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BM42232
Evolution and Socio-Economic Impact of Technologies

Financial Inclusion and Mobile Money

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Mobile Money
 Mobile Money usage
 Targets: no poverty, zero hunger, good health and wellbeing, quality education, etc.

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Bank and mobile money
 Formal financial services is an intermediate step towards meaningful outcomes
 Mobile payment, referred as mobile money, mobile money transfer and mobile wallet, is any of various payment
processing services operated under financial regulations and performed from or via a mobile device, as the cardinal
class of digital wallet
 Mobile money causes increased consumption and consumption smoothing
 Mobile money does not show increase in savings or reduction in poverty
 Surveys show negative correlations between increased formal account usage and financial health
 Financial inclusion: redefined as impact through terms like financial health and financial wellbeing that have arrays
of indicators.
 These indicators, which make sense from developmental impact perspective, are difficult to measure

 Demand-side data reveals that in 2017 only 4% of adults globally had mobile money accounts after about a decade
of sector expansion
 Adults in many countries don’t need mobile money services as they have superior options
 Half the countries in the world do not even have a provider that offers the service

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Mobile money
 In low-income countries, 18% of adults have mobile money account
 73% to 81% of customers who have registered for mobile money did not make a single
monthly transaction
 Approximately ¾ of the people who have mobile money either hardly ever or possibly never use it
 Does mobile money alleviate poverty, transforms lives, or is a solution to a
commonly held problem for most people?
 It seems to improve market efficiency and resilience in informal cash-based economies
 By end of 2021, almost 350 million customers are still active on mobile money
 Consider the number of transactions made (volumes) and the amount of money transacted
(values) for each mobile money product to measure their relative importance to the system
 Cash-in and cash-out transactions are about 28% of the volume and 42% of the values.
These are not product-level transactions

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Mobile money
 Mobile money is used for:
 Airtime top-up, P2P transfer, Bill payment, Merchant payment, Bulk disbursement, and
international remittance
 mostly used for airtime and P2P, together they account of 72% of volumes
 Only P2P accounts to two-thirds of the transaction value
 Considering values, merchant payment and bulk payments are more than bill payment
 It is expected that P2P is expected to decline as the mobile money system evolves
 From an evolution perspective, over the last decade,
 airtime and P2P volumes have declined
 Bulk payments and merchant payments have shown steady growth
 Mobile money is designed for balanced flows into and out of the system
 But, bulk payments are unidirectional flows, which breaks the liquidity balancing
mechanisms 6
Mobile money
 Merchant payments should be diversified, not just some select verticals like petrol stations
and restaurants
 Bill payments started with strong growth a while back but may have levelled off
 International remittances remain a frustratingly difficult product to scale
 From an impact perspective
 domestic remittances can help increase financial resilience
 Bill pay and bulk payments (G2P) might include gambling as well, but not sure
how much
 G2P payments certainly have a high potential for impact, as they could make the
delivery of government services and subsidies to low-income populations much
more convenient and cost-effective, but they have struggled to scale

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Mobile money
 Billy pay has decelerated over the last five years
 May be because this serves urban working class and wealthier families that can afford to have
utilities, and those populations are relatively small and now served
 Bill pay might not suite low-income populations, but has supported the evolution of selected
business models like Pay-as-you-Go (PAYG) solar and smart device financing as well as school fee
payments, which do have a real impact
 Merchant payment is not for most people
 In developing world, many earn their livelihood in cash and spend cash in small amounts
close to their residence
 International remittance can impact provided it is less expensive and more
convenient
 Before mobile money, money took days to arrive or reach the destination

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Mobile money
 P2P payments is an anchor
product that allow providers to
earn revenue, garner a
significant customer base, and
then evolve a more
sophisticated suite of products
 Innovation has been quite
limited and growth in other
products except P2P has been
slow

