What is mobile money and how it has boosted financial inclusion

mobile money

A mobile money account is a digital payment platform that permits individuals to transfer money between different cell phone devices. The tech is piggybacked/installed on the cellphone’s SIM card with encryption services and can be used on regular and smartphone devices. People that have subscribed to this service, by way of their cell phone network provider, can receive, withdraw, and send money without needing a formal banking system or bank account. 

This product differs from mobile banking — where the user connects their cell phone to internet-enabled mobile devices and manages their bank account funds.

How does mobile money work?

Mobile money places funds in a protected digital account that’s linked to a specific mobile phone number. In many cases, this virtual wallet’s number will be the same as the phone number it’s linked to. People can send, receive and withdraw - with the help of an agent - funds from these wallets. 

Is mobile money safe?

Most mobile money accounts work on the same premise and security features as bank accounts — they are similar concepts. Fun help in a mobile money account is Federally protected by local financial regulations. Mobile money providers are required by law to check user identity, record all transactions, and protect sensitive information. This makes it much harder for criminals and fraudsters to penetrate the service and hijack it illegally. 

Mobile money account record of every transaction and account balance — this means that even if a phone or SIM card is stolen, lost, or damaged, the user’s money will be kept safe. Every transaction requires a secret PIN and the wallet can only be accessed by the authorized user.

The Role of Mobile Phones in Financial Inclusion 

Mobile banking channels are essential for financial inclusion. The Economic Times documented that 1.1 billion unbanked adults have a smartphone or a mobile phone --- an easy way of delivering financial assistance in an endurable and unrestricted way. 

Traditional banking normally requires a client to enter a branch or for that matter the existence of a brick and mortar building to begin with — a physical location. This is, for certain people, a rather big impediment. Why? They live in the outskirts of civilization or poorly developed countries where banks and their infrastructure are limited to urban areas, rural regions are devoid of them. The creation of mobile banking solutions gives access to these people to basic financial tools. 

One of the first and more relevant examples of delivering this type of service to the unbanked in rural areas occurred in Kenya with the creation of the M-Pesa mobile payment system. The M-Pesa, a service provider that wasn’t initially related to the financial sector, individuals were able to acquire key financial services and tools. The M-Pesa is a mobile transfer application provided by the Safaricom Network Company.

All the user needed was a Safaricom SIM card and a cell network. The user did a quick registration and with that the company allowed them to send money, pay bills, receive money, and even make withdrawals. Safaricom created a vast array of M-Pesa agents around Kenya that facilitated operations. As of 2020, the system has over 25.7 million users in Kenya and has helped increase access to key banking tools to over 8% of the population. 

It was one of the first mobile banking models in existence and proved how essential they were in the long run. 

Mobile Money Accounts worldwide

Right now there are over one billion registered mobile money accounts in the world — more than half of those are from sub-Saharan Africa. The implementation of this type of digital financial service has boosted emerging nations' GDP by up to 6% — in the sub-Saharan case, it was the equivalent of adding an economy the size of Germany to an international global market. 

Mobile phone penetration - how many people own one - is over 85% in most developing or emerging countries, whereas banking only manages to link up to 40% of the population on average. 

How Mobile Money Account Reduce Poverty 

Studies speculate that by 2025, 91% of Africans will have free access to mobile SIM card connections. This means that they will have access to better banking services — improving most individuals' capacity to manage their monthly budget, business, and financial health. Mobile technology allows people more control over their money securely, regardless of credit history. Mobile money allows for financial inclusion and mobile money transactions have the potential to reduce property in emerging nations and continents. 

A study performed by the Gates Foundation discovered that mobile money impacts an African household’s ability to deal with extreme poverty. For example, in Uganda, the practice increased food security by 45% for families that didn’t have a bank nearby.

Mobile money can facilitate higher savings for households

Mobile money can also be critical for financial health as it facilitates saving. In Kenya, mobile money accounts were used to allocate and label money for savings. Researchers have discovered that labelling an account can facilitate money-saving activities and change budgeting mindsets — tools, such as weekly SMS reminders on the savings goals, can especially increase the amount saved.