80% of African population are unbanked. Only 2% of retail transactions in Africa are electronic. The remaining transactions are taking place in cash. Even in major European economies, cash transactions range from approx. 40% in France to 90% in Italy and cash is still dominant in Germany, USA or Japan. So why has mobile money developed tremendously in emerging countries?
Use cases of mobile money
For defined use cases mobile money has skipped the hurdle of being a proven and reliable technology for money transfers over transport distances and for storage. Remittance services from cities with work to rural areas where the families live, is the original use case. In this point mobile payment is cheap and overruns traditional bank transfers. Above all, existing banking systems offer unaffordable services and low accessibility in branches or through ATM networks, especially in rural areas. Mobile payment is an alternative for all kind of banking transfer or cheque usage. Cross-boarder remittances of immigrant workers or economical refugees home to their families in Africa is the next stage, if the infrastructure in both countries exists and overcomes proprietary services by standards and multi-vendor applications. Nevertheless, all this explains the high transaction value for mobile payments in Africa, which shows the example of M-Pesa. The average M-Pesa transaction value is currently USD 29. This is a lot if a household lives from less than USD 5 per day.
Point of connection between mobile money and cash
The backbone of mobile money systems in emerging countries is the extensive agent network, operating as telecom shops, internet cafes, kiosks, gas stations, etc. In the agent's store the users exchange banknotes in mobile money and withdraw cash from their mobile wallets. Via the mobile phones enabled with the corresponding mobile wallet applications, the users initiate the data exchange and consumer transaction.
In Nigeria for example, the banking network counts 1’000s of bank branches and ATMs vs. 10'000s of mobile money agents, a competitive advantage of agents to be accessible for customers. But the same customers are not able to do mobile payments for goods and services at the major group of 100’000s of small and mid-sized merchants. This group is still accepting cash only. They are not yet connected to cards or mobile money settlement mechanism. So currently the last mile for retail payment is still in cash.
In Africa mobile network agents closing indeed the gap of wide-mashed banking networks, but the agents and the complete group of merchants remain with the task for cash handling and storage including fraud and robberies. Further use cases for mobile money are not successful without correlation with existing and improved cash infrastructures in the region.
Conclusion for economic development
- An efficient, reliable and secured cash cycle is the driver for regional economy due to high and trusted cash acceptance. The development and further deployment of mobile money is not possible without organizing an efficient cash supply chain for agent networks. The agent networks operate indeed at lower costs than bank networks, but with higher transaction volumes in agent stores, they will be confronted with security risks to store and handle cash.
- Mobile connectivity to ATMs will be the next step of development that consumers can use a mobile phone to withdraw or deposit cash from an ATM with their preferred mobile application. This would be a new service of banks or ATM providers for un- and underbanked consumers using their mobile wallets or prepaid accounts. Allowing all customers using mobile transactions at ATMs, would introduce them to personalized experiences at the ATM with additional benefits, e.g. time savings to find an ATM via GPS technology in a smart phone, time savings in authorization, no card skimming and an increase in loyalty. So mobile cash access has the potential to replace the plastic credit and debit card with mobile wallets. Furthermore the banknotes can be stored securely in ATMs - independent from opening hours of bank branches - with remote monitoring and professional cash replenishment services.
- Retail stores and one-person bank branches equipped with versatile ATM, lower the operational cash cycle costs. The deployment of new ATM locations into smaller cities and towns is feasible. The increasing ATM infrastructure offers that way payment and banking services to customers and to smaller merchants. So retailers and mobile agents can profit from a closer channel of cash supply, especially in rural areas. The improved cash infrastructure enables the merchants to be more efficient and to invest in GSM-conneted POS terminals to sell prepaid products, e.g. airtime or utility payments. A first step to full mobile payments at small merchant stores.
The challenge of each mobile money ecosystem is to reach the cost level of cash at each point within the cash cycle. This is valid for Africa, Europe and globally. A reliable cash cycle drives an economy with the side-effect to reach economics of scale for new technologies and standards, also for mobile money. Up to this point, cash has a better value proposition, especially for daily payments at merchants.
Do you want to know more about strategies to optimize cash cycle at the edge to mobile money, please contact us.
atmmarketplace.com, various articles 2015; betterplace-lab.org, trend report 2015; Frankfurter Allgemeine Zeitung; MasterCard; paymentsafrica.com, various articles in 2015; World Bank reports 2012-2015.