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Mobile money
 Products developed by technology companies that could be delivered through mobile
money systems has shown high usage
 Excluding cash-in and cash-out transactions, a 30-day active customer makes just
over ten mobile money transactions a month, which is about one transaction
every three days
 Overall: Airtime top-up and P2P once a week; bill payment and merchant
transaction once a month; bulk disbursement once every two months;
international remittance once every three years
 Mobile money is not alleviating poverty or transforming lives yet.
 International remittance has an average transaction value of over USD130,
indicating that on average the users are not at the bottom of the income pyramid

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Mobile money
 Average USD30 for cash-in and cash-out, P2P and bulk disbursements are high
 Considering this is about 45% of monthly GNI per capita in Uganda, 33% in Tanzania, etc
 Thus, average mobile money user has a higher income than the average adult

 Financial impact community should applaud these gains, and also not be satisfied
by them as much work is left to do
 Financial impact community needs to embrace an improved set of metrics to
measure the impact of mobile money

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Mobile money
 Fusion is now occurring between the banking industry and the telecommunication industry, creating a
concept called mobile banking, which would enable transaction cost reduction and increase in
outreach to enable poor unbanked people to access micro financial services
 Banking sectors did not meet the needs of poor people. So, microfinance evolved
 Microfinance is the provision of financial services (savings, credit, payment mechanisms) to poor
people
 Operating costs of bank accounts are higher for poor people to handle
 Mobile money reduces costs on travelling to payment point, queuing, cash dispensing, record
payment, fraud, etc. Also, no need for staffing units
 Mobile banking models: (1) led by bank, (2) led by telecom operators
 Some countries have bank led model, some have telecom led model and some have both

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Risks in mobile banking
 Risks related to banking: in lending, bank takes risk; in depositing, client takes risk
 Risks include: credit risks (due to non-payment of loans), liquidity risks (banks use depositors
money to lend money. What if all depositors come to bank to withdraw their money on the same
day?), solvability risk, operational risks (losses from operations due to drastic increase in costs or
falls in revenues), interest rate risks (bank lends to a customer at a certain rate and thereafter the
rates of interest for the economy increase), foreign exchange risks (fluctuations in exchange rate;
loan is taken in one currency) and reputation risks
 Identity risk (someone else withdraws the money in his name and the bank gives that money to the
person?); moral hazard (bank goes bankrupt or does not have enough liquidity)
 Bank is creating money through giving credit. This adds to the money supply and can create
inflation
 Governments put in force regulations such as minimum capital requirements, governance
requirements, capital adequacy norms, reserve and liquidity norms, licenses, benchmarks for asset
quality, anti-money laundering laws, etc.

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Risks in mobile banking
 Risks related to telecommunication:
 Risks for the telecom operator: infrastructure setup is expensive

 Risk for telephone users: interoperability issues, lock-in clauses (costly for unsatisfied customers to
exist for some predetermined period of time), identification (bills for calls one does not make) or
billing costs and privacy costs (should not be possible for others to listen in to the conversation)
 Risks for the system: systematic risks impact whole economy.
 High cost of allowing multiple operators to enter, in which case all of them have high entry costs, no one break-
even and most are forced to exit.
 Used by people to organize terrorism. Police officials usually demand access to data on who suspected terrorists
are calling on this phone. Some conflict between privacy and public interest needs.
 New risks due to mobile banking
 Banks are controlled by central bank who is in charge of monetary policy including money creation

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Risks in mobile banking
 In classical economic terms: MV=PT
 Supply of money (M), velocity of money (V), inflation (P increases), effective demand or number of real transactions
(T)
 If M and T remains the same, mobile banking speeding up velocity of money will lead to inflation
 Many more transactions can take place since people have funds faster
 As V and T work faster, MV and PT will increase simultaneously
 This increase in T can lead to inflation if there is full employment and full capacity (conditions which seldom exist in
poor countries) or if there are structural rigidities preventing the effective demand meeting real supply (conditions
which often exist)
 This needs monitoring by central bank
 Money creation is through the money multiplier based on the credit function used by commercial
banks rather than printing of notes by the central bank or deposits with it
 Central bank may require telecom to deposit the float amount with a bank. The bank could then use
that money to multiply the credit

