“Access to financial services is no longer measured by a bank account, it even incorporates a mobile money account”
Let’s rewind and picture this, a world of knowns, and the traditional way of banking. The access to financial services was dependent on the sheer number of bank branches and ATMs. In terms of numbers, this meant that approx. 2.5 billion people did not have a bank account in 2008. Interestingly, approximately 2.12 billion or 85% of the unbanked were spread across Asia, Africa and Latin America – the not-so-developed world.
Unwind to the new age digital banking that allows access to financial services at merely a push of a button. Built on robust mobile technology, these m-banks have been far more successful than the brick and mortar banks in extending the financial inclusion net. As per World Bank, the number of people with access to financial services has risen globally at 69% to reach 3.8 billion in 2017.
The not-so-developed world has leapfrogged this transformation by creating success stories for others to follow. Africa is considered as the world-leader with highest number of mobile-money transactions carried out in 2017 followed by Asia and Latin America. There were around 121.9 million active mobile-money accounts in Africa, 90 million in Asia and 11.5 million in LATAM and Caribbean.
Mobile financial services extend far beyond the traditional cash-in and cash-out transactions, P2P transfers and domestic remittances. It is now seen, perceived and deployed as an innovative tool that includes more robust offerings to facilitate bill payments, bulk disbursements and much more. Mobile technologies have made financial transactions simple, inexpensive, less time-consuming and yet more rewarding. It is overwhelming to see how you, me and the world together can use our smartphones to do online shopping, make payments, investments, real-time remittances, wealth management and much more…the possibilities are abundant.
Leading the pack is Safaricom’s M-PESA, a money transfer, financing and microfinancing service, introduced in Kenya way back in 2007 that surpassed the need to visit a physical bank branch. In Kenya, M-PESA was up to 30% to 50% less expensive as alternative systems. Consequently, by 2015, nearly 80% of Kenyans possessed either a bank or a mobile money account. Today M-PESA has become a rage with other African countries as well. In 2018, M-PESA users in other African countries reached 13.4 million mark.
“Financial inclusion in the digital era is thriving on innovative mobile technologies that have made banking easily accessible, affordable, convenient, cheaper, easy to use and secure”
Yet another revolution is the growth of mobile-lending offerings especially in Africa. While Banks often refuse loans due to their inability to assess creditworthiness of an applicant, the mobile based applications such as M-Shwari are rapidly closing the gap. M-Shwari is a mobile wallet from Safaricom that allows people to deposit funds, earn interest and borrow money through their phones. The application is used for transactions ranging from sending money to far-away relatives to paying utility bills or even school fees. Users can easily access micro credit product (loan) of a minimum of KSHs.100 up to KSHs 50,000 any time and receive loan instantly on their M-PESA account charged at a facility fee of 7.5% (much lower than other banks). The KCB M-PESA collaboration has facilitated loan disbursement of up to Ks4,000 (USD 40) with a default rate of just 2%. Borrowers who were previously denied loans due to low-credit worthiness have significantly benefited through this collaboration. Today, all they need is a mobile device with M-PESA!
Credit assessment and evaluation is the pre-cursor to any form of lending – big or small. But how do we do this without an accurate credit-scoring model. This is where technologies such as analytics, big data and blockchain are being increasingly leveraged to develop credit scores and provide quick loan disbursal to the end-users. Instead of indulging in laborious paperwork, customers can easily finance their purchases through their m-wallets. The process is as simple as doing online shopping with an automated ‘refill option’ if your wallet falls short of cash. A variety of factors such as loyalty to telco, spending patterns (P2P transfers, utility payments, etc.), mobility features (travel, events attended, etc.), repayment history (no. of defaults, previous loans, etc.), social and professional factors, and financial consistency are assessed on a robust platform to assign a credit limit. Any amount equivalent or less than the assigned credit limit can be availed without submitting any collaterals, and is just a matter of a few seconds. You think, and phew you have it. Taking a loan was never a click away!
By using e-payments, mobile connectivity, and technology to transform lengthy, expensive processes into self-managed or automated systems, the new breed of payments service providers/start-ups have significantly expanded access and reduced costs.
Mobile-lending is a promising aspect of modern mobile financial service that helps address the financial needs of a large part of the population that is invariably left outside the purview of the formal banking system. With global population of 3.7 billion having access to mobile and internet, mobile fintech companies can successfully provide a platform to the unbanked to engage in savings, transfers, borrowings and re-payments.