As the digitisation of money continues, global attention on mobile money keeps growing. More companies are showing interest in it through direct investment and involvement or by indirectly by leveraging its convenience. Corporate entities are not the only ones interested in mobile money, with more individuals taking advantage of it too. As the demand and attention on mobile money grows, the factors and trends driving this industry will shift too. As a result, it’s important to determine and analyse these trends accurately.
Customer Experience is in Focus
Convenience is a key feature in mobile money. This alone has transformed the way people perceive and handle money. With the widespread use of technologies like mobile wallets and diversification of mobile payment systems, the growth of the mobile money industry seems to be unstoppable. In 2016, the value of mobile payment transactions was around $16 billion yet it is expected to reach $275 billion by the end of 2021. This is a yearly growth rate of 62%. Customer experience seems to be the driving force behind this growth, as mobile money technologies offer convenience and ease of use.
Customers are not the only ones taking advantage of the ease of use when it comes to mobile money. Companies and corporations are joining in too and using mobile money for bill payments and bulk disbursements. In 2018, the annual growth rate of bulk disbursements was 29%. In the same year, the share of bill payments grew by41%.
Bill payments are also a good way to digitise government payments while increasing revenue. In 2018, 17% of bill payments seem to be directed to government agencies, which indicates considerable activity in that area while revealing very high untapped potential.
The players in the mobile money industry tend to be dynamic and cooperative, which brings very high interoperability to the business. Different mobile money providers, operators and financial system players continue to increase, offering more and more options for customers. Specifically, the interoperability between mobile money operators and banks plays an important role in closing the gap between banking and nonbanking populations.
Mobile money-to-bank account interoperability has reached approximately 47% in 2018, which means an average mobile money operator is connected to 10 banks. This increase is a key factor in the growing amount of volume moving between banks and mobile money operators. This is also an indicator that mobile money is maturing and evolving into a multi-facade financial ecosystem.
The prevalence of smartphones and mobile money’s versatility and compatibility with such devices also plays a role in these growing amounts and ratios. By the end of 2018, global smartphone adoption had already reached 60% and is anticipated to reach 79% by the end of 2025. This means 79% of the whole world population is an untapped customer pool for mobile money operators.
As mobile money operators continue to diversify their services and go beyond digital wallets, we predict mobile financial solutions will offer even more convenience for customers. With the increasing interoperability between mobile money operators and banks, mobile money operators seem to have a clear advantage, especially amongst unbanked populations.
Diversification of the Mobile Financial Services Ecosystem
One of the fastest regions to adopt mobile financial services is Asia, specifically South Asia. The region shows a rapid increase in the number of adults who own a mobile money account. In fact, between 2013 and 2018, the compound annual growth rate (CAGR) was 63%.
This increase has attracted the attention of non-financial players too. In 2018, many non-finance companies invested in mobile payments, mobile financial services and mobile wallet service companies in order to access these markets. These investments and acquisitions are indicators of great potential, while also signalling that the competition is about to become a lot tougher.
These new players not only brought in an immense amount of additional funding, but they also instigated the further diversification of services including transportation, food, medical and financial services. As one of the biggest companies in the Asia region, Alipay has initiated partnerships with more than 200 financial institutions and offers more than 2,500 mutual investment funds.
With the diversification of the ecosystem, it’s obvious that the competition will increase but competition usually benefits the end-user, or in other words, the customer. Increasing competition may also force companies to innovate and offer more value to the customer, which may also increase the expansion and growth of the industry as a whole.
Maintaining Balance Between Regulations and Innovation
Regulations are always a topic of discussion in the finance industry due to their immense influence on the industry’s entire structure. While sometimes regulations can be strict and bring a whole industry into a stalemate, their existence does provide a measure of trust and a sense of security.
While no government is purposely aiming to restrict the activities or growth of mobile money operators, this can sometimes be the unintended consequence, particularly with hardline government initiatives around financial terrorism and money laundering.
In 2018, the bulk of the regulations concerning the mobile money industry focused on five main topics: taxation, Know Your Customer (KYC) requirements, cross-border remittances, national financial inclusion strategies, and data regulation.
In some regions like sub-Saharan Africa, mobile money operators are already subject to the highest taxes. While time will tell if this initiative will be limited to the region, unfairly high taxation may cripple the industry by eliminating one of its biggest advantages: decreased costs of financial operations and processes.
Taxation is a process that must be tread across lightly, not only because of the cost issue but also because the cost of operations directly affects the accessibility and availability of services to customers.
Know Your Customer (KYC) processes are as crucial for mobile money operators as they are for every other player in the finance industry. However, the KYC requirements imposed on mobile money operators may eventually cripple them. Mobile money operators are struggling to overcome these strict regulation requirements by either simplifying customer onboarding or using digital IDs to enable electronic KYC (e-KYC). The first approach focuses on expanding the customer pool at the expense of the operators’ own risk. The second depends on the innovation capabilities of ID verification technologies, such as queryable digital ID systems and biometric authenticators. Some governments are supportive of these systems, with Kenya already using ID systems offering e-KYC.
The ease of cross-border payments and international money transfers is perceived as a road leading to a more fair distribution of wealth through trade. In 2018, the volume of cross-border operations through mobile money has been approximately $4.3 billion. But regulations still pose a barrier to the industry’s fast expansion. In the case of international money transfers, multiple governments are involved in the process, making it harder to overcome these restricting factors. It seems as though standardisation and consensus need to be achieved between governments and regulating bodies in order to encourage competition and industry growth, while also unlocking the full potential of mobile money for international remittances.
Customer data provides an important opportunity for mobile money operators to diversify and improve their services and profitability. However, as more and more aspects of finance, trade and individual life transitions into the digital world, data protection regulations are becoming stricter.
Data security is crucial for mobile money operators since they are perceived as “technology companies” by the end-user and they mainly interact with their clients digitally. Often, clients consent to vast amounts of their data to be collected anonymously in exchange for optimised and personalised services. This consent may fuel a greater negative reaction from customers in the event of a data breach or data misconduct. This creates a challenge for operators. On one hand, there is a need for very strict data security; on the other hand, there is a requirement to innovate and collaborate with other players in the finance industry such as banks and fellow operators. They must maintain a balance between these vital requirements while pushing their innovation and expansion capabilities.
Expanding the Value Proposition
According to a GSMA report, mobile money operators maintain a 24% average growth rate but 80% of their income derives from customer fees. This is one of the main reasons they struggle to improve their value proposition to keep up with the changing demands of individuals and small businesses. So far, they seem to be acting as a mediator between the end-user and third-party services that are dispersed over a wide variety of industries.
Their agility and innovative nature may help them to overcome this problem, while their willingness to cooperate and even integrate with each other and players from other industries may inspire them to strengthen or expand their value proposition. Anything else may result in mobile money operators cementing their status as mediators, bringing the expansion of the industry to a halt.
Current indicators show that mobile money operators are doing their best to evade such a fate and are pushing innovation to break the status quo.
Mobile money operators have great potential and a bright future ahead of them. However, the road to that future is not without danger. Although the industry is rapidly growing, it’s still not on solid ground and the accumulation of small mistakes or carelessly implemented strategies may have a ripple effect on the whole industry. Obviously, these mistakes are not likely to direct the industry to its own demise but they can withhold it from reaching its full potential. That’s why it’s more important than ever to read these trends and act accordingly now, in order to create a promising future.