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Risks in mobile banking
 Prudential regulations protect clients from the risks of banks going bankrupt
 What if a telecom operator decides to exit?
 The small savers lose their deposits
 Elusiveness: one can use hundreds of small mobile transactions to cover up huge movements of funds
for illegal or terrorism purposes
 Origins and destinations cannot be traced without some invasion of privacy
 Interoperability increases mobile banking risks; Weak telecom operator impacts the whole network
 Risk involved in non-co-operation among the providers to build a broad basis of an interoperable
network
 Regulations need to be conservative because we are dealing with money, which is the essential core of
an economy
 Proportional regulations: restrictions imposed on an industry should be related to the benefits
expected from those restrictions

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Risks in mobile banking
 Regulations related to: whether agents are allowed to open accounts, who can issue emoney, KYC
(Know Your Customer) legislation, transaction size limits, and balance limits
 KYC regulation is often required for all telephone numbers, no additional mobile banking impact is
required
 Europe
 Interest on electronic money balances is banned
 Distinguish between selling products (electronic money) and savings products (deposit taking)
 Agents are allowed to distribute emoney but not to issue new emoney
 There is no protection for consumers against the failure of an electronic money issuer in Europe because the
authorities assume that the products will be used for spending and not for saving and that therefore substantial
balances will not be carried
 Phillipines
 Emoney is not considered as deposits
 Emoney cannot earn interest or have insurance attached to it
 Emoney issuers have to maintain the equivalent of the money issued either in bank deposits or in government
securities 17
Risks in mobile banking
 Banks should adopt multifactor authentication (e.g., ATM, card and PIN), layered security, or other
controls reasonably calculated to mitigate those risks
 Kenya: For non face-to-face contacts, two cross verification identification checks are required
 One for the address and one for the identity
 South Africa:
 Only banks can issue e-money
 Payment of bills are considered payment services, but transfer payments between people (remittances) are
considered deposits
 Mobile bank account is only for South African citizens and residents who have South African identity number
 Without face to face verification, daily transaction is limited to 1000 Rial
 Face to face verification does not need physical address; many people don’t have a formal address as they are living in
unauthorized housing
 Regulations vary from country to country

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Risks in mobile banking: Questions
 Is the PIN a signature or less than a digital signature? When you pay be credit card and you type your
code, is it a signature? Are computer records admissible in court (Kilonzo 2007)?
 Can banks or telephone operators or agents run away with the money?
 What if the ATM does not give money and you are debited?
 In mobile banking, what about wrong numbers and the money transferred as a result? Who has the
burden of proof?
 What happens if telecoms don't survive in the face of competition? What happens if there is a failure of
the system?
 In cheques and paper, there is a receipt. In electronic transfers, there is no tangible receipt. Suddenly;
the customer has to beware and report any errors in the bank statement, within a specified period (60
days?).
 In a joint operation between a bank and a telephone operator (no matter who is the leader), the
question which is emerging is who owns the customers (the last mile)? The answer may determine
who has access to the mailing lists, who can advertise to them and who can influence them.
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Example of Urban/Rural Zambia
 Mobile money has a positive influence on financial inclusion
 Easier to open accounts with mobile money kiosks than with formal banks
 Mobile money services are located where the unemployed, aged, and other segments of
the unbanked populations are found
 Used to send and receive money, pay utility bills and purchase airtime
 Should be made widely available in rural areas
 Increase financial education and knowledge about mobile money systems and operations
across populations in both urban and rural areas
 Mobile money usage is driven by convenience, timeliness, accessibility, affordability and
security
 Only 12% of 12.9 million registered mobile subscribers had active mobile money accounts

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Example of Urban/Rural Zambia
 Digital financial services range from mobile banking, internet banking to mobile money
services
 Mobile money is defined as a financial transaction made by using a Subscriber
Identification Module (SIM)-enabled device such as cellular phone via a mobile network
 Mobile banking is transfer of money from a bank account via a mobile network operator
 Mobile money enables money to flow from one location to another
 Poor rely on informal mechanisms to raise funds, save, repay debts and manage risks.
They are knowledgeable and financially active but have difficulties in accessing
affordable finance
 DeAssis (2016) defines financial inclusion as “all initiatives that make formal financial
services Available, Accessible and Affordable to all segments of the population.”

