Mobile Banking: Who is in the Driver’s Seat?


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It is in the popular perception that technological availability and regulation are the two most important factors in promoting mobile banking, defined here as the usage of mobile phones to send/receive money and to make payments. Two cases, however, defy this common perception and bring forth interesting questions as to what are the main driving factors for mobile banking. Let’s take a brief look at Russia and Somalia.

  Russia and Somalia (2011)


Russia has one of the highest rates of mobile phone subscriptions in the world (ranked 7th). Yet, it has one of the lowest rates of mobile banking (Table 1). Three factors could explain this.

The first is more of a cultural and social factor. Russians simply prefer using cash in their transactions than any other method of payment. Until as recently as 2012, many private sector employers paid the wages of employees in cash. Even as e-commerce has been growing rapidly in Russia (it grew by at least 25 percent between 2010 and 2011), the preferred method of payment for online orders is again cash-on-delivery. A survey conducted by MasterIndex shows that about 50 percent of Russians are skeptical towards debit and credit cards, even if they own one. Therefore, more than 83 percent of the 140 million-plus active bank cards are payroll cards and more than 90 percent of activities registered on these cards are ATM withdrawals on paydays.1 Preferring cash to electronic and mobile forms of payment may also be rooted in Russians’ distrust in 1) the technology’s secureness against financial fraud and identity theft, and 2) government’s ability and motives in tracking their financial transactions.

Second, Russian banks have been slow in developing electronic payment and mobile banking services. In mid-2012, only four of the 30 largest Russian banks provided a complete set of mobile banking services and only seven of these banks made money transfers between individuals possible. The rest provided very limited or no mobile banking services at all.2

The final factor relates to the regulation of the mobile banking industry. It was not until 2011 that a set of laws concerning electronic payments was put into effect, legalizing electronic payments and setting up the necessary legal and technological frameworks that made such payments possible.3 Government’s delay in recognizing the necessity of regulating electronic payments and banking systems has introduced uncertainties into this industry, therefore hindering its growth.

While each of these three factors can independently explain the low rates of mobile banking in Russia to some degree, it is the combination of them and their reinforcing nature that has hindered the development of a vibrant mobile banking and a non-cash economy in the world’s eighth largest economy and a country of 143 million people. As a result, cash will remain the main method of payment in the foreseeable future in Russia while payments and transfers through mobile phone will continue to be at depressed levels compared with most countries with similar levels of education, wealth, mobile phone penetration rates, and technological advancements.4


Although Somalia has the fourth lowest mobile penetration rate in the world, it ranks 1st and 3rd globally in the percentage of adults using mobile phones to pay bills and send/receive money, respectively. This somewhat contradictory outcome is mainly driven by Somalia’s largest telecom company: Hormuud Telecom Somalia Inc. or HORTEL. In an effort to respond to the plummeting security and economic conditions in Somalia, HORTEL launched ZAAD mobile banking services through which individuals could transfer money to other subscribers, facilitating shopping and paying for utility and telephone bills without carrying cash. This has proved to be an attractive option for Somalis who have been facing worsening security conditions over the past decade.

Furthermore, ZAAD has made it possible for hundreds of thousands of Somalis to receive remittances from their family and friends abroad, therefore saving lives in this conflict-torn country. With more than $1 billion USD in value per year (more than 70 percent of Somali GDP), remittances have been the backbone of the war-torn economy. Without ZAAD mobile phone payment service, the effect of these remittances would be minimal. ZAAD has made it possible for remittances to be transferred across the country with a push of a button and with no risk for the sender or receiver, making it possible for thousands of people across Somalia to gain access to basic food items and healthcare.5

Concluding Remarks

When it comes to mobile technology and mobile banking, Russia and Somalia are diametrically opposite to each other. Despite being one of the poorest countries in the world, having one of the lowest cell phone penetration rates and lacking the involvement of government or financial industry, Somalia has one of the highest mobile financial transaction rates in the world. By contrast, although Russia surpasses Somalia in a heartbeat in terms of income, technology, and education, its mobile banking rates have remained at extremely low levels even in the face of government support. It seems that while technology and regulation have minimal roles in creating these opposite outcomes, cultural view toward cash, security conditions on the ground, and the trust of the public in the secureness of mobile banking technology are the main driving factors.  Therefore, alongside technological and regulatory requirements, countries that are contemplating the possibilities and potentials of mobile banking in their economies need to be mindful and pay closer attention to the specific local conditions and cultures that could hinder or promote the advancement of mobile banking in their economies.

(Author’s Note: This piece is part of the analysis for the forthcoming 2014 Global Financial Development Report on Financial Inclusion, which covers mobile banking and other related topics in greater detail.)

Mobile Phone Penetration and Mobile Banking: World (2011)


Amin Mohseni-Cheraghlou

Assistant professor of economics

Rogers Kasaija
June 12, 2013

Wow, very insightful. The part that is most convincing is the concept of how secure one is in carrying cash around. For those who live in countries where it is safe to carry cash around, there is limited need for mobile Banking. For those who live in countries where it is risky to carry cash, there is no better option than mobile banking.
In such countries, I believe the level of transactions over the phone would even out compete the transactions over bank counters, mainly because people would naturally feel more secure having cash in easily accessible mobile phone lines than corrupt banking officials.
Interesting research and line of thought indeed. It all boils down to one thing: Mode of transaction choice is highly dependent on security perception.

