Mobile money is still in its nascent stage, as only four years ago there were less than 20 m-money deployments globally. Since 2009, this number has grown to 150 live m-money services targeting the unbanked, with 41 launched in 2012 alone. Active users of m-money services performed millions of transactions totaling $4.6 billion during June 2012, and usage continues to grow.[1, page 1] But amid this rapid growth, has m-money had a significant impact on financial inclusion in emerging markets, or is it falling short of its promise?

While Adoption Grows, Activation Stalls

Of about 82 million registered users globally, only about 37 percent are “active” users, or those who used their accounts to perform at least one m-money transaction over a three to six month period of time, according to the GSMA State of the Industry report published in early 2013. The report further shows that customer activation rates varied between 0.3 percent and 79.4 percent among all m-money deployments globally, with the majority of deployments having an active rate of less than 25 percent, and cumulative activation rates lowest in West Africa and East Africa.[2, page 17]

While customer registration is an important part of the m-money puzzle, the benefits for financial inclusion and socioeconomic development come when unbanked individuals actively use these platforms, transitioning their everyday transactions from cash to electronic money. This shift opens up important opportunities to build a financial track record, develop credit and save money, among other tangential benefits.

Spurring active use of m-money has posed a challenge for many service providers, and innovators are increasingly developing solutions to address this problem. In the Philippines, a bank-led initiative showed that m-money customers became much more active when they received part or all of their salary via their mobile devices.  According to a blog post by m-money specialist John Owens: “Linking a mobile money to a bank account as well as offering and educating clients about relevant use cases helps to promote active users.” Governments can also play a role in spurring active use of m-money, by shifting internal payment systems to mobile channels, as illustrated in this Mondato newsletter. Further, enhancing interoperability among m-money platforms may be key to encouraging a “network effect” which will enhance active usage across all platforms in a market.

One caveat to be noted in the discussion about registered vs. active m-money users is that sometimes statistics regarding customer activation can be misleading – and these rates must therefore be interpreted carefully. Many times, discrepancies between registered and active users simply reflect the registration strategy undertaken (for example, automatically signing people up for m-money when they register for a SIM), rather than the actual success of the platform.[3, page 17]

Rocky Transition from Unbanked to Banked

Even in contexts where individuals are actively using their m-money accounts, is this having a tangible impact on financial inclusion and broader socioeconomic development? How has m-money created a smooth transition from the informal, unbanked world into the formal financial sector? In many contexts, this transition is still rocky, with m-money platforms operating as insular, “closed loop” systems, which can prevent unbanked users from accessing the formal financial services ecosystem.[4] According to  a World Bank blog post: “In the closed loop m-money environment that we know today, the impact of m-money services on financial inclusion is marginal, as a wide range of payment and financial services are not possible.”

Given the siloed nature of many m-money platforms, these services are often perceived as merely tools for peer-to-peer (P2P) transactions, with many uninterested or unaware of the potential to use m-money platforms to fill other financial needs. Research conducted by InterMedia in Tanzania, for instance, showed that m-money users primarily view the service as a means to transfer cash among friends or relatives, with only one in five believing that m-money can be used for other reasons, such as saving money, purchasing insurance products, or paying bills.[5, page 14] A similar study conducted by Financial Sector Deepening in Kenya showed that the majority of m-money transactions were for sending or receiving funds from friends or relatives, with only 14 percent responding that they had used m-money to send money for other purposes.[6, page 3]

The emergence of electronic money transferred via mobile phones has become an important tool for bringing P2P payment services to unbanked populations in emerging markets. According to a white paper published by Kalypton, however: “it has largely failed to provide the unbanked with access to a wider range of financial service products that they want and need.”[7, page 9]

Does M-Money Reach Those Who Need It Most?

In many cases, even where m-money flourishes, it has failed to reach the poorest of the poor. Filling this gap would be necessary to make a significant impact on global financial inclusion, as this population segment comprises the majority of unbanked individuals globally. A study conducted by CMG-IFMR in India, for instance, concluded that despite the immense potential of m-money to promote financial inclusion in India, very little effort has been made by the Reserve Bank of India or other banks to promote m-money among low-income clients (though MNO-led initiatives, in partnership with banks, have attempted to fill this void).[8]

In Tanzania, the InterMedia study showed that the rate of m-money use is highest among urban and banked households, as well as households living above the poverty line.[9, page 9] According to the FSD study in Kenya, banks and m-money providers will need to increasingly develop services that cater specifically to low-income customers if they are to succeed, meeting the complex financial needs of low-income, unbanked customers.[10] This holds true for other underserved cross-sections of the population, including rural customers and women, who are often excluded from formal financial services, as we have written about in previous Mondato newsletters.

Does “Financial Inclusion” Mean Success?

While the connection between m-money and financial inclusion has been well documented, these issues show that challenges remain in achieving effective m-money platforms. But perhaps, the value of m-money is not in achieving holistic financial inclusion, but in other benefits reaped by engaging unbanked individuals in mobile money systems.

According to David Porteous, in a recent Guardian blog post, “Financial inclusion is only ever a means, not an end. People don’t want credit: they want what credit will buy them – a house, a business a car, an education.” In this context, while m-money may not yet be meeting its promise in terms of achieving narrowly-defined “financial inclusion,” perhaps it has made a valuable impact in other spheres, from women’s empowerment to “enabling, supporting and resourcing familial and other social networks.”

In a recent interview, Porteous further explained that while we are seeing the “first fruits” of m-money benefits, the “harvest” has yet to come in – and the path towards m-money meeting its promise may be a lot longer than some people would hope. Reaching scale will require addressing the issues laid out above, including offering value-added financial services, ensuring that registered users are actively using the platforms, and broadening reach to low-income and other underserved communities. Until then, its usefulness for achieving financial inclusion or other development goals will be peripheral at best.