A recent report by CGAP (Co‐funded by the Bill & Melinda Gates Foundation) compared the costs of branchless banking (mobile money) projects in 10 developing nations to that of traditional banking.
One of the major findings of the project was that overall, mobile money is 19% cheaper on average, compared to conventional retail banking. While significant, this figure under reports the potential that mobile money schemes present for the world’s unbanked peoples.
For example, the report found that the cost of mobile money services relative to bank services increased with respect to the value of the transaction amount, ranging from 38% cheaper for $20 (all values in US dollars) to 45% more expensive for around $200.
However it’s important to notes that in Kenya – in which M-PESA operates – the average annual income per person is around $1,500. Furthermore, in Afghanistan – with M-PAISA – this figure is under $1000. As such a transaction of $200 represents a good 20% of average annual income, not to mention that a significant share of mobile money customers earn well below these average values. Source: siteresources.worldbank.org/ICPINT/Resources/icp-final.pdf
Similarly, one of the underlying reasons for result is that pay as you go structure of mobile money compared to traditional banking where the fixed component represents a much larger share of the total cost of transaction. Yet this is in many ways precisely the value of mobile money for the world’s unbanked!
By building on cheap applications and keeping fixed costs as low as possible, mobile money is able to provide individuals without access to banking services the benefits of such services. Most important from a development perspective, this includes the remittance of wages from urban workers to rural families. Which, compared to informal alternatives such as cash stuffed envelopes, the report found was 54% cheaper on average, not to mention considerably safer and more reliable.
At the end of the day this is why we are seeing the developing world lead the innovation of this technology. While Smart Phones are providing increasingly more conducive environment, form an infrastructure stand points, in the developed world, the widespread availability of financial services leaves mobile money as mere gimmick compared to the role it promises to play in underdeveloped markets.
Even within the developing world the availability of banking services play a crucial factor in determining the success of a mobile money system. For instance, in South Africa and “No Frills” Accounts in India are simplified, low cost bank accounts which banks are required to provide by government. The Mzansi services operate at a loss and supply over 3 million customers with basic banking services for considerably less than in say Kenya. Conversely, Kenya boasts the world’s leading mobile money service while similar schemes struggle to gain traction in the Indian market.
As the number of mobile phones steadily increase in the world and handsets are used for much more than calling and texting, Mobile Near Field Communications (NFC) offer users the ability to use their phone as a mobile wallet. However, even though consumers would welcome such solutions, NFC deployment is sluggish.