More than 2 billion people cannot access formal financial services and most of them are located in developing countries. Yet, when it comes to reducing the financial inclusion gap, microfinanceinstitutions are one of the most efficient at helping low-income communities access financial products and services. However, one of the main obstacles microfinanceinstitutions, especially African institutions, […]
Mobile money, the future for African countries
Mobile money has the potential to cut the number of unbanked individuals by more than a third. According to Mastercard, more than 600 million people today have a mobile phone but not a bank account. When no banking services or financial products are available, people turn to informal providers without any legal protection and spending more money for even greater risks.
By adopting mobile money, it is possible to:
- Make banking faster and safer, especially in rural areas where financial institutions are far away and informal providers dominate the market. By adopting mobile money, banks are available for everyone.
- Improve people’s lives in a significant way. Mobile payment services open new doors to customers, from loans to start their own business, to insurance, to savings.
- Help businesses. By accepting electronic payments, businesses can avoid the risk and costs associated to handling cash.
- Strengthen the economy. In emerging economies, the informal sector represents as much as 43% of the Gross Domestic Product (GBP). By turning these transactions from cash to mobile, taxes are harder to avoid. By accepting mobile payments Mauritius has had a 12% increase in tax returns in just one year, and now Rwanda, Kenya, Tanzania and Uganda are following its footsteps.
- Reduce the gender gap. By hindering women’s economic potential, countries will never achieve the level of growth they aspire to. When budgetary responsibilities are made easier, women spend less time having to pay bills or traveling to the bank. According to McKinsey Global Institute, when the obstacles that keep women from reaching the same level of economic involvement as men, the global GDP could increase by 28 trillion dollars in 10 years.
Mobile money in Africa
Mobile money has grown notably in the past 10 years, especially in sub-Saharan Africa. By adopting M-Pesa, Kenya has been able to accelerate financial inclusion, and today, more people own a mobile account than a traditional bank account. Despite the fact that in some countries, such as South Africa, mobile money adoption has been slower than in other countries, it has been able to reach almost a third of the people who don’t have access to traditional financial institutions.
In Somalia, mobile money payments have grown at such a pace that it actually surpassed cash transactions. In fact, according to the World Bank, more than 70% of the Somalian population has used mobile payments in the last month. Nonetheless, cash payments are still dominant in the region.
How can financial institutions benefit from adopting mobile money?
When it comes to mobile money, there is a very real and lucrative opportunity for the banking industry. According to MarketsandMarkets, global mobile money will grow by more than 64 billion dollars between 2014 and 2019. In addition, in most emerging markets the number of individuals that have a mobile phone is much greater than the people that can access a bank account. Hence, by adopting mobile money, financial institutions can expand their reach notably, increasing their profits exponentially.
The problem in this equation is not the need to adopt mobile money, but the way financial institutions should go about it. How can they adopt this technology and integrate it into their existing products and services? The answer lies in developing innovative partnership models.
Mobile money operators and agents rely on banks to complete mobile operations, such as deposits, which in turn, increases the institutions’ ability to increase their lending ability and profit from the interests connected to such loans. This is particularly relevant in African countries, where deposits are a major obstacle for institutions.
The banking industry needs to find alternative ways to create interoperable mobile money networks with agents and mobile technology providers, and this shouldn’t be a difficult thing to accomplish, especially if we consider their reach, access to data and funding.
There is a growing notion that mobile money isn’t actually competing with banks, but complementing them. And although it has its challenges, financial institutions have the means to adopt and exploit it to their benefit, while also benefiting the rest of the world in the process.