The mobile money ecosystem is pretty much exactly what it sounds like - the movement of finances facilitated entirely through your mobile phone. Such an ecosystem is possible thanks to the widespread proliferation of the associated technology, which means that this is very far from being just a first-world convenience. Indeed, a lot of the most effective systems of this kind were started and developed in less economically developed countries, where they have allowed previously unbanked populations access to financial services. This is a topic we have covered in a previous blog post.
As you might expect from the use of the term ‘ecosystem’, there’s a lot more to these than initially meets the eye. Many of us are familiar with mobile banking, but this is barely even the tip of the iceberg. There’s no denying its importance within the ecosystem but, just as with such systems in the natural world, there are plenty of other interdependent parts - gears in a vast economic machine. In this post, we are going to take a look at a few more of those gears.
According to GSMA, the mobile money industry has already spread to more than 90 countries (that’s just under half of them), with more than 270 components functioning together to achieve different functions in different ways. The ecosystem is, however, surprisingly simple at its core. There are two basic systems that dominate the majority of use cases: person-to-person (P2P) transfers and airtime top-ups to allow continued use of the network (and, therefore, continued P2P transfers).
To be fair, all trade is ultimately a P2P transfer - money moves from one person to another, whether that’s from a customer to a business, an employer to an employee or even a person moving their own money from their own account in one country to their own account elsewhere. Of course, there is a lot more complexity to it, especially when you start entering the realms of business-to-business (B2B), government-to-person (G2P) and other combinations of letters with the number two in between, but you’ve got to start somewhere.
Fortunately, new models, products and functions are being explored, allowing the mobile money ecosystem to expand. This includes work on account-to-account interoperability, international remittance, salary disbursements and more. We haven’t quite reached the point at which you can control every aspect of your finances entirely from your mobile phone, but it is a very real prospect for the near future.
When it comes to explaining the mobile money ecosystem, talking in terms of broad financial functions like these will only get us so far. This is still just a theoretical explanation - what are the actual players within this industry and how do they interact?
PayPal, founded in 1998, was arguably one of the first and remains one of the most significant. Initially only working from its website, they were smart enough to keep pace with the evolution of digital finance and developed into the mobile money ecosystem. They remain one of the most popular P2P payment platforms in the world, but their app can also be used for in-store and online payments. However, they are not alone in this area of the industry and different players can still carve their own niche through providing slightly different services or different rates. Such competitors include Venmo, Flashiz, Mobino and others.
The problem with all of these players is that they rely on connecting your account with them with a bank account, which doesn’t work so well for unbanked populations - typically those living in rural areas, especially across Africa as well as in India and China, among others. However, there are also P2P payment apps and services that do not have this requirement, such as Easypaisa, Tico, RedCloud, ZipCash and others.
An alternative to P2P systems for the unbanked is using a mobile-only bank. Here, the major players include Monzo, Starling, Tandem and others. There’s also the option of using a digital wallet, which you can fund with cash at local stores - an invaluable service that has made the mobile money ecosystem so successful in remote parts of Africa. Such systems can also be used as a bridge between banks and credit cards and services you wish to pay for using your mobile, including providing facilities for in-store and online payments. Players in this space range include Apple’s own Wallet, Android Pay, Google Pay and Yoyo, among others.
The list of functions goes on. There are some companies that provide direct carrier billing (DCB) - sometimes known as direct operator billing - which effectively allows you to pay for goods and services using your phone credit. Several messenger apps now incorporate payment options while QR codes have made it easier than ever to pay using your phone in both physical stores and online ones.
An ecosystem is not just a list of unconnected participants, though. It is the interactions between them that make for an effective system. In the mobile money ecosystem, as with virtually any financial network, a certain amount of trust is necessary.
At the heart of the ecosystem are the mobile money issuers, as you might expect. With no way of putting credit into the system, there’s nothing to be spent on goods and services. The initial requirement is an agreement between the issuer and the mobile network operators since the former cannot exist without the latter. Additionally, the money issuers need to have a close relationship with traditional banks, potentially through challenger or neobanks, ensuring that the credit in the system has some actual value behind it. Both the issuer and the bank need to have payment agreements with vendors to ensure that, when a customer spends that credit, the bank will fulfill the transaction.
This network cannot exist within a vacuum. As we said earlier, P2P payments are the largest use case for mobile finance, so there needs to be interactions with other networks, other banks and other mobile money issuers to ensure that customers can interact with the largest possible number of vendors and other customers.
It’s worth noting that these arteries can become clogged - that is to say that this is not a flawless system. It is reliant on widespread adoption, especially by vendors and merchants. It’s like the problem that Bitcoin initially faced, when early adopters found that, once they had converted their cash into cryptocurrency, there was nowhere to spend it. Of course, in both cases, this problem is gradually reducing as more merchants accept alternative payment methods. The greater problem is the simple fact that the ecosystem is so complex and depends on so many interactions. With each adding its own service fees, it’s easy to lose considerable amounts of money per transaction.