Mobile Money: Issue 2

Abstract

With increasing access to mobile phones across the world, mobile money services have been growing in popularity, enabling users to deposit,transfer, and withdraw funds from a digital account without owning a bank account. Mobile money dramatically reduces transaction costs, while improving the convenience, security, and time taken for transactions. This VoxDevLit summarises research studying the expansion of mobile money providers and accounts over the past decade, and highlights the importance of mobile money in changing financial behaviour, such as its effect on resilience, urban migration, and food security, especially among vulnerable groups.

Mobile Money Policy Summary

By enabling users to deposit, transfer, and withdraw money without owning a bank account, mobile money can make accessing financial services easier, safer, and more reliable. These changes have allowed for people traditionally excluded from the formal financial sector, including women and the poor, to access formal financial services.

Over the past decade, mobile money adoption has rapidly spread across Sub-Saharan Africa, as well as other developing countries such as Bangladesh, Paraguay, and the Philippines. In 2021, 33% of adults in Sub-Saharan Africa used a mobile money account, an increase from 12% in 2014 (and 21% in 2017) (Demirguc-Kunt et al. 2022). Today, mobile money accounts are used not only for person-to-person (P2P) payments, but also for savings, to receive wage and government transfer payments, as well as to pay merchants and bills. 

In 2021, global mobile money transactions totaled $2 billion daily, and there were 5.6 million active agents worldwide, a threefold increase in the number of active agents from five years prior (GSMA 2022a). With mobile money’s increasing popularity and as it becomes closer to becoming a traditional payment system, it is imperative to take a closer look at policy encouraging both investment and innovation in the area. 

The most successful and well-known mobile money product, M-PESA, was launched in 2007 in Kenya. Its launch has been followed by other similar services across the developing world. There has been a lot of research on the role systems like M-PESA can play and the impacts they can have on economies. Evidence shows that households with M-PESA are better able to smooth risks, since their consumption is less sensitive to unexpected income and health shocks. In the longer run, this has had impacts on poverty in Kenya. The consumption smoothing effects of mobile money have also been documented in Mozambique, Bangladesh, Tanzania, and Uganda. 

In addition to these basic effects, there has been a range of papers, largely using randomised controlled trials (RCTs), showing the benefits of mobile money in particular contexts (such as aid delivery, salary payments, high conflict areas, etc.). There is also a small but growing literature on the value-added products over mobile money, in particular, digital bank accounts which operate over the rails of mobile money. Given that mobile money and, more broadly, a digital payments system has been so widely adopted in the developing world, and seeing that there are so few value-added services layered over it, there is a lot left to do and learn. 

This is the second issue of this VoxDevLit, which will be updated as new information becomes available, and new research and findings are highlighted in green. Our hope is that by facilitating a dialogue between governments, practitioners and researchers, our library of VoxDevLits reviews will generate new research that helps fill knowledge gaps.

Mobile Money (Issue 2): Presentation of key takeaways

For our launch event, Tavneet Suri joined us to present the key takeaways from this VoxDevLit, highlighting policy relevant results from recent research on mobile money services.

References

Demirgüç-Kunt, A, L Klapper, D Singer, and S Ansar (2022), “The global findex database 2021: Financial inclusion, digital payments, and resilience in the Age of COVID-19.” World Bank Publications.

GSMA (Groupe Spec. Mob. Assoc.) (2022a), “State of the Industry Report on Mobile Money 2022”, Groupe Spec. Mob. Assoc., London.