Leveraging Technology

The future of mobile money in the developing world

Since its launch in 2007 by Safaricom, the largest mobile operator in Kenya, M-PESA has grown by leaps and bounds from the initial motive of allowing urban migrants some savings to their families from abroad. Today M-PESAhas nearly 15 million, with 70 percent adult Kenyan users who contribute to 25 percent of Kenya’s GNP flows. As per a 2009 study, the incomes of Kenyan households had increased by 5-30 percent by using mobile money transfer.The service has gained popularity even beyond Kenya – in Sudan and Somalia – and has emerged as an economic boost in the East African region. Some primary reasons why M-PESA has grown so widely in Kenya:

  • Working class can send money to their family back home while saving on the commute or a long trip.
  • It is a fast, safe and secure way of money transfer when compared to the bank and post-office charges and the time that are involved in the transfer.
  • It is easy as you don’t have to carry wads of money as you are on a public transport.
  • Those who are poor and have no access to banks can best be benefited by the service; including those who have no savings account, insurance or credit.
  • Mobile money transfers can be tracked and have less chances of going undetected and therefore reduce the risk of embezzlement. There are no chance of your money being stolen; neither you have to sell an asset to secure some money, nor are there chances for fraud.

As per a World Bank report, M-PESA users are a third more likely to save than their peers. Safaricom handles more than half of all the world’s mobile money transactions. The success of the service in East Africa is seeing more schemes – about a 120 mobile operators – soon to offer all kinds of mobile money service with another 90 joining the force soon. Tanzania accepts taxes by mobile money services. Kenya has witnessed the emergence of new start-ups in Nairobi building novel products and service to top up the mobile money services.

While mobile money is known to be of benefit in developing countries as the rich countries are already doing transactions through credit cards and automated technology. However, the service has failed to be emulated in other parts of the world, especially like the potential countries like China and India. This could be due to the following concerns:

  • Not all countries have the similar circumstances like that of Kenya to promote M-PESA.
  • Though Safaricom enjoys a large customer base, the government did not bind Safaricom in red tape. As a result those in the poor countries would like to keep the suppliers out and emphasise on them being regulated like government authorised bodies.
  • There are issues of laziness and turf protection considering the cheap money-transfer system like M-PESA in comparison to a lending institution.
  • There has been a fear of dodgy operators who could filch cash, but one measure adopted by several African countries has been to get operators in partnerships with banks or have behind the scene regulators as experimented in Philippines.
  • In many countries, operators do not have banking licenses and their networks do not conform to the strict laws of formal banks. As such their mobile money is blocked.

The money laundering concerns can in fact be addressed by placing a limit on the size of the money transacted and a limit on the total balance that needs to be stored with the ease of where cash can be deposited and withdrawn. The other advantage that one should tap in is that the mobile-phone contract consisting the customers details could be used to relax the banks’ need to do paperwork on knowing their customers. Operators could partner with banks with some flexibility to help the customers not to go through the paper-obligations over and over again. This will help in assuring regulators.

In Uganda, MTN – Africa’s biggest operator has launched a mobile-money service in association with Standard Bank. Few banks have already come forward tying up with the operators.

Mobile money indeed has several advantages, with the appropriate solutions ready to tackle the disadvantages as well. Here is why the governments could use mobile money as a two-way payment channel – be it in terms of accepting taxes or delivering financial aid – between the government and the society.

Kenya has already become a case study for prospective phone companies who aspire to launch mobile money systems. Will this really see a wave of mobile-led revolution across the developing world?

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