Promoting Financial Inclusion: Is Mobile Money the Magic Bullet?


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Recent innovations in mobile money services have significantly improved the access to financial accounts where Mobile money is just one part of the financial inclusion equation (Credit: imtfi, Flickr Creative Commons)individuals can use their mobile phones to make person to person (p2p) mobile money transfers and pay bills. In countries such as Kenya, Uganda and the Philippines where the adoption of mobile money services has been hugely successful, it has served as important mechanism to replace cash dominated transactions with an effective non-cash payment method.

In such environments, to a large extent cash is in the process of being displaced, however, the financial inclusion needs of the users have only been addressed in a narrow sense. Full financial inclusion by definition requires that the users of the financial accounts not only have access to payment services but also have the ability to save and have access to other financial services.

According to a recent data released by the World Bank, gaining access to financial services does not necessarily mean that such services will be adequately used. In other words, individuals who do not use financial services are not necessarily constrained by participating in the financial sector. The survey shows that 65% of unbanked adults do not use financial accounts due to: lack of money; suitability of financial products and services; and/or high cost associated with low transaction amounts such population segments usually undertake.

This does not mean that mobile money services cannot induce a behavior amongst the unbanked that leads to higher usability of financial accounts including savings.

In a recent research sponsored by the Financial Sector Deepening Kenya, it was found that approximately 34 percent of the users of mobile money services maintained a small balance in their financial account, and that the majority were cashing out their transfers almost immediately. While maintaining a very small amount on mobile money accounts will not have the desired financial inclusion effects, a large number of the unbanked cannot help but save small amounts due to low and variable incomes. The 34 percent registered users who held money in these accounts maintained a balance of approximately US$4. About half of these users indicated that one of the reasons for this was to have funds to send to family, relatives or friends when they need them. The other main reason for holding funds there was safety and security. A much smaller proportion indicated that they were ‘saving’ (approximately one-sixth of users).

The key question here is that if the “usability” of financial services were to be improved by allowing more payment functionality then would it promote higher financial inclusion? The intuitive answer is yes, and this is based on the notion that a large number of the unbanked simply do not use such accounts on grounds that they are not suitable to their needs. Most mobile money programs today offer a narrow range of services including airtime top-ups, person to person (p2p) and limited bill payments capability. MMU estimates that globally out of 5.5 transactions/active person/month, 3.3 are for airtime top-ups.

In our view, the usability is low due to the limited nature of services that can be offered through the existing closed loop models for mobile money service. According to the GSMA, there are 130 mobile money programs in the world today spread over 75 countries. MasterCard estimates that there are approximately 50 million mobile money wallets associated with these programs. Further, only 8 programs out of the 130 have over 1 million active users, and of these 6 are in East Africa where the mobile money services in the existing form are most popular. In these usability remains high only due to the fact that such accounts serve as an effective mechanism for p2p payments. This is not the case for the remaining 122 programs around the world.

To improve the usability of mobile money service accounts beyond a certain population segment or geography requires that the program is designed in a way that improves usability for the population segment in question as opposed to relying on what has worked elsewhere. This requires a good understanding of the local market dynamics and consumer needs. Also, in designing such products, careful consideration should be given to solutions that serve multiple payment needs of the user including person to airtime top-up, person remittances (domestic and cross border) , bill payments, merchant payments and other financial service such as interest bearing savings account, credit, and insurance. It is also important that the mobile money service programs designed in a country address

Barriers to achieving full financial inclusion

In a closed loop mobile money environment that we know today, the impact of mobile money services on financial inclusion is marginal as a wide range of payment and financial services are not possible. Broader financial inclusion can be achieved through establishing a mobile ecosystem that can support both closed loop as well as open loop schemes and can provide interoperability between the scheme operators.

However, such mobile ecosystems are still in early stages of development and continue to face regulatory or market barriers including

Legal and regulatory framework: non-existent or underdeveloped regulations that clearly define role of payment service providers – both banks and non-banks in issuance of electronic money instruments.

Business case for large scale investments in mobile money services: the business case for a full blown mobile ecosystem is still speculative and unless scale is proven the service providers will continue to leverage existing infrastructure.

Lack of standards: Unlike more established forms of electronic payments, there is a lack of global standards that will help establish vibrant mobile ecosystems.

Underdeveloped B2C program management practices: MNOs are new to financial services business and Lack capability to adequately manage various aspects of the mobile money value chain including customer acquisition, account activation, usage and customer retention.

Achieving full financial inclusion requires going beyond the narrow range of payment services to a broader range of services which will ensure that the account users find these suitable to their needs. Evidence has shown that existing mobile money arrangements have a limited scope in providing wide range of services. A concerted industry effort is required with support from policymakers to facilitate establishment of mobile ecosystems which provide both interoperability as well a wide range of services. Until this happens, it is hard to say that mobile money is a magic bullet for promoting financial inclusion.


