“For everyone, cash is the enemy – expensive to print, hard to store and move. Dematerializing money is good for people rich and poor, businesses, and governments.” – The Guardian, “Money, Real Quick: The Story of M-Pesa” (2012)
There are more than twice as many people in the world with mobile phones than with bank accounts. This presents an opportunity for mobile network operators (“MNOs”) to lead, encourage and (in some cases) supplant traditional banks in the mission to provide financial services to the estimated 2.5 billion people that are currently “unbanked.”
The tool of choice here, “mobile money,” has been nicely explained by a former Accion Ambassador here and here. The idea is simple: rather than fumbling around with cash, you can use your mobile device to safely store money, receive payments (including wages, loan disbursements and transfers) and send payments (like utility, remittances and transfers). The process of banking the unbanked, however, is complex – this demographic is largely composed of lower-income, semi-literate people who are scattered across rural areas and deeply entrenched in cash economies. These factors create some challenges in developing awareness, understanding, and usage of a prospective banking service.
For the banked, mobile money is a marginal convenience: a faster means to do what was already done via credit and debit cards and online. For the unbanked, though, mobile money is a long-awaited invitation to become connected to the developed banking world. While many unbanked individuals use some form of financial services (e.g., moneylenders, informal savings groups, savings in the form of animals or jewelry) and payment and transfer services (like in-person travel, post offices, and bus drivers), these can be unreliable and costly options. Entrance into the formal financial system offers more predictability and stability. For an unbanked population that can be particularly vulnerable to shocks, from family sickness to unusual weather patterns, the opportunity to plan ahead is especially valuable.
Becoming banked also offers more financial opportunities. The ability to digitally track savings and expenses allows the unbanked to build personal credit, to be rewarded for good behavior and to become more attractive to loan and insurance providers. With more complete information, money will better flow to those thatneed and deserve it most.
An All-Inclusive Partnership
I am spending the summer as an Accion Ambassador at Swadhaar, a microfinance company based in Mumbai, India. My time will be dedicated to their mobile money initiative described here – an innovative partnership with Airtel and Axis Bank aimed to empower Swadhaar’s client base with mobile payments, savings accounts, and education on how to use them. The project is still in pilot mode, but it has grown quickly since its inception in January 2013.
Coordinating with the mobile network operator (Airtel), the retail bank (Axis Bank), the microfinance company (Swadhaar) and the client is an incredible achievement. In return for the time and resources invested, each party has something to gain from the partnership: For Airtel, it’s a feeder to an emerging new revenue stream based on mobile payments. For Axis Bank, it’s a low-cost access point to a new pool of clients. For Swadhaar, it’s a productivity tool that will free up resources during the loan disbursement and repayment cycles. For the client, it is a more convenient, more efficient, and safer way to make payments and manage their finances.
There are many challenges in creating awareness, building trust, educating clients and providing proper incentives, but there is also clear excitement around the value proposition. Widespread adoption will take time, good execution and sustained interest by all parties, but mobile money is on its way to bringing the unbanked to a less cash-dependent and more financially flexible future.