Today, 31% of the global adult population doesn’t have a bank account. But in a certain part of the world – Africa – inclusion is not about bank account ownership. Moreover, since bank account ownership, access to ATMs, mobile banking, and internet banking are found to be inversely related to mobile money ownership, it’s possible that in developing markets with weak financial infrastructure, mobile money accounts will continue to play a significant role in democratizing financial services for the previously excluded population.

With 271 live services in 93 countries and 64% of the developing world covered, mobile money continues to deepen financial inclusion.

Source: Global Findex Database 2017

The World Bank shares that the power of financial technology to expand access to and use of accounts is demonstrated most persuasively in sub-Saharan Africa, where 21% of adults now have a mobile money account – nearly twice the share in 2014 and easily the highest of any region in the world.

By 2017, the Kenyan mobile money market, for example, had grown to 37 million registered accounts and $36 billion in transactions. Regionally, there were 276 services across 90 markets, with over 690 million registered customers making $1 million worth of transactions every day. According to the International Finance Corporation (IFC), sub-Saharan Africa continues to lead the world, with nearly half of all registrations and more digital financial services accounts than bank accounts.

In its latest Global Findex Database, the World Bank shares that studies have shown that mobile money services can help improve people’s income earning potential and thus reduce poverty. A study in Kenya found that access to mobile money services delivered big benefits, especially for women. It enabled women-headed households to increase their savings by more than a fifth; allowed 185,000 women to leave farming and develop business or retail activities; and helped reduce extreme poverty among women-headed households by 22%.

Moreover, the World Bank cites that in Kenya, when hit with an unexpected drop in income, mobile money users did not reduce household spending – while non-users and users with poor access to the mobile money network reduced their purchases of food and other items by 7–10%. Moreover, mobile financial services in the country are offered mainly by mobile network operators, and mobile money accounts do not need to be linked to an account at a financial institution. About 40% of adults in the country use only a mobile money account to make mobile payments.

Additionally, Kenya has a very young population – 60%-70% of the population is under 35; well-educated young people that have access to fast mobile internet are driving digital payments. Developments that started in 2011 brought fiber cables into the country, breaking it into the era of high-speed internet and building ubiquitous mobile connectivity.

The government plays an important role in taking the nation to the next level of economic efficiency and growth. In Kenya, people receiving remittances on their mobile money account can buy government bonds through M-Akiba, enabling the investment of remittances in the local economy. In fact, in Kenya, more than 250 government services are available digitally through the country’s e-government platform, e-Citizen. Over 90% of all digital payments on e-Citizen are made through mobile money.

The role and impact of mobile money account ownership has been a centerpiece of numerous studies in the past several years. A representative study of over 50,000 adults in the Southern African Development Community (SADC) by a non-profit trust FinMark Trust drew the following conclusions:

• Remittances are strongly related to mobile money adoption – most countries that have a higher level of remittances exhibit higher levels of mobile money adoption. According to GSMA, cross-border transaction volumes grew by 51.8% and the median cost of sending $100 via mobile money reduced by half to $2.

• The popularity of mobile money accounts among the unemployed provides an opportunity to expand financial services to this segment by increasing access to mobile phones.

• Mobile money is mostly used to buy airtime, send and receive money, and to a lesser extent to pay bills, to access saving, credit, and insurance products.

• Lack of information is the most cited barrier to mobile money ownership.

• Expanding mobile telecom infrastructure and hence increasing mobile phone penetration is important in extending financial services to the financially excluded segments of the population. According to GSMA, in 2015, registered agents represented 90.5% of mobile money’s physical cash-in and cash-out global footprint, whereas ATMs represented just 7.8%, and banks represented 1.7%.

• Mobile money should be further expanded to rural areas to increase financial inclusion among the rural people.

• Mobile money should be user-friendly so that the uneducated are comfortable using it. In sub-Saharan Africa, almost 60% of youth between the ages of about 15 and 17 do not go to school.

Finally, and more importantly, the study emphasizes that the introduction of new financial products through mobile money will be critical in allowing the poor to access saving, credit, and insurance products. In fact, the Global Findex Database 2017 shows that 515 million adults worldwide opened an account at a financial institution or through a mobile money provider between 2014 and 2017. This means that 69% of adults now have an account, up from 51% in 2011. In high-income economies, 94% of adults have an account; in developing economies 63% do.

