The Global State Of Financial Inclusion

“If we were building a financial system from scratch today, we’d do it on a digital platform,” Bill Gates once said in an address on behalf of the Alliance for Financial Inclusion.

That’s not possible, of course (as Gates acknowledges), but what is possible is launching innovative financial measures in developing nations that lack adequate access to banks and financial institutions. That’s where mobile money and international remittances come into play. Worldwide, more than 2.5 billion adults (half the adult population) do not have an account at a financial institution, according to the World Bank’s Global Financial Inclusion Database. But through partnerships with card brands like MasterCard or Visa in developing regions (like Africa, for example), mobile money schemes are bringing access to populations once isolated from financial services.

In GSMA’s report, “2014 State of the Industry: Mobile Financial Services for the Unbanked,” they share a number of important statistics about how financial inclusion and cross-border partnerships are changing the local economies (or not) for a population that has been largely without access to the financial tools and systems that characterize developing markets and economies. The “unbanked,” as the report references, can now rely on a mobile phone to provide low-cost and more convenient access to financial services such as mobile payments and money transfers. As the report highlights, mobile money is increasingly enabling digital payments on a global scale.

And although many attempts have been made over the years to leverage the mobile device and deliver access to financial services, the results have been disappointing. 2014, according to the GSMA report, was different. They report that 2014 was a year of mobile money innovations and “breakthroughs” — fueled largely by international remittances. Mobile money has increased for payments from both senders and those receiving the funds. A growing number of mobile money accounts now play a role in helping better connect populations to banking services. But as good as it’s been, there’s still a ton of room for improvement.

Financial inclusion was the theme of a keynoted address given at Mobile World Congress on March 3 by MasterCard CEO Ajay Banga, who is passionate about bringing the 2.5 billion adults who live outside of the financial system into it –  through both public and private partnerships.

“Because of technology, we can help shape the arc of history to bend it towards financial inclusion and greater human progress,” Banga said. “Financial inclusion is a massive undertaking – one that can only be met together – across countries, sectors, and industries. “

But financial inclusion doesn’t only apply to developing markets, Banga said, citing that “nearly 70 million Americans are currently unbanked or under banked,” in the U.S. In Western Europe, the number is closer to 100 million, he said. Of those, 40 percent are young people, he said, and 50 percent are women.

“[Financial inclusion] matters because the risks of not addressing it are profound. And by the way, in the future with the Internet of Things, where every device will be connected to the Internet, what kind of life will those who are financially excluded have? We’ll have the Internet of Everything but not the Inclusion of Everyone,” Banga said. “Think about not being able to send a small amount of money to your mother at a reasonable cost. Think about having the social benefits you just got in cash stolen as you make your way home. Or worse by relatives at home – which happens far more than you might think, especially to women. Yet, 85 percent of the world’s retail transactions are still done in cash. …While we can’t talk about financial inclusion without talking about cash, we can’t talk about cash without the need to move beyond it – to move to electronic forms of payment.”

Banga said what needs to be done to bridge the gap between the banked and the unbanked populations is public and private partnerships that involve joint assistance from the government and companies. That’s the way to the “fastest, most efficient route to financial inclusion,” he said. Beyond helping consumers create accounts, there needs to be assistance to ensure the accounts are used. Otherwise, the financially disenfranchised populations will continue to be isolated, he said.

“Financial inclusion must be inclusion into the existing banked world. Otherwise, we risk creating islands, where the unbanked transact with each other,” Banga said.

To highlight these points Banga made, GSMA’s report provides key stats to understanding how the mobile market has evolved and how close – or how far — we are from achieving Banga’s vision.

300 Million | Number of Mobile Money Accounts Registered Globally In 2014

The number of mobile money accounts in existence represent 8 percent of mobile connections where mobile money services are available, according to the report. The number of mobile money accounts has doubled from 2012 figures, but there’s still a gap.

“In 2014, seven new markets joined the ranks of countries where there are more mobile money accounts than bank accounts. 16 markets now hold this status, indicating that mobile money remains a key enabler of financial inclusion. … 75 million additional mobile money accounts were opened globally, bringing the total to 299 million at the end of December,” the report said.

