Mobile financial services have proven their worth time and time again, whether it’s the convenience of being able to move funds around long after the banks have closed for the day or accessing financial services during the lockdowns of the COVID-19 crisis, when going to the bank at all was considered potentially lethal. However, its value extends beyond simple convenience in developed nations. Mobile money is, in fact, a driver that can transform entire economies.

The mobile money ecosystem is a rapidly growing and evolving one. During 2019, close to $2 billion was transacted on a daily bases by over a billion registered mobile users. By contrast, the largest single system in 2011 (M-PESA) only managed $500 million per month from 20 million users, and that represented half of the total registered users in the world. This incredible growth is largely down to the astronomical rise in internet and smartphone use around the world, as well as increased interoperability and new business models being adopted. With ever more options to pay for goods and services digitally, cash is losing its kingly status.

Power to the people

It may surprise you to learn that the biggest market for mobile banking is not the developed world. Europe and the US make up relatively tiny proportions of the total user base and even Southeast Asia’s contribution is a fraction of the size of the largest market. The dominant market in the industry is sub-Saharan Africa, were 469 million registered accounts transacted $456.3 billion in 2019.

If you think about it, this is perhaps not as surprising as it might first seem. For many in this part of the world, mobile banking isn’t a simple convenience - it is an essential service. It is not a case of just saving you the two-minute walk to the ATM or spending half of your lunch hour in the bank. In sub-Saharan Africa, the walk to the nearest ATM could be a full day’s endeavour. And as for going to bank, in some parts of the region banks hire security guards with assault weapons to safeguard their branches, so you could face much greater risks than the chance of catching COVID-19.

For these reasons and others like them, Africa has been at the forefront of mobile money development since its inception. The aforementioned M-PESA system, for example, was developed in Kenya and was mostly used in and around that region. New systems are constantly in development and Africa continues to contribute a significant amount of them.

However, Southeast Asia’s contribution to global money growth cannot be overlooked either. In 2019 alone, 30 million new accounts were opened in the region as new innovations push the boundaries of what can be achieved through digital banking.

The battle for India

Relatively unsurprisingly, India and South Asia generally is another of the key regions when it comes to the growth of the mobile money ecosystem, with 315 million registered accounts transacting $125.4 billion in 2019. The area has been at the forefront of tech development for a long time and, with both a substantial rural population and crowded cities, the need for mobile services is as great here as it is in Africa.

With India being the second most populous country in the world and one of the fastest growing economies, many of the world’s tech giants are keen to get a slice of this potentially very profitable market. Google Pay, Paytm, PhonePe, AmazonPay and even Facebook’s WhatsApp Pay are all battling to get the biggest slice of a market that is expected to reach $1 trillion in value by 2023.

Bizarrely, the government is both the best friend and worst enemy of fintech in India. While making massive efforts to expand mobile banking, including reaching out to the estimated 191 million unbanked citizens (making it the second largest unbanked population in the world, according to the World Bank’s 2017 Global Findex Database), innovation and development are stifled by unusually and increasingly tough regulations. This means that, while plenty of new mobile money endeavours and systems open each year, an equally high number are forced to close.

The role of mobile money agents

A big part of the reason why the mobile money industry has grown so significantly over the last decade is that, as previously mentioned, it gives people access to money and banking services wherever they are. Banks are not always able to open branches or even ATMs where they are needed most because of the significant investment such a move requires.

Mobile money cannot solve all of the problems that a lack of local banks creates, though. While it gives access to services and money storage, not everyone in remote communities is going to be willing to accept payment through digital transfers. In many places, cash remains king. In such situations, there still needs to be some way to convert mobile money into cash and back again. Where banks are unavailable, smaller agents have consistently stepped into the breach. They have long been and remain the backbone of the mobile money industry, to the tune of $174 billion being digitised by agents in 2019. In the pursuit of reducing the unbanked population, they are key players, with seven times the reach of ATMs and 20 times the reach of bank branches.

Empowering local entrepreneurs

We’ve discussed how mobile money can reduce the unbanked population and give more people access to banking services, but the applications for those services are what really make a difference to people’s lives. At its most basic level, having money stored in a bank rather than a tin box under the bed provides a degree of security, especially in remote communities. The same can be said of having access to insurance policies covering a person’s health and belongings. Between them, these can stop an individual’s socioeconomic situation getting worse. However, mobile money can also help it get better.

