Mobile Financial Services: Golden Goose or Red Herring?

The Global Assets Project has written extensively about and convened experts to discuss the continuing gap between the hype behind the potential of mobile phones to revolutionize international development efforts and their actual impact on the ground. A new report from the World Economic Forum, “The Role of Government in Advancing Adoption of Mobile Financial Services,” highlights the prominence of this gap, though the paper’s authors see it as a powerful opportunity.

The reason that Mobile Financial Services (MFS) have generated “considerable enthusiasm in the developing world,” the report reads, is that “for the nearly 2.5 billion unbanked individuals worldwide, mobile technologies offer a way to access banking services that have historically been unavailable to them.” At the same time, despite a number of technological advances and increases in mobile penetration, the report concedes that “examples of MFS success are rare.”

Why? The report lists a variety of compelling reasons, including:

1. Only four countries (Tanzania, Kenya, Ghana and the Philippines) have achieved ‘high’ adoption rates of Mobile Financial Services, where ‘high’ is defined as being adopted by 10% or more of the adult population.
2. The dynamics of MFS development are extremely complex, and require a complex and delicate balance, along with coordinated action among a number of stakeholders. Yet players often have different vested interests that undermine the consensus.
3. A lack of supporting distribution infrastructure, trust in a provider’s brand and endorsement from relevant peers. As much as mobile finance opportunity is enabled through technology, it is supported and sustained by end users, trusted local agents and a consistent user experience.

After detailing the challenges of MFS, the rest of the report analyzes how government can do more to overcome them. On face, this may seem justified by the “$100 billion per annum” it believes governments of developing nations can realize in economic benefits, primary through decreased leakage in G2P payments. However, what’s unclear is why governments must use MFS to plug leakages when other electronic methods could serve the same purpose. For instance, Brazil reduced the administrative costs of its Bolsa Famlia program from 14.7% to 2.6% when it switched to electronic benefit cards.

If other options are open to governments to reap the benefits of electronic payments, is a fixation on mobile financial services justified? Proponents of government investment in telecom infrastructure rightly point out that mobiles, in addition to potentially providing financial services, can also serve as useful tools in agriculture, health and retail. At the same time, those who simply want to get money to the poorest of the poor as quickly and effectively as possible may believe that investments in mobile infrastructure could be better spent elsewhere if other platforms can serve the same purpose. Mobile phones certainly have captured the imagination of the development community, and time will tell if they can deliver on their promise.