“Digitalization has deepened the access and scale of financial services”

Rapid mobile phone penetration coupled with technology innovations has made it accessible and affordable to conduct financial transactions. The advent of mobile network operators (MNOs), payment service providers (PSPs), merchant aggregators, retailers, FinTech companies, neo-banks, and super platforms has led to a phenomenal transformation of the financial ecosystem. Even banks have undergone a major change from an emphasis on ‘branch banking’ or ‘business correspondent banking’ to ‘branchless’ offerings that are digital, simpler, accessible and affordable to drive adoption and usage.

Growing mobile infrastructure has not only captured our everyday lives but has become an integral part of financial accessibility as well. The range of financial transactions that one can perform by simply using mobile phones has expanded by leaps and bounds – from basic services such as P2P transfers, balance enquiry, etc. to more specialized services like making utility bills payments, e-commerce transactions, domestic & international remittances, mobile lending, savings, insurance and much more.

Globally, 64% of the population makes payments through their mobile phones, 39% have installed a mobile wallet application, and make payments once a week or more using a paid service. In terms of value, mobile payments generated worldwide revenues of USD 450 million in 2015 and are expected to surpass USD 1 trillion by 2020.

What could possibly be the reasons for such unprecedented growth?

The answer lies in one word – M.O.B.I.L.E. (Mobile Operated Banking Innovation Leading to Explosion).

One can very well imagine the scale of explosion by reviewing the following facts and figures:

  • 70% of the population with have a mobile phone by 2025
  • Two-thirds of the 2 billion unbanked population have a mobile phone
  • More than 50% of India’s unbanked population of 190 million (second only to China) have a mobile phone (with cheapest 3G/4G data plans)
  • 97% mobile penetration in Sub-Saharan Africa countries (Burkina Faso, Chad, Côte d’Ivoire, Gabon, Kenya, Mali, Senegal, Tanzania, Uganda, and Zimbabwe) leading to higher mobile money ownership than formal bank account ownership
  • The exponential rise in the population using mobile and digital wallets in countries such as China, Norway, the UK, Japan, and Colombia

The impeccable role of mobile phones in achieving greater financial inclusion cannot be overlooked. The potential of digital technology in expanding financial access and usage is evident from the World Bank’s Global Findex 2017 report, which revealed that 515 million adults have become financially included since 2014. Most of this growth owing to the mobile and internet banking revolution, especially in Sub-Saharan Africa where 21% of the population now have a mobile money account – nearly twice as compared to 2014.

Taking cues from the African growth story, countries across the globe are investing in strengthening their mobile infrastructure to ensure maximum connectivity and reach of their mobile money platforms. In this context, China has emerged as one of the fintech innovators. Digital payments in China have risen to 70% mainly due to the growth of secure, affordable, and convenient nonbank payment providers. The country’s very own multi-purpose app, WeChat Pay is the World’s biggest mobile payment platform with 1bn+ users (2019).

In India, government initiatives such as BHIM, UPI, and Bharat QR have channelized mobile payments and have gained wider acceptance. Lack of identification can often act as a barrier for digital payments and financial inclusion. To overcome this, the government launched DigiLocker, a cloud-based platform that provides citizens with a secure electronic space for personal documents, including identification, as well as an electronic consent system. This has not only strengthened the ecosystem but has also created the much-needed push for the adoption of digital payments.

Yet another example is that of Brazil, where the low cost of digital payments has spurred their adoption, thereby promoting financial access and inclusion. Since 2014, the share of account owners using the internet to pay bills or buy things has more than doubled, hence overcoming the barrier of ‘too expensive’ financial services in the region.

Mobile banking provides ease of use. It is simple, and user-friendly. People, even the unbanked, can easily make purchases, utility bill payments or send remittances across borders using their mobile money platforms. Banking is faster, and just a matter of a few clicks

Mobile-banking model is far more cost-effective and sustainable than the traditional banking model. According to a study by Xoom, on an average digital remittance cost, approximately 3.93% of the amount sent, much lower than the average cost of sending remittance through other channels, which stand at an average 7.42% (of the amount remitted). In fact, digital remittances are soon expected to achieve the UN Sustainable Development Goal of lowering remittances costs to less than 3%.

In addition to overcoming the barriers of physical access, cost, and sustainability, mobile banking is helping improve the access to credit by deploying alternate credit scoring mechanisms build on digital transformational technologies such as big data, AI and analytics. Many mobile lending services such as M-Shwari, Orange Money, Branch, Tala, OneFi, Mines.io, Jumo, and many others are making it simpler and convenient for the financially excluded to avail a loan. Mobile lending is quite promising as it considers a multitude of ‘logical’ factors beyond the traditional credit assessment.

Mobile-based financial services hold the key to universal financial access and inclusion (including the rural, agricultural, and even women), providing access to information, transparency, and triggering the growth of a well-targeted and efficient financial ecosystem through innovative use of technology.

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