The growing need for agents in remote areas is one big opportunity for additional income, with companies providing education and training to locals in order to help them establish and run an outlet. In some cases, those who have chosen to become agents for mobile money companies shifted over from other businesses, including selling airtime or running local stores. Some don’t even merely add mobile money to their business and continue to run their store, giving them a more stable and diverse income. The commissions available for becoming an agent are enough to put a child through primary and secondary school.

With smartphone and internet penetration continuing to expand even in rural areas, mobile money itself can be a platform for entrepreneurship. Digital wallets and payment as a platform is already starting to develop in urban centres, though the practicalities of establishing partnerships and the regulations around this still present a challenge for rural communities.

Regulatory trends

We mentioned the example of India before which, despite having the second largest population in the world and a well-established tech industry, is still lagging behind Africa for its mobile money penetration. Granted, comparing a single country to an entire continent is not exactly fair, but fact remains that something is standing in the way of the rapid expansion of mobile money in South Asia. That something is government regulation.

While a certain amount of regulation is essential to maintain safety and security for customers, the GSMA Mobile Money Regulatory Index identified a very clear correlation between those countries with high mobile money adoption rates and those with enabling regulatory environments. Those policies most often holding progress back include sector-specific taxation and data localisation requirements.

Fortunately, the regulatory landscape is generally maturing as the mobile money ecosystem become more mainstream. This is still a relatively new issue, though, and different countries are finding different ways of ensuring that there is suitable regulation while trying to maintain or improve the level of accessibility and innovation. Over the course of 2019, Tunisia shifted its mobile money services away from mobile network operators and into the purview of the country’s central bank. Meanwhile, the State Bank of Pakistan introduced new regulations for Electronic Money Institutions (EMIs) that were specifically intended to lower the barrier for entry for non-banks offering mobile money services. Nigeria and Kenya also took measures towards a “payment institution” model of operating.

While there are still challenges on the road ahead, the overall outlook remains positive, with mobile money services becoming increasingly mainstream, being embraced by more and more countries and governments and even earning the trust of financial regulators. Likely as not, mobile money will continue to play an increasingly significant role in national payment infrastructures with each passing year.

Trends in the mobile money ecosystem

Since 2014, the mobile money industry has seen a gradual shift away from cash and towards digital payments, to the extent that the latter finally overtook the former in 2019. As much as 57 per cent of money entered and left the system through digital transaction instead of cash conversions with agents, mostly thanks to increased integration with the broader financial ecosystem and reducing barriers for third-party integration.

This is indicative or a broader trend towards mobile money playing an integral role in the financial ecosystem. Mobile money providers are offering more direct connections with more banks, increasing the volumes of money moving around the system to the tune of a 34 per cent year on year increase in 2019. Many mobile money players are also entering the field of international remittance, with $7.3 billion being processed in 2019 - a substantial increase from the $5.5 billion in 2018. This is helping nations with widespread diasporas move money between citizens in different countries, which obviously brings a lot of money into the mother country. However, there are still questions left unanswered regarding how the mobile money industry will interact with the broader financial system and particularly with current and future payment infrastructures.

Another important trend in the mobile money ecosystem is that the value circulating within the system is now higher than ever. Rather than extracting money from the system in order to give it to another person (for a simple transaction, for example), the value is increasingly being transmitted between digital accounts. As of 2019, P2P transfers saw $20.1 billion moving around the system - more than double the amount from 2017. This is another step towards dethroning cash from its dominance in transactions, particularly helping small business operators to flourish.

There is still some way to go in developing the mobile money ecosystem. However, with the technology available constantly developing and access to smartphones and the internet reaching even the most far-flung corners of the globe, there is a degree of inevitability in that development. Questions still remain about exactly what will happen next, though. This is new ground for everyone and no one is exactly sure how best to regulate and support the process for the good of all concerned.

This article is provided to you by DeeMoney. Thailand's money transfer solutions provider licensed by the Bank of Thailand. Interested in transferring money from Thailand to the world? Download the app from the Google PlayStore or the Appstore to get started.