Although banks are everywhere in the world, many people still struggle to access basic financial services. In fact, the World Bank estimates at least 1.4 billion adults don't have a bank account. These people are most often lower-income, less educated, women, or living in remote areas.
While bank penetration is lower in many less wealthy regions, cell phones are more commonplace. In 2022, there were an estimated 6.6 billion smartphone users worldwide—that’s well over half the world’s population. The growth in mobile phone use has inspired an alternative banking revolution called "mobile money." Mobile money services offer millions of unbanked people a secure way to send and store funds. So, what is mobile money, and why has it become so influential?
What is mobile money?
Mobile money is a new kind of financial service that lets anyone with a cell phone transfer, store, and request money from their device. These services are a type of fintech app—financial applications offered by financial institutions or third-party providers—like PayPal and Venmo, and, like many fintech apps, doesn't require a bank account.
Many mobile carriers partner with banks or other financial service providers to offer mobile currency to their customers. In these cases, mobile money functions as "mobile banking" for those who don't have a bank account. People apply mobile money to many of the same functions they would use a standard bank account for, such as saving and transferring funds.
How does mobile money work?
Before mobile money, mobile carriers discovered that people in developing nations were using "airtime" as a form of digital payment. Instead of wiring money between users, people in countries such as Kenya would send cell phone data as a form of mobile currency. People would store and transfer their airtime as they would money in a bank account.
While it's still possible to use airtime as a form of mobile cash, several companies offer services specializing in mobile money transfers. For example, M-Pesa is one of Kenya's most popular mobile money service providers. Created by the telecom company Safaricom, M-Pesa allows users to send or request money in real time using SMS texting. M-Pesa employs thousands of agents—often small mobile phone stores or retail locations—which allow users to deposit and withdraw in-person with cash. This service also allows people to spend digital dollars anywhere mobile money is accepted, such as grocery stores or gas stations. In Kenya, almost every business accepts money via M-Pesa, even in the most remote or poorest regions!
While every mobile money service has a unique set of features, all allow customers to use their phones to send and receive funds. These services must adhere to the financial laws and regulations where they operate, meaning users must submit personal information to verify their identities and access the platforms. Once users connect to a mobile money service, they can use it as a banking alternative for transferring and saving money. Often, a person's mobile phone number doubles as their e-wallet where money is stored.
Ways to use mobile money
Mobile money has many of the same uses as financial apps such as Zelle and Venmo. Although many people who have mobile money don't have a standard bank account, they use this tool for many similar functions:
- Microloans: Intermediary lenders, government agencies, and banks may distribute small loans to businesses and communities in developing regions. These "microloans" are a popular strategy to spur economic activity in nations around the world. Mobile payments offer entrepreneurs a straightforward way to pay off these microloans.
- Remittances: Mobile money is an affordable and fast way to send electronic funds, even to someone without a bank account. For example, migrant workers may send these money transfers to their families in developing nations.
- Shopping: Many stores and e-commerce portals in developing regions now accept mobile money apps. This makes it easier for residents to purchase essentials like food, fuel, and medicine without carrying cash.
- Managing business funds: Businesses use mobile money services to take and make payments and store funds. The security of mobile money platforms helps entrepreneurs feel safer managing cash flow.
- Personal savings: Mobile money provides bankless people with a safe place to store emergency funds. Many people with mobile money apps use their e-wallets as alternative savings accounts.
The impact and importance of mobile money
Mobile money provides banking-like services in countries that don't have the same robust financial services found in industrialized countries. Some economists believe mobile money could help developing nations grow without investing excessive capital in building a banking infrastructure. By "leapfrogging"—or skipping past—the traditional banking industry, countries have more money to invest in community development and business growth.
Although mobile money is a relatively new invention, it's already having a profound impact on developing communities. Here are a few of the features that make mobile money so attractive:
- Accessibility: The primary benefit of mobile money is that it offers alternative banking services for people who can't apply for a traditional bank account. People don't need to live near a bank or meet specific documentation needs (such as a government-issued photo ID or a social security number) to start saving money or making transfers.
