Mobile Money Spurring Development

One of the most visible effects of the technological revolution in financial services is in how we pay for goods and services and transact with each other financially. From cash and cheques, it has rapidly transitioned into real-time transfers, contactless payments and app-based banking. In the critical times of Covid 19, mobile money has helped governments navigate the financial dystopia and address the practical challenge of delivering affordable and efficient financial services.

Mobile technology has spread at an astonishing pace. Economic lockdowns, physical distancing measures, patchy social protection systems and, especially for low-income countries, the high informality complicate the task. Many governments are leveraging mobile technology to help their citizens.

The ubiquity of the mobile phone has made it possible to deliver financial services to people for whom a bank account is a distant dream. Millions of emerging and developing economies have cellular phones but no bank accounts, credit cards, or debit cards. Digitization has turned a smartphone into a wallet, a chequebook, a bank branch and an accounting ledger. The innumerable global poor have gained a new value through the cell phone: They are now the “new oil,” crucial for future innovation, and tech companies are waking up to the possibility of this vast and relatively untapped mine of further data.

Many of these following billion users are young, live outside the West, and passionately shape the internet. Four in 10 people in the world are below 25 years of age, and 85% of them live in developing countries. Today China has about 800 million internet users in contrast to the 300 million in the United States. India has the most WhatsApp users worldwide.

The first billion users, for the most part, were middle-class and lived in wealthy countries, but these next billion users are substantively low-income and live in poorer countries. From South Africa to Brazil, young people are taking to the mobile internet with enthusiasm, due to the increased affordability of these devices and data plans. The most significant beneficiary sector in developing countries from this technological revolution is the financial sector, which has revolutionized the speed, efficiency and affordability of remittances.

Mobile money, sometimes considered a form of branchless banking, has allowed people otherwise excluded from the formal financial system to perform relatively cheap, secure, and reliable financial transactions. Some of the most profitable gains for mobile banking have come in remote areas. In these communities, basic mobile phones have leapfrogged the substandard physical branch-banking system. We’ve reached the point where more people use phones for banking than banks. For instance, people in far-flung areas of the country and remote villages can now make payments, deposit money, transfer funds, receive social benefits and wages and buy rations — affordably and reliably.

Further, the penetration of cellular phones puts developing countries in an advantageous position where making a quantum leap in financial inclusion is concerned. For communities with low literacy levels and sporadic incomes, digital money can transform the socio-economic landscape. Mobile banking is enabling women to overcome common barriers. It reduces the need to travel long distances to access banking facilities and ensures privacy and security.

Mobile money has laid the foundation for a raft of innovations, evolving from a tool for purchasing airtime and sending money between friends and family to a convenient way to access and pay for essentials, such as water bills or school fees. Cellular phone banking eliminates the problem of geographical inaccessibility and the high set-up cost of bank branches.

Mobile finance offers advantages over traditional financial models. First, digital transactions are essentially free. In-person services and cash transactions account for most routine banking expenses, but mobile finance clients keep their money in digital form. They can send and receive money without incurring transaction costs from their banks or mobile service providers.

Second, mobile platforms link banks to their clients in real-time. Banks can instantly relay account information or send reminders, and clients can quickly sign up for services. Further, digital footprints and transaction data can significantly help assess individual creditworthiness. Mobile network operators are teaming up with banks, financial-tech companies, and data analytics specialists to use customer information to gauge their credit risk and offer microfinance products to some who would otherwise lack any proof of their capacity to repay a loan.

But such success stories do not happen in a vacuum. To begin with, everyone needs a cellular phone with an affordable data plan. It is entrusted to governments and non-governmental organisations to extend mobile networks to remote areas. Governments must also ensure that networks between banks and telecommunications companies are interoperable; otherwise, widespread use of mobile phones for financial services and payments would be impossible.

Mobile money transactions will also have to address the limitations which prevent countrywide adoption of the channel. Exchanging mobile money for cash can still be expensive. A robust identification system, widespread, consistent internet access and reliable ways to get money into digital formats could be important for digital payments to thrive.

The promises of mobile finance are certainly very seductive. However, the reality is much harder than we can imagine. It is easier to spread technology than to bring about extensive change in social and individual attitudes. As clients become comfortable with mobile phone usage for financial transactions, the goal is that users will be expanded to include an extensive suite of products, including airtime top-up, remittances, financial education and savings, among others.

Fraud may be endemic in many financial systems, and risk may always be present. However, with the right digital payment platform and investment, customers are given protection and privacy over their transactions, increasing confidence and providing a safe and convenient way to undertake transactions. Modern account-rail-based payments use anonymous digital tokens that represent a customer but have no customer data. Digital transactions are secure because there is no information to steal.

Although mobile telephony might entail initial fixed costs, the variable costs associated with their use are significantly lower, reducing transaction costs overall. Mobile banking can be a strong income stream for telecom operators, helping them to counter slowing subscription growth and growing competition in traditional niches.

Since success is in everyone’s best interest, mobile and financial industries and regulators should work collaboratively to unlock the transformative social impact of cell phone money. We need a supportive and enabling policy environment. The regulators may balance innovation with risks and systemic stability to support market dynamism. Rules that are too tight will stifle innovation and hinder adoption; rules that are too lax could allow fraudsters to bring mobile banking into disrepute. But if regulators strike the right balance, m-banking may provide the following example of mobile phones’ transformational power. The right way would be light-touch regulation. The existing law covers most issues such as consumer protection, privacy, fraud, etc. regulators will have to come with industry to build capacity in law enforcement agencies.

As with any revolution, the old order is giving way to a new one, and banks are just one group of players on the mobile money battlefield. Telecommunication companies, internet and technology firms, retailers, and others are in this fight. Governments will have to close the digital divide to reap the benefits of digital financial services. This means finding the right balance between enabling financial innovation and addressing several risks: Lack of financial and digital literacy, insufficient consumer protection and unequal access to digital infrastructure and databases.  —INFA


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