There are now more than 1 billion people around the world who have mobile phones but no bank accounts. It is therefore not surprising that Mobile Financial Services have been hailed as an effective means for providing the unbanked population in emerging markets with access to essential financial services. Providers like M-Pesa in Kenya or M-Paisa in Afghanistan (researched on the ground by frog executive creative director Jan Chipchase) have gained traction and are considered to be potentially groundbreaking “reverse” innovations that could also inspire business models in developed markets where Mobile Financial Services are on the rise, too (nearly 30 million Americans accessed financial services accounts through their mobile phones in the fourth quarter of 2010, a 54% rise on the same period the previous year, according to comScore). But how widespread is the adoption of these services really among “the unbanked”?
According to the Mobile Financial Services Development Report 2011 recently released by the World Economic Forum (in collaboration with the Boston Consulting Group), Mobile Financial Services in emerging markets are not as advanced as perhaps expected, both in terms of scale and scope. The report, a comprehensive analysis of over 100 variables across 20 countries in Africa, Latin America, and Asia, concludes that mobile banking is currently confined to a few countries where access to financial services has been historically constrained. Furthermore, the findings suggest that the scope of services is mainly limited to mobile money transfer, with other features such as savings, credit, and micro-insurance still nascent.
Only a few countries covered by the report have achieved adoption levels of more than 10% of the total adult population, among them Kenya and the Philippines. The study shows that a common characteristic of these countries is a dense network of agents – retail access points that are capable of registering account holders and handling cash transactions. However, as these countries look to achieve scale in mobile financial services beyond payments, focusing on factors such as government disbursements through the mobile platform, the competitiveness of their financial and telecom sectors, and better data collection and monitoring to facilitate “test and learn” approaches will need to become a priority.
To enable more widespread adoption of Mobile Financial Services, the report suggests that policymakers should focus on the flexibility of regulatory provisions for non-bank players, the competitiveness of market structures, and the strengthening of the financial literacy skills of individuals. “Including millions in the formal economy by providing them with tools to transact and save can have strong positive economic and social benefits,” said Marc Vos, a partner in The Boston Consulting Group’s Technology, Media & Telecommunications practice. “But public and private stakeholders must first get the basics right: solid and efficient distribution networks close to the consumer, and regulations that combine openness to innovation with the protection of consumers and broader financial stability.”
The report is optimistic that countries such as Brazil, Indonesia, or India may well be capable of achieving scale for Mobile Financial Services based on their existing infrastructure: “The ability to leverage existing agent networks and consumer protection in Brazil may facilitate the development of more complex financial services through the mobile platform. The widespread availability of mobile phones within India, the degree of competition within its telecom sector and recent regulatory changes may drive dramatic improvements in adoption levels.”