- Broad reach: All people need to access mobile money services is a cell phone. Recent statistics suggest there are roughly 16 billion mobile devices around the world, and that number is only expected to rise. It's far more likely someone in a developing region will have a cell phone than a nearby brick-and-mortar bank. The wide diffusion of cell phones helps mobile money reach more people, even those who face systemic barriers, such as low-income people and those without an education.
- Global technology: Since mobile money is on global telecom networks, it's easy for people to send cross-border electronic transactions. Often, mobile money is more affordable and faster than international payment rails like SWIFT. This makes mobile money a viable global payment network for remittances.
- Ease-of-use: People who know how to send text messages can learn how to use mobile money. In many cases, customers simply send money to the cell phone number associated with their recipient's device.
- Economic stability: A study on the impacts of mobile money suggests those who have access to mobile money services and a nearby mobile money agent are less likely to live below the poverty line. Additionally, mobile money services encourage people to put money aside for unforeseen expenses because they have a secure way to save.
- Safety: Mobile money service providers collect customer data and use security measures like firewalls to protect funds. Although electronic money is vulnerable to hacks, people don't have to worry about the risks of carrying large sums of physical cash.
Examples of mobile money services
- M-Pesa: Safaricom’s M-Pesa remains a dominant mobile money service in Africa, especially in its home nation of Kenya. Since its launch in 2007, M-Pesa has over 50 million users and handles roughly $314 billion in transactions annually. It’s the largest success story in Mobile Money today.
- Airtel Africa: Similar to M-Pesa, Airtel Africa is a major mobile money platform in Central, East, and West Africa. This division of the telecom company Bharti Airtel Limited now offers mobile money to millions of customers in more than a dozen African countries, including Nigeria, Ghana, and Kenya.
- DaviPlata: DaviPlata is one of the most downloaded e-wallets in Colombia. Banco Davivienda created the free DaviPlata app to give Colombians easy access to remittances and cash withdrawals without the need for a bank account.
- GCash: Globe Telecom created GCash to provide unbanked and underbanked Filipinos with easy access to digital savings, micropayments, and remittance transfers. Registered with the Bangko Sentral ng Pilipinas, GCash has roughly 55 million account holders in the Philippines.
Is crypto mobile money?
Although cryptocurrencies share many traits with mobile money, they aren’t the same thing. Mobile money typically relies on centralized mobile providers to transfer fiat currencies. However, cryptocurrencies like Bitcoin are decentralized peer-to-peer (P2P) payment networks. Crypto relies on a new technology called "blockchain" to verify transactions without a third-party custodian like an exchange or bank. Anyone with cryptocurrency in their digital wallet could send digital funds directly to anyone with a compatible crypto wallet.
Some crypto projects are attempting to build "decentralized finance" (DeFi) apps that mimic traditional financial services. For example, decentralized exchanges (DEXs) allow anyone to swap cryptocurrencies without providing personal information to a centralized company. There are also decentralized crypto loan services, for example built by Aave, that accept crypto collateral without requiring a credit check. Many of the services in the DeFi sector are similar to those offered by mobile money, but they use different systems to achieve their goals.
The benefit of crypto is that it often doesn't involve centralized intermediaries like mobile companies. This feature makes crypto more censorship-resistant than mobile money networks.
However, cryptocurrencies can have volatile price swings. And since blockchain is a relatively new technology, it is prone to hacks and scams. Plus, the regulation surrounding crypto assets differs throughout the world. There are even some countries, like China, that have firm bans against crypto transfers.
Wrapping up
Mobile money opens many exciting economic opportunities for people living in developing nations. As mobile currency continues to grow, more individuals, families, and entrepreneurs can take advantage of an alternative to banking that still allows them to spend, earn, and save. The success of services like M-Pesa may also spur growth in mobile money transfer offerings in the developed world, allowing people to transfer and safeguard their funds outside of traditional banking.
Worldcoin believes cryptocurrency will play a significant role in the future growth of the global economy. Subscribe to our YouTube channel to learn more.
