they haven’t done it. They have failed,” Luther said.

Outside of the U.S., mobile money schemes, in general, appear to have the most success in the poorest nations, mainly because that’s where people need mobile money access the most. Without proper roads, banks or a means to get from to a money service location — even if funds are coming in — those in isolated, poor nations need mobile money the most. They may not have bank accounts, but those in the most financially excluded nations are more likely to at least have a mobile phone to serve as their financial lifeline.

When it comes to mobile money and financial inclusion, it was suggested a ubiquitous distribution network was needed for it to succeed. It was also concluded that there needs to be more major players in the mobile money space and the alternative finance world willing to go in and work with regulators to bring more money schemes to those who need it most.

“You need a force to go in there; you need regulation to make that [mobile money] possible,” Luther said. “The fact is …the money is in the banks today. That’s where the sources of funds are coming from — it’s all coming from banks. The key is to connect with the ecosystems. We must connect with them around the globe.”

Where mobile money schemes are working are in places like Bangladesh, where the government is receptive to the companies trying to provide the services, and consumers are eager to embrace the option. An example of where it’s not working is a place like Burkina Faso, in Africa, where there was too much regulation and too much bank oversight. That was the difference between one scenario where mobile money ignited and one where the efforts burnt out.

But mobile money schemes are working in other regions of Africa.

$1.6 Billion | Amount Of Monthly Mobile Money Transactions Vodafone Handles Via M-PESA

M-PESA (M for mobile, pesa is Swahili for money), was launched by the telecommunication firm Safaricom (part of Vodafone) as a part of a way to help advance mobile money schemes. And during Innovation Project, Michael Joseph – who is credited as being the Father of M-PESA— Director Of Mobile Money for Vodafone — gave a case example of how mobile money has transformed the lives of many in places like Kenya, where M-PESA ranks as the country’s most popular mobile payments service. It’s estimated that the transaction volume processed through Vodacom totals $18 billion annually.

With just a national ID card and a phone, consumers in Kenya now have a faster way to shop, get supplies and grab cash. And for merchants in that region, they now have a new way to accept mobile payments so they don’t have to shut their stores down to make trips to the banks. But instead of being resistant, banks are receptive to M-PESA’s mission, as it’s been integrated into banking apps.

“We’re not really competing with banks,” said Joseph, who noted the company enables $1.6 billion in transactions a month. “[Mobile] transactions are cheaper than banks.”

The benefits of M-PESA in a region like Kenya are clear. They provide better access to move their money around — by mobile. Instead of having to rely on face-to-face interactions and transactions tied to cash, M-PESA gives them a faceless option.

M-PESA not only brings an added convenience to the mobile money process for those unbanked populations, but it helps ease security issues with its layer of security that allows consumers to tap into a smartphone without needing to carry cash. What’s also needed in mobile money schemes, Joseph said, is having “an ubiquitous distribution network.”

So what’s driving mobile money? To start, an increase in mobile usage helps.

40 | The Percentage Of Africa’s Population That Have A Mobile Phone

Statistics from the World Bank show that of Africa’s 1.4 billon people, only about a fourth have a bank account, but 40 percent have a mobile phone. Smartphone penetration is expected to continuing rising, moving from the current figure of 17 percent to 34 percent in the next three years.

That has also helped drive the mission of M-PESA.

According to data gathered from London-based Currency Cloud, a FinTech company: “Nowhere is the M-banking market developing more rapidly than in Africa and China. While economically and culturally divergent in many ways, these two territories represent a fertile testing ground where mobile payments fill the financial services void for the vast ‘unbanked’ portion of their respective populations.”

Smartphone adoption still has a long way to go to ignite more mobile money schemes, but there’s also another problem: capturing the cash-driven population and turning them cashless. A recent statistic shows that 95 percent of Kenyan transactions are still done in cash, despite the security concerns about the high crime rates in Kenya’s urban areas. Clearly, there’s still a portion of the population who needs assistance with going from cash-driven to cashless.

That’s where mobile money schemes are attempting to bridge the gap.

Turning toward China, the focus is more on capitalizing on mobile growth and turning mobile-loving customers into mobile-paying customers.

73.2 | Percentage Of Mobile Payment App Growth In China In 2014

By mid-2013, data showed that only 4.3 percent of the global population was using mobile payments services. Fast forward a year and that data, specifically in China, and the use of mobile payment apps increased 73.2 percent from the year prior, and mobile banking apps grew by 69.2 percent.

What’s helping the mobile money market in China? Mobile remains the best option for consumers as many of the Internet sources for computers are reportedly unreliable. As data show, this has caused a majority of China’s Internet users (649 million total) to turn to mobile for their online needs — including mobile transactions and banking. Mobile Internet usage doubled in 2014, Currency Cloud reported, and it’s now estimated that 557 million users are connected via mobile.

“Just as in Africa, large segments of China’s rural population are unbanked and those people are rapidly discovering the value of moving away from cash transactions towards the services of mobile payments providers,” the Cloud Currency firm concluded.

Mobile money trends have also ignited mobile banking in China, according to one analyst.

“Mobile banking in China is not only growing rapidly, it is enabling new business models,” said Hua Zhang, a lead analyst with Celent’s Asian Financial Services Group. “Mobile banking provides banks with massive amounts of transaction data, which they can analyze in order to develop new products and strategies.”