Home Mobile Financial Solutions Mobile Money Services : Putting micro savings back into focus

One of the fascinating trends to emerge in the last few years has been the role of mobile money services in mobilizing micro savings from the unbanked and underbanked segments of the population. This has filled the many white spaces left by the formal channels of mobilization, which were unable to cater to this segment due to the many structural as well as economic challenges.

The biggest roadblock for mobilizing micro savings has been the banking infrastructure which is lacking in many developing countries. In most of these countries, banks have concentrated their business around urban centres, leaving the rural customer chronically unbanked or under-banked. Also, banks have imposed stringent KYC norms for opening new accounts, including filing income statement, identity and residential proof, which creates a barrier to mass adoption. Potential users are also put off by maintenance charges, low rates of interest and minimum balance requirements. Last, but not the least, is the “trust deficit” in the banking segment. In developing countries, public’s perception of banks is very poor, explaining their faith in traditional savings group.

While the proliferation of mobile has certainly helped, it is not the single most defining reason behind the success of mobile money services. Mobile money has succeeded, where the formal channels of micro saving mobilization have failed because it has worked around the limitations of the formal channels through fresh and innovative means.  For example, a new mobile money account can now be created with “zero documentation” by tying it with user’s mobile money service.  Moreover, unlike opening a new bank account, where one has to be physically present at the bank’s premises, mobile savings account can be opened at any location, using mobile’s USSD/App/IVR. Similarly, by doing away with maintenance charges, minimum account threshold levels, there’s now an added incentive. For lower income families or groups, maintenance charge constitutes a major portion of household expenses which dis-incentivizes savings.

Mobile money services can waive off account maintenance charges because of their low cost of acquiring customers and day to day expenses. Also, unlike the banks, who pay out interest only if the account balance is at a minimum threshold level, mobile money operators pay out interest on any available balance,  generating an additional source of income for the user.

Mobile money has received widespread acceptance in developing as well as developed economies. According to a report, mobile money is active in 93 countries, serving 411 million users and 33 million transactions every day. 19 markets have more mobile money accounts than bank accounts. However, there is more to be done.

In order to deliver on mobile money’s promise, the industry must invest in a broader ecosystem by branching out into new products and services like microloans, savings club, micro-insurance etc. For example, mobile money platforms can be used to create group based mobile savings club. The club can be initiated on the mobile itself and withdrawals authorised by multiple SMSs. The participants can contribute to the pooled account using the mobile USSD/Web/App interface. Similarly, mobile money micro loan services can offer loan amounts against the individual’s mobile usage and credit history. Innovations like these are expected to take mobile money services to the next level.

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