Amin Mohseni-Cheraghlou
June 20, 2013

Dear Rogers,
Many thanks for your comment. It seems that security concern and also the huge costs (and often low returns) associated with establishing physical banking branches and ATMs in rural areas are the two factors responsible for rapid development of mobile banking in conflict-torn as well as low-income countries, making mobile banking a great tool in increasing financial inclusion.

August 09, 2013

What would drive the mobile adoption is convenience. Much like some of the countries leapfrogged from less land lines to excessive mobile phones in a decade or so, it is quite likely that some countries would see similar revolution in terms of mobile banking - they would leapfrog from not much banking convenience to very convenient mobile banking.. Those countries have the advantage of 'having no legacy systems' and thankfully, the technology costs are coming down making this revolution possible. That is a good trend – with bulk of the population having access to mobile phones and smart phones becoming more affordable, mobile based banking and financial access is the way to go….

George D
June 16, 2013

I don't think Russia is particularly low. I think it's squarely in the middle. Few countries have less than 70 subscriptions per 100, but the majority of countries have less than 3% of adults using phones to pay bills or send money.
Access to electronic banking is terrible everywhere. And that's because banks are resistant to change. They might not realise that they are slowing their economies and acting as a form of friction rather than a facilitator, but they do realise that their current models; (few uses, high charges) which developed when money was an entirely physical commodity, are profitable.
As your example illustrates, and has been shown elsewhere, it requires new entrants to the business to break their oligopolies on the movement of money. This can come either in the form of new players (mobile phone operators usually), or new business units within existing banks. Where banking penetration is high, the latter seems fairly unlikely. This requires active interventions in the market (whether by government and IGOs or by new players), and it often requires deregulation to weaken a powerful protectionist industry.

Amin Mohseni-Cheraghlou
June 20, 2013

Dear George,
Many thanks for your comment. You are correct in that Russia is not particularly low in rates of mobile banking. In fact from amongst the 121 countries where data is available, Russian mobile banking rates is right around the median. I also agree that new business models, new players both in banking and telecom industries, and active government involvement is needed in pushing forward with mobile banking agendas. However, the main aims of this blog was to highlight the fact that alongside factors which you correctly pointed to, physical security concerns, cultural factors, and also the role of remittances in an economy can play important roles in the development of an active mobile banking industry.

June 16, 2013

This is a very informative and interesting piece. However, It seems the acceptance and growth in mobile banking in Somalia has largely been driven by its high remittance receipt. It would have been interesting to consider that of Russia as well. Could it be argued that high remittance receipt has contributed to the embrace of mobile banking in Somalia?

Amin Mohseni-Cheraghlou
June 20, 2013

Dear anonymous reader,
Many thanks for your comment and important observation. Indeed a more detailed cross-country regression analysis is required to examine the relative importance of several competing factors including remittances on the level and growth of mobile banking.

June 17, 2013

I am living in somalia and participating some assessment in somalia, I believe the rate of mobile penetration in somalia is higher than what report said. I beleive the mobile penetration level and mobile banking are more than 60% and 40%,respectively. In urban areas, we found out the penetration is more than 80%. Availabitity of cheap services, low cost mobile devices and mobile banking have contributed this high penetration rate. In ur which contribute high rate of mobile money transections. both mobile:
1. Becuase of insecurity in somalia, people prefer to have mobile phone for easy communication and to find out if there are any security problem exist where he/she is going to travel.
2. expension of telecommunication service in rural and outside big cities.
3. For security reason also people do not like to take cash money, since there is no good banking and financial system, the only easiest method is to use their mobile for easy transfer and paying bills.
4. Many somali immigrated outside country and the easist way to communicate is through telephone, this als contribute the high rate of mobile pentration.
5. Availability of Zaad services, Sahal and Emaal, have contributed higher penetration of mobile phone too.
6. Culture for trying new things and risk taking, since most of somali came from Nomadic culture they like to test new thing. Since they are living high risk enviroment, they are willing to take risk to find out what benefit they can get from new service.
7. easy reading and learning of somali writing is another factor. I had one case where an old man approach me to help and to see how much balance he got in his mobile zaad service.

Amin Mohseni-Cheraghlou
June 20, 2013

Dear Abdullahi,
Many thanks for sharing some insightful facts from the field. I especially liked the point referring to the reverse causality: i.e. the availability of easily accessible mobile banking services such as Zaad, Sahal and Emaal causing higher mobile penetration rate in Somalia.

February 28, 2016

Thanks Abdullahi the statistics. Let me ask you how you have made the conclusion that penetration level of mobile phones and mobile money is 60% and 40% respectively. All I know is living in Somalia and participating assessments do not make your conclusion valid.

August 08, 2013

this is a very interesting write up.I this security reason could be an impartant factor that led to somalis rise in penetrating the mobile banking.