103 Million | Active Mobile Money Accounts As Of December 2014

The gap between mobile money accounts that are open and actually active is still immense. The number of services continues to grow, but active users are lacking – begging the question as to why.

“The industry is getting smarter about what it takes to prompt mobile money adoption: active mobile money accounts stand at 103 million as of December 2014 and an increasing number of services are reaching scale. 21 services now have more than one million active accounts.”

2.3 Million | Number of Mobile Money Outlets Globally

2014 brought a 45.8 percent growth of mobile money agents. In a majority of the markets where mobile money is available, agent outlets are far more common than bank branches — as close as ten times more in 25 of the 89 markets. There are 255 mobile money services across 89 countries — and that number is expected to rise as smartphone adoption picks up. Mobile money is estimated to be available in 61 percent of developing markets, according to GSMA.

As the report highlights, customers rely on two channel to access mobile money services: “The first is the network of physical access points where customers can typically deposit cash in to, or take cash out of, their mobile money account – these access points are primarily agent outlets. The second is the technical access channel – the interface which customers use to initiate transfers and payments directly on their mobile handsets. In this section, we discuss the evolution of these two access channels and highlight innovations that are transforming how customers access mobile money services.”

54 | Number Of Developing Countries Without A Live Mobile Money Service

Of the percentage of merchants that have mobile money services, only 25.4 percent are active. Merchant payments are on the rise, the report said, which shows a positive trend, but the mobile money is still challenged by the fact that it’s not serving a number of developing regions. GSMA states that as regulators realize the value mobile money has on enabling financial inclusion, framework is being created to help banks and non-traditional financial services get into the mobile money market. Still, only 47 of 89 markets where mobile money services exist allow for such measures.

Still these statistics show the gap: “Just 13 of the 54 developing markets where mobile money services are not yet available have a population of over 10 million. 14 launches are planned in these 13 markets, indicating a high level of interest from mobile money providers. However, in most of these countries, the regulatory approach appears to be slowing down the launch of services.”

The benefits are clear for increasing mobile money use, and the GSMA report cites a survey that shows the median costs of sending mobile money is less (on average) than half the cost of sending money internationally through traditional money transfers. The barriers cited as preventing the growth on the mobile money industry include low levels of interest and not high enough industry collaboration for the mobile money market to reach true scale. Mobile money providers are working to shift the paradigm, but it’s a process reliant on partnerships and third-party sources to help develop the industry, GSMA said.

16.3 billion | Transaction Volume Sent Via Mobile Money

That $16.3 billion came from 717.2 million transactions.

Until 2014, according to the report, international remittances made through mobile money had “relatively little traction,” but that changed as regulatory barriers loosened and action was taken to enable more cross-border money transfers. More recently, however, more cross-border mobile money remittance services using mobile money through direct account transfers have allowed the international remittances market to grow. International remittances through mobile money in Africa accounted for the largest percentage growth in the market in 2014.

“While growth in 2014 took place across all regions, the uptake was particularly significant in West Africa, which accounts for 37.9 percent of international remittances via mobile money globally,” the report said. “This success is primarily driven by the introduction of cross-border mobile money remittances by mobile operators in the region, allowing users to initiate and receive funds directly to and from their mobile money accounts.”

According to GSMA’s report, a majority of mobile money transactions come from six areas: domestic P2P transfer, international transfer, airtime top-up, bill payment, bulk disbursement and merchant payment. From that, domestic P2P transfers led in terms of transaction volume, but in 2014 there was strong growth across bulk disbursements, bill and merchant payments, which GSMA said indicates the rapidly growing nature of the mobile money ecosystem. While international remittances made through mobile money is still only a drop in the overall global payments bucket, the report suggests the international remittances via mobile money was the the fastest growing among mobile transaction types in 2014.

“Despite representing a still relatively small portion of the global product mix, international remittances via mobile money was the fastest growing product in 2014,” the report said. “Mobile money remittances are expanding to allow users of different networks to transact with each other more directly. This expansion is happening both domestically, beyond the provider’s own network through interconnection with other mobile money services, and internationally, through increased partnerships, either within operator groups or with other operators, to enable cross-border mobile money remittances.”