Editor’s note: Alix Murphy is a mobile telecommunications industry professional with experience in electronic and mobile identity, mobile payments and international development sectors. She is a senior mobile analyst at WorldRemit.
Ask most people what the state of mobile payments is today, and they’ll tell you it’s just kicking off. With Facebook announcing the option to send money to friends via Messenger and the release of Apple Pay last year, 2015 has excitedly been dubbed “The Year of Mobile Payments.” Yet what most people don’t realise is that these services are already lagging 10 years behind.
I’m not just talking about Google Wallet or Square, both launched in 2011, or wallets like MasterPass and Visa’s V.me, all of which have struggled to gain traction among both consumers and merchants. The latest report by InfoScout and PYMNTS.com revealed last month that 85% of iPhone 6 users still have never tried using Apple Pay, despite enthusiasts’ conviction that transactions will pick up this year.
There are places around the world, however, where mobile payments have taken a very different path 89 countries across the developing world, to be precise. Many people may already be familiar with M-PESA in Kenya (launched in 2007), the mobile money service which processes around $2.1 billion worth of transactions per month. Fifty-nine percent of Kenyan adults use M-PESA, and the platform accounts for 66 percent of transaction volumes processed through the national payments system. M-PESA users can do everything from buying groceries to paying utility and school bills, or even purchasing airline tickets, all from their mobile, and without needing a bank account.
But it’s not just Kenya where mobile money has become an integral part of peoples’ daily lives. From Paraguay to Pakistan, mobile money is rapidly gaining ground. The global telecoms body GSMA notes that in Latin America alone the number of new mobile money accounts grew by 50 percent in 2014. According to CGAP, a financial inclusion advocacy arm of the World Bank, 22 percent of Bangladesh’s adult population uses mobile money. If you live in San Francisco, London or Munich you wouldn’t necessarily know this. Europe’s first mobile money service only launched last year – in Romania.
Mobile money – an unconventional wallet
Why is this the case? Unlike the ‘mobile wallets’ with which we are familiar (and which are, essentially, no more than a digitised front-end to existing credit and debit cards), mobile money isn’t linked to any bank account. Rather, mobile money is electronic value stored in an account linked to your mobile number, which can be used to purchase goods and services, pay bills, or send money to anybody else with a mobile phone. It’s not app-based (although it can be – more on that later), but instead works on USSD and simple STK technology on basic ‘feature phones’ (non-smartphones).
Those leading the way in offering mobile money services are mobile telecoms operators such as Vodafone and America Móvil, who have established customer bases of tens of millions of customers worldwide.
According to the GSMA’s latest figures, mobile money now has 103 million active users around the world, up from 60 million users a year ago, and up from 30 million just one year before that. With 261 mobile money services across 89 countries worldwide, mobile money already covers nearly two-thirds of the developing world. Remarkably, in 16 of these countries, there are more mobile money accounts than bank accounts.
Indeed, that’s because the majority of mobile money users are precisely the people who have been excluded from traditional banking and payment services, simply because they are considered too unprofitable to serve. Despite some good efforts by commercial banks to extend their services to poorer customer segments, the infrastructure is simply too burdensome to justify administering such small account balances for someone in a remote village, for example.
But when you consider that 1 billion of the world’s 2.5 billion unbanked people have access to a mobile phone, this changes things. A lot.
Pioneering innovation in financial services
Already, mobile money providers are providing products that go beyond simple peer-to-peer payments and retail. Farmers in Zimbabwe can insure their crops against drought or excessive rainfall through EcoFarmer, an insurance service offered by Econet Zimbabwe, which lets them pay back the $10 premium for the season using EcoCash Mobile Money.
Customers of bKash Mobile Money in Bangladesh can earn interest of up to 4 percent a year on the savings they accumulate on their mobile money accounts. In Kenya, hundreds of donations are received weekly by crowdfunding platform mChanga, which lets users donate via M-PESA or Airtel Money for no transaction charge.
These and many other innovative mobile financial products are transforming financial services for many people around the world. But there’s still a long way to go.103 million users represent only a third of the 300 million registered mobile money customers globally, and mobile money providers also struggle with driving adoption, educating new customers and bringing merchants on board.
Regulatory barriers in some markets make it hard for non-bank entities to promote, expand and deliver mobile money services, despite the fact that mobile money is governed by the same prudential banking regulations that pertain to regular consumer banking.
That’s now changing. In India, for example, the Central Bank recently made a landmark decision to allow non-bank entities to offer mobile financial services, recognising the successes taking place elsewhere and the huge impact that mobile money could have in increasing financial inclusion among India’s 720 million unbanked adults. Paytm, a payment services provider in which Jack Ma’s Alibaba recently acquired 25 percent, is just one of the 40 or so applicants for mobile money licenses under the new regulation.
There’s a reason why investors like Ma are paying attention. A total of $7.5 billion dollars was transacted through mobile money systems globally in December 2014 – that’s equivalent to the spending pledged by developed world economies for global vaccinations up to 2020.
These were mostly small payments in the range of $30-40 per transaction, with the majority coming through person-to-person transfers, bill payments and small retail transactions. When you’re talking thousands of small transactions like these, with volumes growing at around 45 percent per year on average, providers can offer them at low transaction costs. Combine that with the rollout of low-cost smartphone handsets with basic app functionality, and increasing mobile Internet usage, and you’ve got a digital payments revolution at your doorstep.
That’s when you start to get network effects, drawing in wider businesses, institutions and even governments who see the benefits of mobile money as a payments channel for their services. Already, salary payments are one of the biggest institutional uses for mobile money in Sub-Saharan Africa. Originally spun off from airtime top-up platforms, mobile money provides a ready network infrastructure for enabling transactions between different systems, including APIs and other add-on capabilities.
So, what’s next? Well, so far, mobile money has been fundamentally a domestic phenomenon. Most mobile money systems only operate within the boundaries of a single country, despite evidence of major trade and remittance corridors existing across national borders.
There is a major gap yet to fill. The World Bank estimates that migrant workers send more than $550 billion per year back to their home nations – typically by handing cash to brick and mortar transfer agents with high fees, or entrusting envelopes of cash to a stranger traveling back to their home country. Seeing this opportunity, some mobile money providers are starting to link up, taking advantage of the major trade corridors between Cote d’Ivoire and Burkina Faso, for example, by allowing their users to transfer money across regional borders.
Yet there is a huge opportunity to take money transfer one step further, to connect families living in different continents in the same way that they are now accustomed to communicating with each other – online and via mobile. Expectations have changed. The proliferation of mobile money services shows that people – even the unbanked – demand better than the lengthy queues, cumbersome processes, and high fees offered by the incumbent international money transfer “super racket.”
And if you thought this phenomenon was taking place far from U.S. shores, think again. Even if you hadn’t yet heard of mobile money, many people in the U.S. already have, and many are already sending money directly to mobile money accounts of their family and loved ones abroad.
Transfers directly to mobile money wallets abroad from the United States grew 30-fold over the past 6 months alone, with cities as diverse as Milwaukee and Boise representing some of the largest numbers of senders to Africa and beyond. These people know the importance of 24-hour service availability at the touch of a screen. These people understand that the global mobile payments revolution isn’t on its way. It’s already here.