The Role of Mobile Money in Democratizing International Remittances and Driving Financial Inclusion

Mobile money is one of the most exciting innovations in financial services, with more than 400 million registered consumer accounts across over 90 countries, said John Giusti, Chief Regulatory Officer, GSMA. While today mobile money services are largely used for domestic transactions, international transfers represent the fastest-growing segment of mobile money services.

GSMA took up a task to assess the role of mobile money in democratizing international remittances and driving financial inclusion in the developing world. A few weeks ago, the organization published a report called Driving a Price Revolution: Mobile Money in International Remittances, outlining the promise of mobile money for international remittances.

The World Bank’s Migration and Remittances Factbook 2016 suggests that today, close to 250 million people (~3.4% of the world population) live outside their countries of birth. In 2015, global remittances totaled $581.6 billion, of which $431.6 billion, or nearly 75%, was sent to the developing world.

Professionals from GSMA believe that mobile money is revolutionizing the international remittance industry by leveraging broad mobile penetration and the asset-light business models of mobile operators. Mobile money is believed to be driving a price revolution by increasing competition, leveraging existing networks and infrastructure, and capturing smaller remittance values than traditional players.

The promise of mobile money international remittances

Source: Driving a Price Revolution: Mobile Money in International Remittances

  • The study suggests that using mobile money is, on average, more than 50% cheaper than using global money transfer operators (MTOs). In the 45 country corridors surveyed, the average cost of sending $200 using mobile money was 2.7%, compared to 6% using global MTOs. Lower transaction fees can translate directly into additional income for remittance recipients.
  • The low-value transactions segment is particularly competitive. Using mobile money is 58% cheaper for $50 transfers, compared to 55% cheaper for $200 transfers. This way, mobile money caters to the needs of low-income migrants who may find it more convenient to make low-value transactions on a frequent basis. Moreover, in addition to being a force for financial inclusion, mobile money have a broad macroeconomic impact as it is increasing the disposable income of developing market consumers who need it the most.
  • Mobile money facilitates competition and, hence, drives down the price of remittance services. The study notes that global MTOs tend to offer their services at lower prices in markets where they are in competition with mobile money providers. To leverage the trend, governments need to enable regulatory frameworks, which promote competition by allowing non-traditional players, such as mobile money providers, to offer international remittance services.
  • Mobile money-enabled international remittances are contributing to broader financial inclusion and financial integrity objectives. Not only does mobile money represent a powerful tool to digitise large flows of informal transfers, it also act as a gateway to financial inclusion for both remittance senders and recipients, allowing them to join the digital financial ecosystem and to access a broad range of digital financial services beyond remittances, such as storing money in a secured account or performing digital payments.

With mobile money growing more than 400% YoY in 2015 and a democratizing effect of the industry on international remittances, mobile money providers are well-positioned to secure a strong footprint in the developing world and facilitate financial inclusion for large un/underbanked population.

Certain African countries are expected to become the hottest mobile money markets by 2020 – Ghana, Kenya and Tanzania. According to CGAP, 17% of Ghana’s 27.3 million citizens had a mobile money account in 2015, which has doubled from 2014. Ghana demonstrated a rapid growth of mobile money and a potential to become the world’s most successful mobile money market moving previous leaders.

Moreover, 92% of adults in Ghana have the required ID necessary to open an account and 91% of Ghanaians own a mobile phone. As stated by The World Bank, Ghana has an even greater potential for mobile money than Kenya and Tanzania, which are considered two of the most successful markets in the world.