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Example of Urban/Rural Zambia
 Zambia was one of the early adopters of mobile money services, introduced in 2009
 The positive strides made have been possible due to developments in technological
infrastructure, the interoperability of payments systems and a regulatory framework on
mobile money
 Mobile money account holder can engage in transactions similar to m-banking except
medium-term or long-term loans
 To open a mobile money account does not require as much documentation as establishing
an account with a conventional bank. The major requirement is that the mobile money
account holder must have a registered mobile phone number with the mobile network
operator
 Agents play a key role in transforming the customers’ cash into electronically stored value
and back into cash as and when needed.
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Example of Urban/Rural Zambia
 Agents benefit from commissions earned, cost saving, accessibility, privacy of user’
information and transaction, suitability and convenience
 The impact of mobile money services depends on the benefits that accrue to the agents and
consumers.
 The services available to customers include: bill payments, transferring (sending and
receiving) money between parties, purchase of airtime, cash out points, store of value
(saving money) and transferring money from a bank account
 The low cost of transacting using mobile money enhances the positive impact that mobile
money has on financial inclusion. Savings arise from the inexpensive transfer of money
and the reduced travel time. Most mobile money service providers are nearby. Such low
costs directly translate into money saved by the mobile money account holder

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Example of Urban/Rural Zambia
 Mobile money provides:
 Transferring funds and remittances
 Insurance and savings
 Accessibility
 Security
 Convenience
 Affordability: Traditional banks a chain of charges like transaction fees, statements, balance inquiry,
and monthly ledger fees

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Example of Uganda
 Substantial number of women and most disadvantaged have not opted for mobile money
due to higher fees, insufficient physical infrastructure and unfavourable spatial distribution
of mobile money agents
 Lack of financial education seems to contribute to comparatively low price sensitivity
 More than 80% of adults have mobile money account
 Mobile money services are too high for about 10 to 20 percent of the sample population
 Bank branches are far away compared to the mobile money agents
 Active mobile money users: Satisfy least one of the following: (1) current mobile savings;
current mobile loans; any mobile transfers made in the past 3 months; or ever made
mobile payments (traditional transfers imply person-to-person transactions while
payments are directed at other businesses).
 Only around 50% of those having mobile money account satisfy these conditions.
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Example of Uganda
 Financial inclusion include three dimensions: (1) formal inclusion via commercial banks;
(2) semi-formal inclusion (includes SACCOs, microfinance institutions, ROSCAs and
ASCAs); and (3) inclusion via active mobile money use.
 25% use formal banking services: out of which 4% use only banking with neither semi-
formal nor mobile money; 4% use bank and semi-formal; 8% use bank and mobile money;
9% use all three forms
 24% use semi-formal exclusively; 19% use both semi-formal and mobile money
 13% use mobile money services exclusively.
 About 35% of total sample use mobile money actively
 Financial inclusion via mobile money does not occur randomly, and barriers seem to
persist for the most disadvantaged

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Example of Uganda
 Mobile money fees are as high as 50% of the transaction amount
 Non-free hindrances exist for mobile money: some may not see any good reason to
use mobile money; some find the limited availability of mobile money as a barrier to
its use
 Investment in financial education is needed
 Shortcoming in financial inclusion is due: the most disadvantaged are less likely
adopters, insufficient availability hinders use, too high fees discourage a significant
share of the population, while consumer decisions are likely affected by a lack of
financial literacy.

