Mobile money’s potential is unfulfilled
The mobile phone is a central component to unlocking access for the billions of people still excluded from the mainstream of financial services. Its potential is widely understood. But while use of entry-level smartphones has accelerated, access to mobile money services and use of these services remain challenging in many markets.
The unmet potential of mobile money is evident with more than 2-billion people in developing countries lacking viable alternatives to the cash economy. In Africa, more than 326-million adults remain unbanked. The challenges are geographical, political, regulatory, social and economic. For a digital financial services ecosystem to work effectively, all these elements must operate in unison for it to make the impact its potential suggests. It could be a key driver in unlocking productivity, investment and accelerating economic growth.
A recent McKinsey report, Digital Finance for All, concluded that in the next decade, digital finance has the potential to provide access to financial services for 1.6-billion people in emerging economies, more than half of whom could be women.
The International Telecommunications Union (ITU) focus group on digital finance services has been examining these challenges. Over the past two years it has been working to develop practical policy recommendations and guidelines that global regulators can use to accelerate the penetration of digital financial services, based on international best practice.
Involving around 60 organisations from 30 countries working across the telecommunications and financial services sectors, it has been an extensive process that concluded at the end of 2016. The group is finalising the reports and more than 80 policy recommendations that will be published later in February. These will be critical in helping key players across the financial services and telecommunications value chain to grasp what is required to improve financial inclusion enabled by mobile technology.
One of the challenges the focus group has tackled is that levels of financial inclusion are not determined by socioeconomic or demographic factors alone. Regulatory and policy environments as well as the ability of the private sector to offer products and services profitably to the poor must be considered when shaping the financial inclusion agenda.
East Africa, which has some of the lowest number of ATMs globally, has registered a measure of success with some of the highest levels of mobile banking use.
Telecoms and financial services regulators successfully collaborate in Kenya and Tanzania, which is reflected in the high level of digital financial services uptake in both countries. M-Pesa in Kenya is a huge success with more than 17-million users and more than 90,000 agents across the country. This has helped to deliver higher rates of financial inclusion, with national mobile money account ownership of about 60%.
So why is the rest of Africa not following suit? It is, but the continent also faces unique challenges. The complexities and particularities of each market mean the conditions are not necessarily easily replicable. M-Pesa’s success in Kenya contrasts with its performance in SA, where it shut operations in 2016, despite a thriving money transfer market. While it continues to operate in Tanzania, Lesotho and Mozambique, penetration levels have yet to mirror those in its home base, Kenya.
Access can also be challenging because of legal, structural and financial issues.
Yet digital technologies are attractive to the public and the private sector as they have the potential to lower the cost of payment transactions by up to 90%, making financial services accessible to the most vulnerable segments of the population. Governments can also be a key driver, leading by example, by injecting critical mass through the digitisation of their transfer payments. These are key considerations for the African market. However, they require easy interfaces, behavioural and cultural changes as well as some digital and financial literacy.
In sub-Saharan Africa, 182million adults are unable to read and write.
Regulation seeking to solve one issue could inadvertently create another. In SA, the robust Financial Intelligence Centre Act system that stipulates that proof of identification and proof of residence are needed to open an account to reduce the likelihood of fraud, can leave those without formal housing and a registered address financially excluded.
A lack of reliable national identity systems in many countries and formalised addresses can make it difficult, particularly for women, to open a basic bank account.
The focus group has tackled these and many other issues. By drawing on regional and international best practice, its findings and recommendations will help governments understand the complexities and contradictions that are often evident.
The role of regulators, working better together, will be critical to create the right environment for the commercial sector to thrive, to leverage the best expertise and to fast-track the creation of local solutions specific to each market’s needs.
The focus group’s work will also ensure that governments will be better informed to enable them to put the correct rules in place to attract longerterm investments, provide legal certainty and allow service providers to scale their businesses without compromising the security and integrity of the financial system. This filters down to common frameworks for consumer protection, interoperability between systems and security of networks.
Digital financial services extend far beyond the typical facilitation of payments and money transfers. A coherent regulatory framework that provides certainty for providers and protection for consumers will drive deeper adoption of credit and insurance products and steadily draw the poor from the periphery into the economic mainstream.
M-PESA’S SUCCESS IN KENYA CONTRASTS WITH SA WHERE IT SHUT DESPITE A THRIVING MONEY TRANSFER MARKET