Mobile Money Services: Banking The Unbanked

May 20 · 5 min read

As underdeveloped regions continue to look for ways to uplift their economies through affordable and valuable financial services, there is a growing emphasis on financial inclusion, and ease of access, to financial services.

As one of the key enablers of economic development, ease of access to financial services is a challenge for third world nations — something that mobile money services can help combat.

Financial inclusion — by means of mobile money services — has the potential to integrate the population in developing countries into the financial system. Increased financial security and money options can be the path that leads them out of poverty, and help them invest in important sectors like healthcare, and education.

Who Will Benefit From Mobile Money Services?

In simple terms, the vast majority of unbanked people will be the direct beneficiaries of mobile money services.

While there has been progress in developing regions to bring financial services to the masses, there are many people who still remain unbanked.

According to the World Bank, 1.7 billion adults lack access to financial services. This is despite the fact that 66% of such people possess a mobile device, which can be used to access mobile money accounts.

Unbanked people conduct transactions exclusively in cash, devoid of a way to save and invest their money. This results in an unhealthy reliance on informal lenders and personal networks that usually charge high interest rates.

An overwhelming majority of the unbanked population are women — the global gender gap (which includes the banked, and the unbanked) remains at 7 points. Consider this: approximately 75% of men have a bank account, compared to 65% of women.

Some developing countries, such as Pakistan and Bangladesh, also feature a gender gap of 30 points, when it comes to access to financial services.

A deeper look into the stats reveals that the unbanked population is mostly found in the developing world. While high-income economies feature populations that have easy access to such services, nearly half of the unbanked population is concentrated in seven nations — namely:

· China

· India

· Pakistan

· Bangladesh

· Mexico

· Indonesia

· Nigeria

Why do these people remain unbanked? Various reasons can explain this disparity, or lack of financial services, in these regions.

According to the World Bank, some countries don’t have enough money to back their local financial services industry. For others, the cost and distance of mobile money services makes it an unnecessary burden.

Additionally, in such countries, entire families rely on a single account; one of the main reasons why some people don’t feel the need to open their personal accounts. Incomplete identity documentation is also one of the most frequently cited reasons, as this restricts people from opening mobile money accounts.

Mobile Money Services Lead The FinTech Revolution

As developing economies are increasingly turning their focus towards financial inclusion, mobile devices can play a crucial role in driving this change.

According to Statista, the number of mobile users worldwide is set to pass the 5 billion mark by the end of this year. While the use of mobile phones has increased exponentially over the years, there has been only a nominal shift in the number of people who have access to mobile money services.

While 80% of people had a mobile phone back in 2014, only 55% of adults had a bank account. Despite the fact that mobile device adoption has increased manifold in the last decade, developing nations are still faced with dwindling mobile money service adoption rates.

This does not mean that all hope is lost — according to data from the World Bank, 515 million adults around the world have now gained access to financial services that were not previously available.

There have been cases where mobile money services have been a great success. This is particularly true for the Sub-Saharan African region, which has seen a meteoric rise in the number of mobile money accounts; now, 20% of adults have mobile money accounts in the region.

Take Kenya for example — in the last three months of 2016, the number of mobile money subscribers in Kenya reached 31.9 million, covering a transaction value of $10.6 billion (KES 1.1 trillion).

Also, M-Pesa, the dominant mobile money service platform in use, was accredited with lifting 2% of Kenyan households from extreme poverty single-handedly.

Why Use Mobile Devices For Financial Inclusion?

Financial inclusion has been highlighted as a key area, which could help developing nations provide better services to the poor. Most importantly, these financial solutions are designed to help lift people from the underdeveloped world, out of poverty.

People with access to such financial services can utilize them in a variety of ways. Here are some of the benefits:

· Government Payments: Developing nations feature frequent payments from the administration, such as subsidies, packages, and other payments.

· Private Payments: Developing nations make up the bulk of countries on the receiving end of global remittances; the remittance industry grew to $613 billion in 2017. Mobile money can help remittances reach respective receivers more easily. Additional examples of private payments include salaries, wages, and person-to-person payments.

· Easy Payment Options: Power bills, cell phone bills, and other such payments, can be paid on time, through a few clicks.

Mobile money services enable people who would otherwise be deprived of financial stability, to increase their quality of life. Financial services open a vast array of options that would not be otherwise possible, such as savings, and investment.

For example, in Kenya, FinTech solutions have helped households increase their savings by 20%. People have greatly benefited from such measures, and also increased investment into their businesses at a higher rate thanks to FinTech.

A Golden Opportunity For Fintech Companies

Mobile money systems offer a dual promise — not only can they improve access to financial services, but they also create business opportunities for FinTech providers.

McKinsey predicts that the digital finance industry has the potential to expand to about 1.6 billion new retail consumers in developing economies; while offering an additional $2.1 trillion in loans to both businesses and individuals.

The key takeaway is that mobile money services not only allow unbanked customers to gain access to financial solutions, but also allows them to explore different banking services that can benefit the providers.

As a developing field, emerging economies require long-term investments, and innovative solutions. FinTech providers need to ensure that local governments are invested in the idea of providing affordable, and transparent, financial solutions that the masses can benefit from.


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