Hemant Baijal

Senior Payment Systems Specialist

Hemant Baijal
September 05, 2012

Thanks Stephen. Yes, lack of financial education is a barrier to improving financial inclusion. There is evidence from many countries which shows that unbanked people do not use financial accounts due to lack of trust in the provider or the product. Easy to understand financial education materials offered to the unbanked can largely improve the chances of adoption.

Javier Tenorio
September 09, 2012

Perhaps mobile money is not the solution for those communities where there is no availability of financial solutions at all. For people in the bottom of the pyramid who has a very ambiguous or absolutely no sense of finance terms, it should be important to start with a solution which they could understand. It's probable that the less "virtual" the solution, the more they will have a chance to feel the value created by the solution and to be engaged with the same.

Stephen Kehoe
August 11, 2012

Dear Mr. Baijal

You write: "The survey shows that 65% of unbanked adults do not use financial accounts due to: lack of money; suitability of financial products and services; and/or high cost associated with low transaction amounts such population segments usually undertake."

Are there any barriers associated with basic financial education which investments behind financial literacy programs might solve? Or are people generally well-aware of the suite of instruments and tools available and how to use them?

Stephen Kehoe, Visa Inc.

Peter van Dijk
August 07, 2012

I do not know really what the author is talking about; commercial banks all over the world already for years provide their clients with possibilities to do all the above requested banking (p2p, p2c) services via mobile telephones and internet.

Ah, is it maybe that regulators should allow telecom companies that do not have a banking license to also provide these services to people who currently do not enjoy any protection by government? Most telecom companies prefer to refuse accountability for misuse of phones, data, funds or in other possible conflicts. They don't want to invest in all the necessary systems and control activities.

M-Pesa Kenya resolved the lack of consumer protection by agreeing with central bank to collaborate with Equity Bank, Telenor bought Tameer Bank in Pakistan.

Promoters of Financial Inclusion who claim to want to help poor unbanked people might want to admit that they are more interested in trends than in protecting the society's weakest.

August 07, 2012

Dear Hemant,

I read with interest your post and strongly agree with your points. Indeed service providers need to significantly improve the usability of MM accounts in order to facilitate larger uptake. In fact, MM services actually need to be designed taking into account simplicity of use and transparency, and adequately tailored to address the most common needs of local markets and users.

In several countries there remain additional barriers such as the lack of trust in new service providers, especially if there seems to be poor or no oversight by regulatory entities, which gets worse given the lack of culturally sensitive marketing and customer service approaches applied in most cases. Many communities, especially in low income urban and rural settings, have a predominant negative perception and poor understanding of providers, services and technologies involved, plus the cost of transactions and lack of full disclosure of fees have become additional barriers in some locations.

Another important barrier is the lack of interoperativity between traditional banking service providers (banks) and MM service providers. which prevents both competition and innovation.

Thank you

Jeremy Strauss
August 13, 2012

There is no disputing the value and need of technical solutions to increase access to finance, but for the poor to accumulate capital, they must overcome a fear of entrusting institutions. In environments where "anything can happen" to a person's wealth and there is no guarantee of protecting it, capital accumulation by the poor will "underperform."

August 16, 2012

Great post! Although mobile money may not be the silver bullet to complete financial inclusion so far, it has brought banking to millions of people, especially in rural areas. For the poorest of the poor, since they do not have much money to begin with, mobile money may not be the best solution as microfinance may work better. However, with continuing innovation in technology and services, there is no doubt that mobile money or other ways towards financial inclusion will reach the poorest of the poor.

August 28, 2012

Or even silver ones. In financial inclusion or in all of development.

Benon Rukundo
January 27, 2013

In rural setting the most commonly demanded services include:
Loans -to buy farm inputs especially during planting season
-to pay school fees at begining of school term
-to pay medical bills
-social function requirfements
-to acquire assets like land, plough, cows, bicycles, motorcycle etc
Money transfers
-to receive grants and payments from buyers of farm outputs
-to pay for service providers
-to safely keep sales receipts from farm products for later use
-personal and farm protection products
Lack of reliable and accessible savings products results in making savings in terms of buying assests like land, animals, farm equipment among others by the rural unbanked.
Mobile money which is mainly a funds transfer mechanism is quite a good innovation, but is only able to sratch a small porttion of the excluded market as the services provided are only a small proportion of what is required. Besides, as stated above, the full range of financial services fram savings, credit to money transfers and insurance.

As such mobile money, will be a magic bullet if its services are enhanced to include the full range of financial services required by the excluded. Mobile money provided by banks is enhanced with savings services. As for now MM provided by telecom companies is still a "quarter of a magic bullet" in financial inclusion.

Jeff G
May 22, 2013

Geographies such as those you describe might actually lead the way toward broader adoption. In the United States mobile payment adoption is an anemic 5% (source:… ). Consumer that have multiple payment choices are not opting for the slight convenience advantage of mobile phones over pulling out a credit card. In countries such as Kenya, with limited options available, consumer adoption should be more widepsread, enabling nimble local providers to offer innovative services that attract greater numbers of users. You are spot on that this new mobile currency will overcome many of the inefficiencies and financial barriers in these markets.