Having a mobile phone can open access to mobile money accounts and other financial services. Of the 1.7 billion unbanked globally, about 1.1 billion – or about two-thirds of all unbanked adults – have a mobile phone. In India and Mexico, for example, over 50% of the unbanked have a mobile phone; in China, 82% do.

The impressive growth in financial inclusion in sub-Saharan Africa over the last few years has been driven primarily by mobile money and agent banking. By and large, the growth in traditional financial institution accounts lags behind. Where they do increase, it often appears to be on the back of the mobile money revolution. The message is clear: the future of the financial sector on the continent is digital. – Riadh Naouar, IFC Head, Financial Institutions Group Advisory, Sub-Saharan Africa; Digital Access: The Future of Financial Inclusion in Africa, 2018

Mobile money account ownership, as a channel to access financial services, plays a significant role for small-business owners and individual workforce. About 15% of adults in developing economies receive payments for the sale of agricultural products – and almost all receive these payments in cash. But in some economies in sub-Saharan Africa – such as Ghana, Kenya, and Zambia – about 40% of those getting agricultural payments receive them into an account, and in most cases, a mobile money account, the World Bank found.

Source: Digital Access: The Future of Financial Inclusion in Africa, 2018

There’s an informal use of mobile money for merchant payments in many markets, with retail customers making direct transfers to business owners as payments for goods and services. The IFC studies show that there is a high cost of cash management for the merchants (of up to 3%).

A study conducted in Uganda showed that 63% of the most active mobile money users in Uganda are small-scale entrepreneurs and that 42% of them use digital financial services for business transactions.

Business models for mobile money services vary by demand and adoption, largely remaining a private sector enterprise. Introducing the mobile money demands curves, the IFC outlines three main business models pioneered by mobile money providers on their journey to sustainability and profitability:

• Mobile operator-led

• Bank-led

• Collaborative

The IFC suggests that because operators control the mobile platform and have significant distribution capacity through their existing retail agent networks, it is logical that mobile money deployments will often be initiated by operators who may partner or collaborate with a bank.

In Pakistan, for example, where the operator Telenor purchased a 51% stake in Tameer Microfinance Bank in 2008, and the remaining 49% in 2016, ending up with a 100% ownership of Tameer Microfinance Bank, the boundaries between the two entities have been blurred. In South Africa, WIZZIT, an independent mobile money provider, works on all mobile networks and has partnered with banks to provide customers with easily accessible accounts.

CalBank, a commercial bank in Ghana, providing a broad range of banking and financial solutions to large corporations, SMEs, public sector institutions, and retail customers, has introduced a mobile banking service that allows customers to link a mobile money wallet to an account, thereby bringing mobile money wallet holders into the banking system.

Overall, Ghana’s financial inclusion rate is relatively high, with 58% of adults having an account of some kind in 2017. By December 2017, there were 11.4 million accounts with licensed financial institutions and 24 million mobile money accounts. Some banks have started to engage actively in providing digital financial services. However, most digital financial services activity is performed via MNO wallets. The IFC reports that in 2016, the amount held in mobile money accounts rose by 85% and active users grew by 71% to 8.3 million.

According to the IFC Mobile Money Study, in a given market, the business case for mobile money will be driven by:

• The players with the strongest incentive to develop mobile money

• The primary value proposition for targeted customers

• The regulation

• Demand

• Partnership requirements

Combining these variables, the IFC has developed mobile money demand curves that show how mobile money has different appeal in different environments.

Source: IFC Mobile Money Study 2011 (Mobile Money for Financial Inclusion)

Reeta Roy, President & CEO of Mastercard Foundation, and Philippe Le Houérou, CEO of IFC, emphasize that field studies confirm that access to mobile money services increases daily per capita consumption levels of households, lifting them out of extreme poverty.

