Mobile Money Saves the Unbanked

August 22, 2016

No bank, no problem.

The rush to fill your mobile wallet is in full swing.  As Apple, Google, and Paypal vie for valuable real estate on your smartphone, a different pack of companies is racing to reach the unbanked.  This second pack is less focused on convenience for those who already hold bank accounts and credit cards and more focused on bringing payment solutions to the corners of the world that desperately need it.  Out of the estimated 2.5 billion unbanked people in the world, many have mobile phones, making the race for mobile money a competitive frenzy. (The Fiscal Times).

The potential for mobile money

Mobile money is nothing new for Africa.  After years of research by Gamos and the Commonwealth Telecommunications Organisation showed that Africans were transferring airtime as a currency to friends and relatives, M-PESA was launched by Vodafone in Kenya and Tanzania in 2007.  The service allows those with mobile phones to easily deposit money into their mobile account and then transfer money using SMS messages encrypted with a PIN.  Users rely on a network of agents and storefronts to deposit the money and then to cash out.  To get a better idea of the product, you can watch an original promotional video put out by Vodafone for the launch.  M-PESA has since grown to encompass South Africa, India, Afghanistan and parts of Eastern Europe. In a country like Kenya, where 80% of the population has a mobile account, M-PESA has been credited with reducing crime in the cash-dependent, bankless, and often corrupt environment.
In Pakistan, Transfast has teamed up with 9 local banks and 3,000 cash pick up businesses to allow remittances to flow into the country. Last year roughly $3.2 billion entered Pakistan from over a million expatriates around the globe. Michael Malakata notes that “… the potential to boost remittances [in Pakistan] is huge, and it is estimated that it can be doubled in coming years with innovative products offered to those who work in places away from city centers. For example, he said around 100,000 workers live and work in Fujairah where Pakistani banks have little presence. If people living in labour accommodations are provided with innovative remittance products, no one would use illegal channels of money transfers.  Roshan Polepalli, vice president of eCommerce at Transfast, said with $17.1 billion money transfers, Pakistan is the seventh largest market globally. (Network World)”

Mobile money and the African remittance crisis

Mobile money transfers to Africa are expected to hit $33 million this year (Network World).  In light of the recent remittance crisis in Somalia, this means money from the global diaspora has a fighting chance to reach desperate friends and relatives back home.  In Somalia, entrepreneurs and corporations alike are working to bring mobile transfer services to the remittance-dependent population.  With half of the world’s mobile money service providers residing in sub-Saharan Africa, the competition is thick.  Alix Murphy, senior mobile analyst at WorldRemit noted  “Mobile money will play a pivotal role in global remittances, helping to reduce fees and speed up fund transfers for users.  Most importantly, mobile money is a key enabler of financial inclusion.  There are currently two and a half billion unbanked people in the world. One billion of these people already have access to a mobile phone and so a potential means of accessing financial services. (Network World)”
There is no question, mobile money is penetrating the sub-Saharan African market.  “According to the new Findex data, in five countries – Cote d’Ivoire, Somalia, Tanzania, Uganda, and Zimbabwe – more people now have access to the relatively new phenomenon of mobile-based money than to traditional bank accounts. In Kenya, which got a head start with its pioneering M-Pesa service, mobile money penetration is almost 60 percent. In Somalia, Tanzania, and Uganda it’s 35 percent. (The Huffington Post)”
Recently, several mobile money services flowing from Kenya to Somalia were shut down after Al Shabaab attacked a university on Kenyan soil killing 148 in April of this year. Even though no Somali money service businesses or money transfer operators have been charged or found guilty of terrorist funding, the country is deemed too risky by many due to the volatility and continued threats of Al Shabaab (The East African).  As we have mentioned in precious MSB Insider articles, several Somali entrepreneurs are working hard to find a reliable and transparent solution. The goal is to find a way to identify where the transferred money ends up– and assuage fears that it is ending up in the hands of terrorists.  Liban Egal’s CamelCash, a machine that used biometric fingerprint identification to ID users,  is poised to unlock the potential for mobile transfers into Somalia. (BBC)

What’s next for mobile money?

M-PESA, Transfast and companies like them are revolutionizing how money flows through developing countries and also how mobile money is actually transferred into a country. One issue with the systems in place is that when mobile money is transferred into a developing country, it is more often than not taken out of the mobile money market (The Fiscal Times).  This means that companies and MSBs are competing on another level– to present an offer so desirable that their customers will actually keep their money in the mobile universe.
In addition, as mobile money transfers, mobile remittances, and virtual currencies continue to grow, the financial industry is faced with an entirely new set of regulations and compliance issues.  FinCEN recently introduced virtual currency regulations aimed at Bitcoin, but they will set a precedent for virtual money transfers as well.  Since 2013, FinCEN has been treating virtual currency companies as money transmitters, and holding them to the same regulations that already exist (American Banker).
As the mobile money marketplace continues to grow, NCC remains committed to providing reliable redundant MSB  banking solutions to our money service business partners. Our MSB bank accounts give you banking continuity (peace of mind) so that you can focus on expanding your business through services like mobile money.

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