Why Digital Money Hasn't Taken off in the Developing World

About a year ago, our team at Regalii launched a mobile money solution for the Dominican Republic, allowing immigrants to remit to their families in Latin America through digital money.

Rather than sending physical money, our solution leveraged SMS messages with an SMS received representing a cash credit at grocery stores in the Dominican Republic. An SMS recipient could go to a retailer to redeem it for products to be purchased.

In building, launching and marketing the solution, I learned some valuable lessons regarding mobile money, and despite its promises, the reasons why it has not taken off throughout the majority of the developing world. Below are some of the lessons that I learned along the way.

1. Feature Phones Still Dominate

While smartphones have taken off in the first world, there are still vastly more feature phones in emerging economies than smartphones.

As prices for smartphones drop, it’s clear that smartphones will come to dominate the whole world. But for now, there aren’t enough smartphones in most developing economies for mobile app developers to feel confident that they can build a mobile money solution just for smartphones while ignoring the majority of the market.

Therefore, for app developers to create a mobile money solution for the developing world, you need to create a solution which accommodates feature phones.

2. Carriers Own Feature Phone Tech

Creating software for feature phones is a fun can of worms.

It is possible to make apps for various feature phone operating systems, but it is hard to get a user to download it and install it. Therefore most app developers use either USSD or SMS to create their mobile money experience.

However, SMS technology is not reliable. Around 5% of all SMSs which are sent get lost along the way and the app developer has no way to know which ones were lost. While there are solutions that promise delivery receipts to indicate if an SMS was received, it’s more common for these delivery receipts to be faked by the carrier than for them to truly indicate if an SMS was actually received.

Since developers cannot know if their users are receiving their SMSs, every mobile money solution in the developing world leverages a technology called USSD. But USSD relies on carrier opt in as any USSD solution must have every carrier execute code on its server. So, for example, in the US, where there are four major carriers, a USSD mobile money solution would require you to convince Verizon, AT&T, T-Mobile and Sprint to set up your USSD solution on their server.

This problem gets all the more challenging: In many parts of the world, the carriers have their own plans for mobile money—their own proprietary solution! Therefore, the carriers routinely block all attempts to introduce all other custom third-party mobile money solutions that compete with their own solution.

It is for this reason that the only mobile money solutions in the developing world that have gotten traction have been owned by the largest carriers. Even in these situations, the carriers themselves struggle to convince the other mobile carriers to support their mobile money solution compared their own.

3. Digital Money Doesn’t Feel Like Money

The biggest obstacle that mobile money solutions face in emerging economies is, in fact, not technical in nature. It is emotional.

Digital cash, to those which are not used to interacting with it, does not produce the same emotional connection as physical money. Therefore, it currently isn’t nearly as desirable as physical money.

I believe that this skepticism of digital currency just comes from being unfamiliar with it. If you had never interacted with an online bank or received your paycheck in digital form, why would you trust the numbers on some screen to carry the same emotional connection as physical currency?

In the US, it is more common to interact with digital currency than physical. You pay for your meal with digital currency, you receive your paycheck in digital money, etc. Therefore, it feels odd getting paid in hundred dollar bills.

The reverse is true in the developing world. Digital cash just feels odd. People do not identify with it or immediately understand that it really represents value.