By Sudhesh Giriyan, COO of Xpress Money
With emerging technologies such as blockchain and mobile money, nation-states on every continent are reforming their financial models and accelerating towards a cashless model. From Sweden’s mobile payments network, and the fact that just 1% of all national transactions are now via cash; to China and its dependence on social channels and QR codes, so much so that even the homeless ask for donations via digital wallets – cash is no longer king.
Perhaps most surprisingly, cash is being overturned by the biggest degree in the developing world. This is thanks to mobile money, which enables users to pay for items as they would send a text. Kenya’s mobile money network, for example, has surpassed any other in the world, reaching Ksh692 billion (over £5BN) in the second quarter of 2017 alone.
It’s for good reason; cash is a severe barrier to financial inclusion around the world, it weakens national economies, and is at high-risk of corrupt practise. But why is this exactly? And what exactly are the benefits that mobile money brings to nation states around the world?
Helping the world’s unbanked
Financial inclusion is a good place to start.There are over two billion people that don’t have access to a formal bank account – that’s over a quarter of the world’s total population.Predominantly living in the developing world, many people go without a formal bank account as they are not within close proximity to a physical bank branch. In Kenya, for example, half of the population have to travel more than half an hour to get to the nearest bank.Without access to a bank account, the world’s unbanked are dependent on cash to make financial transactions.
However, this means that saving for the future brings a raft of insecurities – the cash is at risk of loss or theft, no interest can be accrued, and shocks to the economy are absorbed by the saver rather than a financial institution. In developing economies – in which financial inclusion is at its lowest – dependence on cash also stifles the growth of independent businesses, which are not able to reach their full potential without access to credit. As a result, it can be difficult for families and communities to lift themselves out of poverty.
On an anthropological level, households that are dependent on cash can often revolve around a scenario in which family members are reliant on breadwinners – usually men. It results in a situation in which women have a smaller degree of economic participation, and have little autonomy over finances such as household bills and expenses.
The mobile money revolution
Fortunately, the number of unbanked citizens is declining – 700 million adults gained bank accounts between 2011-2014, and it’s partly to do with the emergence of fintech brands and mobile money operators that are taking a collaborative approach to financial inclusion.
Quick to recognise that mobile devices are more accessible than bank branches, mobile money operators such as M-Pesa and Eco Cash are enabling the unbanked to be financially included via their phones – whether it be a smartphone or a cumbersome device from years gone by. With this simple, innovative mobile technology, users can pay for groceries, education fees, and utility bills, as well as make transactions to family and friends.
By paying for items by simply exchanging codes, users have access to all of the benefits of a bank account (and in some cases can even gain interest on savings and take out small loans) without having to be in the general vicinity of a physical bank branch.
It’s giving people complete autonomy over their finances, and helps them to save for a secure future. The technology has proved to be so popular, that mobile device ownership is accelerated far beyond bank account uptake. In Bangladesh alone, more than 75% of the population has a mobile phone, but only 31% have a bank account.
Mobile money: strengthening GDP
Cash is a threat to national economies, too. While digital currencies can be officially tracked and enable economies to have complete oversight on how much credit lies within their GDP, notes – which can be easily counterfeited – do not present governments with such transparency.
It’s proved so popular, that Governments such as those in Malawi, Pakistan and Afghanistan pay public sector salaries and state pension payments in this way. And, mobile money also means that tax is harder to evade – after its first year of taking mobile payments, Mauritius reported a 12% increase in tax returns.
Mobile money has also helped support national economies in times of crisis. Look at the Zimbabwe cash crisis, for example. The country was dependent on the US dollar, and the federal reserve subsequently couldn’t print any more notes when the country’s banks ran out of physical cash. ATMs ran dry, meaning that bond notes were injected into circulation, but the Government also promoted the use of mobile money in a bid to reduce dependence on physical notes. It proved to be a good solution when physical cash failed, and mobile money usage in the country has rapidly accelerated as a result – over 80% of financial transactions in Zimbabwe are now made this way.
One thing’s for sure, mobile money is taking hold of the developing world, so much so that the number of active users is expected to hit 450 million in 2017. But financial inclusion will continue to be a global problem for years to come, and cannot be overcome by a single company alone.
The challenge now, is for fintechs, mobile money operators, and remittance brands to continue to innovate their services, and collaborate as much as possible to ensure that their platforms have as wide a footprint as possible.