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Example of Uganda
 Four policies that can improve financial inclusion via mobile money: (i) Further
network expansion in rural areas should be supported in order to lower the barrier
of insufficient availability of mobile money. (ii) The high fees should be put under
pressure by improving competition among the various suppliers. (iii) Improved
financial education can support the use of mobile money by making people more
aware of this opportunity (also beyond the microentrepreneurs) and to ensure they
understand how it works; this may lead, for example, to an increased price sensitivity.
(iv) Measures should also target the three groups that use mobile money less
frequently, i.e. women, older adults, and those with lower socio-economic status.

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Mobile money in emerging markets
 Scale enables ultimate profitability but requires significant up-front spend: payment
systems achieve benefits only in fixed costs become small on a relative basis
 Regulation can accelerate or hinder ability to grow – or make scale a prize not worth
attaining: Caps on fees charge to customers for cash-out services can make the difference
between a profitable and money losing business
 Opportunities for providers will increase as mobile money business models evolve.
 To seize current and future opportunities, providers will need to partner or acquire new
skills: Growing and sustaining a profitable mobile money system requires a set of diverse
and hard-to-develop capabilities, including broad marketing and distribution,
management of an agent sales force, systems and analytics, rapid product development,
and financial intermediation.

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Mobile money in emerging markets

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Mobile money in emerging markets
 For a country with the largest share of digital payments globally, Norway, 17% of all
payments are transacted in cash

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Mobile money in emerging markets
 ACTA framework: A for accounts (plus related activities), C for cash-in-cash-out (deposit
and withdraw cash), T for transaction (direct transfer of funds between accounts), A for
adjacencies (financial and nonfinancial activities that generate nonpayments revenue for
payments system provides: interests on saving accounts and charges for loans)

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Mobile money trends in 2021
 A trillion dollars transacted as the industry diversifies
 Mobile money adoption and activity continue their upward trajectory
 Agent networks continue to thrive
 Regulatory challenges persist
 Merchant payments nearly doubled
 International remittances are still flowing fast
 Bill payments leap again in 2021
 Bulk disbursements are seeing remarkable growth
 Savings, credit and insurance are building financial resilience
 Partnerships are pushing interoperability
 The mobile money gender gap is holding women and economics back
 Mobile money is enabling access to humanitarian assistance, utilities, and agricultural solutions

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Mobile money trends in 2021
 Some of the main structural barriers to account registration
include: insufficient digital skills, unreliable mobile network,
difficulties reading and writing, preference for cash, lack of
trust in the system, lack of proper identification (ID) and
unreliable electrical grids.
 Right design and user education can overcome complex
barriers to financial inclusion
 Mobile Money Prevalence Index (MMPI)  is a composite index
that considers mobile money adoption, activity and
accessibility at country level in order to facilitate comparisons
between markets. The index is meant to support decision
making for public, private and NGO stakeholders.
 Balancing financial inclusion and financial integrity.
 Use tiered KYC and electronic KYC, which GSMA supports
 Difficult to satisfy stringent compliance requirements
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Mobile money trends in 2021: MMPI
 MMPI uses the geometric mean to ensure the poor performance in one component cannot be
compensated by movement in another
 APR = Adult Penetration Rate: divide the number of active (90-day) mobile money accounts in a
country or region by the number of adults in the same country or region
 Consider APR = 1, if APR is above 1.
 ARI = Activity Rate Index: Divide the natural logarithms of the number of active (90-day) accounts and
the number of registered accounts
 ADI = Agent Distribution Index: divide the natural logarithms of the number of active agents per
100,000 adults and constant of 3000. The figure of 3000 is chosen to indicate the upper limit of
number of agents per 100,000 adults

Without natural logarithms for ADI, MMPI will attain higher values easily due to having a higher number
of mobile money providers.

