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An Alternative to Banks for Vulnerable People
The concept of Mobile Money encompasses financial transactions that are conducted via mobile phone and do not require internet access. In this kind of process, value is stored virtually in the form of e-money, and the account is associated with a SIM card that is compatible even with basic phones. Its potential relies on the ability to extend the reach of financial services to populations that are not contemplated by the traditional banking sector, often times being a demographic that is also living in precarious conditions.
According to a report released by the U.S. Health Finance & Governance Project, approximately three-quarters of adults living on less than $2 per day do not have access to a bank account at a traditional financial institution. Such an issue prevents this portion of the population to have access to credits, savings, remittances, insurance, and many other services that could be helpful for their welfare. Mobile money thus offers an opportunity for these people to conduct financial transactions through a network of agents, which are companies that are responsible to convert cash to e-money and vice-versa.
In spite of being more common in Africa, Latin America, and Asia, this kind of payment method reached the mark of over a billion registered accounts and almost $2 billion in daily transactions in 2019, according to research published by GSMA. Such expansion is connected to the increase in internet and smartphone adoption (by the end of 2019, smartphone adoption reached 60% in South Asia and 46% in Sub-Saharan Africa), as well as interoperability and new business models. This henceforth marks a shift from cash towards digital payments, as the method covers daily transactions such as school fees, savings, credits, pay-as-you-go, and more.
According to GSMA, in 2019 more markets allowed customers to transfer money between accounts held with different mobile money providers. On average, mobile money providers have established an association with 13 banks in 2019, an achievement that increased the flow of transactions between mobile money and banking systems — 34% more in 2019. This interoperability represents a greater proportion of money entering the system (from $5.5 billion in 2018 to $7.3 billion in 2019), which by its turn make providers more inclined to offer cross-border interoperability and integration with traditional remittance service providers (RSPs) such as transfer operators like MoneyGram and Western Union, but also fintech and digital RSPs such as WorldRemit and Azimo.
Including Women and Small Rural Producers in the Financial System
Surpassing one billion mobile money accounts in 2019 does not account only for the achievement of an industry, but rather the opportunity for inclusion and the development of impactful solutions for the ecosystem. The 2020 GSMA report lists examples of opportunities for mobile money that involve the inclusion of women and rural areas in the digitized financial system, as well as the access to essential utility services, and the improvement of the delivery of humanitarian cash assistance.
A recent analysis performed by GSMA shows that the gender gap in mobile money accounts has only slightly narrowed from 36% in 2014 to 33% in 2017. One of the hypotheses for such numbers is that women are not as aware of these services as men. In India, only 9% of the respondent women have heard about mobile money in comparison to 26% of respondent men. The reasons why both men and women do not own a mobile money account are similar though: both prefer to use cash or alternative means of transaction, besides of low literacy in digital and financial skills.
Since women account for 56% of those who are financially excluded from the system, 59% of providers are now monitoring the gender composition of their base so they can find better ways to include this demographic. The GSMA has developed the Gender Analysis and Identification Toolkit so providers can get help from Machine Learning tools to accurately predict and foresee the gender of mobile money subscribers and thus offer actionable insights for better targeting of existing and potential female customers.
Likewise, mobile money services can also be a bridge for rural producers to the financial system, and thus offer solutions and support to this demographic that accounts for about 500 million smallholder farmer households in developing regions. In Sub-Saharan Africa, GSMA estimates that about 54% of the population is employed in agriculture, whereas this proportion decreases to 44% in South Asia and 14% in Latin America. A successful example of mobile money services applied to agriculture is MTN Ghana's mAgric, which used a mobile-based tool to digitize the entire procurement process, especially in the case of Ghana's cocoa value chain, their second-largest export commodity after gold. The mobile-based tool enables users to perform payments either through Open Payment API or Unstructured Supplementary Service Data (USSD), thus money transfer modalities. According to GSMA's 2019 report, "the implementation of this services has reduced travel and waiting time for payments, increased payment security and improved financial stability through better money management"
Supporting Access to Utility Services and Humanitarian Assistance
Mobile money is also playing a catalytic role in expanding the reach of utility services in a context where "[...] 1.1 billion lack access to electricity, 2.2 billion lack access to safely managed drinking water and two billion lack access to basic sanitation facilities," (GSMA, 2019). In Kenya and Uganda, mobile money solutions are allowing citizens to make payment collections faster and more secure, which means an improved revenue recovery and the ability to invest in coverage of services. Likewise, other initiatives are rather relying on a decentralized solution by offering pay-as-you-go (PAYG) access to utility services which, as of 2019, account for "[...] 44% of the value of all bill payments processed via mobile money services globally." (GSMA, 2019).
In a similar way, mobile money can also extend the reach of financial services to people who are in vulnerable situations like the 70.8 million forcibly displaced persons worldwide (as of 2018, according to GSMA). These refugees, internally displaced people (IDPs) and asylum seekers are, since 2017, being assisted through mobile money solutions in at least 44 countries. According to GSMA's 2019 Global Adoption Survey, 60% of mobile money providers have already partnered with a humanitarian organization to deliver mobile money solutions in cash and voucher assistance (CVA), which were delivered to an average of 2.7 million unique mobile accounts. Countries such as Colombia, Tunisia, Mongolia, and the Philippines are some examples of nations using mobile-money-enabled CVA for humanitarian assistance.
Future Perspectives: 5G and Blockchain Implementations
In 2020, due to the Covid-19 pandemic, African countries such as Ethiopia looked to mobile money as a means to avoid contact with cash and thus an increased risk of contamination. The country lagged behind neighbors Somalia and Kenya due to government's protectionist policies, but since the beginning of the pandemic the major providers HelloCash, E-Birr and Sahay are having an opportunity to implement their services in a country where 80% of people live in rural areas.
In that sense, mobile money is often targeted to people who may otherwise not have access to an internet connection and advanced digital literacy, but with the promise of worldwide adoption of the 5G Mobile Network, it is possible to expect that mobile payments (including mobile money) will be deeply affected. While the use of Open Payment API is something already popular among younger generations in urban areas, according to the Global Findex Database 2017, mobile payment is already used by 8% of adults in Sub-Saharan Africa to receive payments from selling agricultural goods.
However, in spite of all the benefits of 5G technologies, there is still a number of security challenges that need to be addressed, such as is the case of decentralization, transparency, risk of data interoperability, and network privacy vulnerabilities as appointed by Nguyen et al. (2020). In order to tackle these issues, blockchain applications could be useful when it comes to its functionality such as Smart Contracts for the certification of data and money transactions in key sectors such as healthcare, smart city, smart transportation, smart grid, and in-car payments on Self-Driving Vehicle.