Written by Jake Plenderleith on Tuesday January 16, 2018
Over the last decade, mobile financial services (MFS) have been instrumental in increasing financial inclusion in developing markets. According to the GSMA, (the trade body that represents the interests of mobile operators worldwide) in developing countries, approximately 2.5 billion people are ‘unbanked’ (or ‘unserved/underserved’) and have to rely on cash or informal financial services which are typically unsafe, inconvenient and expensive. However, over one billion of these people have access to a mobile phone, which can provide the basis for extending the reach of financial services such as payments, transfers, insurance, savings and credit.
What is it?
Mobile money services are a powerful tool for bringing unbanked and underbanked people into the formal financial sector. The GSMA defines mobile money as ‘a transformational service that uses information and communication technologies (ICTs) and non-bank retail channels to extend the delivery of financial services to clients who cannot be reached profitably with traditional branch-based financial services’.
Mobile money is distinct from mobile banking. Mobile banking is where traditional financial service providers use mobile devices as an additional delivery channel for their customers, whilst mobile money customers use an interface that is available on basic mobile devices and are not, in most instances, required to have an existing bank account; hence, the unbanked.
Mobile money uses the mobile phone to transfer money and make payments to the unbanked. The service must offer at least one of the following products: domestic or international transfer, mobile payments including bill payment, bulk disbursement and merchant payment.
How does mobile money work?
The first step in using MFS is to register for an account. This is invariably done at either a network store or via an authorised agent of your preferred network. Registration includes the collection of necessary information, and the validation of this information against some form of identification document, such as passport, driving licence, voter ID.
Once registration is complete and an account has been granted, the customer can then ‘deposit’ physical cash with the store or agent in exchange for e-money credited into their mobile account or ‘wallet’. The transaction is confirmed via SMS.
The e-money can then be sent to friends, family or organisations, for example, who then receive the e-money in their mobile wallet. The e-money can then be transferred again, or exchanged for physical cash, in whole or in part, at any of the network’s agent outlets. All transactions are confirmed by SMS.
Who will MFS’s effect?
MSFs will aid individuals and small and medium-sized enterprises in low-income and developing countries who have little or no access to traditional financial products and institutions. For many opening mobile money accounts is the first time using formal financial services, giving a chance to join the formal economy.
Sub-Saharan Africa continues to account for the majority of live mobile money services, however, services have also been launched outside this region, primarily in Latin America and the Caribbean.
If you want to find out more about mobile financial services, take a look at our latest course launch; ICA Certificate in Financial Crime Risk in Mobile Financial Services.
This article forms part of the #BigCompConvo - Join us as we explore and debate the latest challenges and issues facing you and regulatory and financial crime compliance professionals all over the world. If you’d like to contribute an article as part of the Big Compliance Conversation get in touch with us at firstname.lastname@example.org
Thank you. Your comment is awaiting moderation and should appear on the site shortly.
Required fields are not completed, please ensure all required fields (*) have been filled in properly.
You can leave the name empty should you wish to remain Anonymous.