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Mobile money trends in 2021
 Mobile Money Regulatory Index (MMRI): six enablers of a successful mobile money
services: authorisation, consumer protection, transaction limits, KYC, agent networks and
investment and infrastructure environment
 Countries like Tanzania and Uganda have introduced a tax on specific transactions that has
made mobile money services less affordable
 Poorly designed and implemented instant payment solutions introduce new risks, to the
detriment of mobile money users
 40% of global mobile money providers still do not offer any international remittance
services to their customers
 Energy payments still constitute a major portion of bill payments processed via mobile
money

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Mobile money trends in 2021
 Transaction fees were waived during the pandemic period
 To sustain mobile money, providers have an opportunity to expand their business models beyond transaction
fees, paving the way for a transition to a “payments as a platform” model
 Tier 1: transaction-fee based model
 Tier 2: mobile money-enabled financial services for customers (credit, savings, insurance and wealth
management), B2B products including payments and accounts, Payment APIs
 Tier 3: Data APIs and Analytics as a Service, Agents as a Service (AaaS), Super apps and embedded features
in third-party apps, Finance as a Service (FaaS), Infrastructure as a Service (IaaS)

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Mobile money trends in 2021
 Social norms and structural inequalities between men and women, including gender disparities related to
education and income, mean that women typically feel these barriers more acutely than men.

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 Mobile money trends in 2021
Mobile money changes in the last 10 years:
 Digital payments have lowered operational costs
 Digital payments introduce transparency and accountability
 Digital payments enable new business models and reach more
customers
 Utility services have been a strong “hook” for new MNO (Mobile
Network Operators) customers and customer retention
 Integration with mobile money platforms is improving
Next 10 years
 Rapid urbanization and climate change will make digital payments
essential for centralized utilities
 Decentralised utility services flourish with digital payments at their core
 Platform models gain traction, necessitating instant digital payments

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 Mobile money trends in 2021
Barriers for mobile money among women:
 Lack of perceived prevalence (e.g., a preference for cash,
alternatives to transfer money)
 Lack of knowledge and skills (e.g., difficulties using a
handset, low literacy, not knowing how to use mobile
money)
 Unaffordable transaction fees
 Lack of access to agents
 Lack of family approval for having an account

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Mobile money trends in 2021: Agriculture
 Mobile money has helped digitise payments in agricultural value chains
 Mobile money has spurred a broader offering of agri DFS (Agricultural Digital Financial Services)
 Mobile money-enabled agri DFS models
The role of the GSMA
 Enabling the financial inclusion and climate resilience of farmers through Agri DFS

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Questions to Think
 How do mobile phones and mobile money ‘work’ for the poor on the ground?
 What is the roles that the blockchain and artificial intelligence are playing around
remittances and digital banking
 Is ICT empowering? What is the theory of change?
 What is needed - beyond the technology and the mobile money platform -to build a
greater ecosystem around financial inclusion? Is the technology itself enough?

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References (Readings)
 1. GSMA (2018) Decade Edition of the State of the Industry Report on Mobile Money [online]. Available
from <https://www.gsma.com>
 2. GMSA (2022) State of the Industry Report on Mobile Money 2022.
 3. Technical guide to using Satellite data for financial inclusion -
https://www.cgap.org/research/publication/using-satellite-data-financial-inclusion
 4. Ashta, A. (2017) “Evolution of Mobile Banking Regulations: A Case Study on Legislator’s Behavior,”
Strategic Change, 26(1): 3–20.
 5. Mobile Money, Financial Inclusion, and Unmet Opportunities: Evidence from Uganda (2021). The
Journal of Development Studies
 6. Does Mobile Money Improve Financial Inclusions? (2022). UN Capital Development Fund
 7. Mobile Money in Emerging Markets: The Business Case for Financial Inclusion (2018). McKinsey
 8. An Ethnological Analysis of the Influence of Mobile Money on Financial Inclusion: The Case of Urban
Zambia (2021). Zambia Social Science Journal

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