Mobile money services have changed lives – for example, helping women to move from subsistence farming to business occupations and sustainable livelihoods. In total, our partnerships with 14 African financial services providers from 2012 to 2016 have resulted in 7.2 million new digital financial services users on the continent (a 250% increase from the baseline), 45,000 new banking agents, and $300 million in monthly transactions. – Reeta Roy, President & CEO of Mastercard Foundation, and Philippe Le Houérou, CEO of IFC; Digital Access: The Future of Financial Inclusion in Africa, 2018

Lesley Denyes, IFC Program Manager, Partnership for Financial Inclusion, emphasizes that the expansion of financial inclusion in sub-Saharan Africa over the past 10 years would not have been possible if financial services providers didn’t find a compelling opportunity in broadening the reach of their services.

For the industry, the important question is whether there is a business case for financial inclusion? The answer is yes. M-PESA now represents 27% of total revenue for Safaricom in Kenya. For other MNOs, the share of mobile money is somewhere between 5-15% of total gross revenue. While some mobile money services do not yet break even on their own, they indirectly contribute to overall revenue through reduced churn (customer turnover) and increased customer satisfaction.

For banks, opportunities for DFS revenue are far beyond that of fee revenue. The opportunity to source deposits from a broader market can have a positive impact on the cost of funds, and moving transactions through digital channels reduce cost-to-income ratios; a key metric for defining the profitability of a bank. – Lesley Denyes, IFC Program Manager, Partnership for Financial Inclusion

Following nine commercial microfinance institutions in sub-Saharan Africa offering agent banking over four years, the IFC found that transactions through agent networks cost 25% less to provide than branch teller transactions.

There is a consensus among studies that sub-Saharan Africa exemplifies mobile money’s potential to drive financial inclusion. Regionally, 43% of adults have an account, which is an increase from 34% in 2014. While the share of adults in sub-Saharan Africa with a financial institution account barely budged, the share with a mobile money account almost doubled – to 21%. In every other region, mobile money penetration is lower than 10%, the IFC found.

Source: Digital Access: The Future of Financial Inclusion in Africa, 2018

Africa is home to all eight economies where 20% or more of adults have a mobile money account only:

• Burkina Faso

• Côte d’Ivoire

• Gabon

• Kenya

• Senegal

• Tanzania

• Uganda

• Zimbabwe

Citing the Global Findex Database 2017, the IFC shares that in these economies, mobile money accounts might be helping reduce gender and income gaps in account ownership. The use of a mobile phone to make a direct transaction from an account tends to be high in these economies as well.

In Kenya, 88% of account owners (or 72% of adults) use a mobile phone or the internet for a transaction from their account. Opportunities abound to increase account ownership. Up to 95 million unbanked adults in the region receive cash payments for the sale of agricultural goods, while up to 65 million use semi-formal savings.

The IFC and numerous international organizations share that Kenya has the largest and most successful mobile money sector in Africa and has consistently led the continent both in scale and innovation since the launch of M-PESA in 2007. By 2017, there were 37.4 million mobile wallets, giving 133% penetration of the adult population. There are six services available, with 81% of wallets held by Safaricom (M-PESA), and a further 6% each by Airtel Money and Equitel. The market is dominated by just two services: of the $16.6 billion transacted between July and September 2017, 80% was by M-PESA and 19% by Equitel.

Mamie Kalonda, the CEO of FINCA DRC, Democratic Republic of Congo, shares that financial inclusion was below 5% in the DRC, but has increased to over 10% because of the growth in mobile money.

Driven by mobile, there have been $300-million in monthly transactions in Africa from 7.2 million new people using digital financial services and 45,000 new banking agents due to a financial inclusion project.

Source: The Key Drivers of Change in the Quest for Financial Inclusion

Africa is on track to become a $3.9-trillion-dollar economy by 2022, with South Africa and Nigeria among the front runners in the list of the anticipated largest economies by 2030 and 2050. Mobile money will have a profound impact on the development and adoption of financial services in Africa and the developing world overall, making it one of the strongest drivers for financial inclusion and biggest opportunities for technology startups, MNOs, and financial institutions of all sizes.

The combination of such factors as advanced alternative credit scoring frameworks, increased mobile phone adoption, internet connectivity, regulatory push, and, most importantly, eID ecosystems, will draw the most attention to markets with no strong legacy infrastructure in place to stop or inhibit the adoption of advanced technologies. The regulators, FinTechs, incumbents, and cross-industry tech-giants are coming together to eliminate financial inequality and unveil the new age of financial services.