Nº 9 2013 > Technology Watch

The mobile money revolution
Serving the unbanked

The mobile money revolution  Serving the unbankedThe mobile money revolution  Serving the unbanked

Globally, more than 2.5 billion adults — most of them in developing economies — do not have a formal bank account. Low levels of financial inclusion are a barrier to socio-economic development, so mobile money can be a game changer for the poor.

This article considers innovations driving mobile money transfer applications in developing countries, and how the spread of mobile money is contributing to financial inclusion. The article is based on “The Mobile Money Revolution. Part 2: Financial Inclusion Enabler,” a Technology Watch Report published by ITU’s Telecommunication Standardization Sector (ITU–T).

Bank or mobile phone?

Only 41 per cent of adults in developing countries have a formal bank account. In Africa, just 20 per cent of families have bank accounts. Why? The obvious reason is lack of money. Bank accounts are too expensive, banks are too far away (especially in rural areas), and people lack the right documents to open an account or simply do not trust banks. A growing number of people in remote areas are using innovative alternatives to traditional banking, made possible by the rapid spread of mobile phones

As the World Bank notes, in a large unbanked population, many people operate on a cash only basis. When faced with loss of income as a result of unemployment, or having to pay healthcare costs, people rely on networks of friends and family to provide money. Using informal methods to transfer money is risky and expensive. This, added to poorly developed transport systems, makes mobile money more appealing.

The recent growth of mobile money has allowed millions of people who are otherwise excluded from the formal financial system to transfer money cheaply securely and reliably.

Success in sub-Saharan Africa

Mobile money has achieved the broadest success in sub-Saharan Africa, where 16 per cent of adults report having used a mobile phone in the past 12 months to pay bills or send or receive money.

The most visible success is in Kenya, where transactions through the mobile banking service “M‑PESA” exceed USD 375 million each month and users save up to USD 3 in service charges on each transaction. Users not only send and receive money through M‑PESA, but also use the service for savings.

According to GSMA’s annual report, Mobile Money for the Unbanked 2012, there were 140 live mobile money transfer systems in place in low- and middle-income countries, targeting the unbanked.

Remittances and remote payments are the most common uses of mobile money in developing countries. For example, M‑PESA, which markets its service as “Send money home”, is used primarily for domestic remittances. In the Philippines, international remittances are more popular, with the service “Smart Padala” enabling overseas workers to send money to their relatives.

Consumers use mobile money where the service adds value, so differences in the rate of adopting mobile money services across markets are driven by what users regard as being of value. For instance, in Bangladesh, people may spend three to four hours travelling to banks and queuing to pay utility bills. Mobile payment is popular because it avoids work time loss.

Along with the technology, a well-developed agent network is essential for mobile money services to achieve scale. As well as providing cash-in and cash-out services, agents build trust for first-time users of formal financial services. The agents receive a commission for the work they do — converting cash into e‑money and vice versa.

Governments have started using mobile money transfer services to make salary and pension payments to citizens, and to collect revenues such as taxes. In Afghanistan policemen and other officials are paid their wages via “M‑PAISA”, a mobile money service. Tanzania accepts tax payments through mobile-money services. In countries such as India, mobile money is being used to deliver welfare or social aid payments.

Mobile money has also facilitated emergency responses. In Haiti, for example, following the 2010 earthquake, Voilà partnered with international aid agency Mercy Corps to provide virtual vouchers to victims through a cheap mobile phone loaded with an e‑wallet from Indonesia’s PT Telkomsel. Institutions such as the World Bank, GSMA and the Bill and Melinda Gates Foundation have initiated and are funding mobile money programmes for the unbanked.

Mobile money services involve both the telecommunication and financial services sectors. In order to protect consumers, regulators need to establish a level playing field for operators in both of these sectors.

Mobile money transfers

Mobile money transfers using mobile phones require senders to give the money to a remittance centre and pay a fee. The remittance centre then transfers the money electronically through the phone service provider to the recipient’s phone. In the case of international remittances, the person receiving the money gets a text message advising of the transfer. The recipient can go to any licensed outlet, including a retail store or restaurant, to get the money. The recipient may have to pay a fee to collect the money. In the case of domestic remittances, the transfer is handled automatically on the mobile money platform.

The mobile remittance industry is expanding thanks to the increased penetration of mobile phones in remote regions and the mushrooming of remittance service providers. According to the World Bank’s Migration Development Brief, remittance flows to developing countries were estimated to have reached USD 372 billion in 2011, and are expected to reach USD 467 billion by 2014. India and China rank highest as recipients of migrant remittances, to the tune of USD 64 billion and USD 62 billion respectively.

EKO in India provides financial services to non-banking customers. By connecting the telecommunication infrastructure to the bank’s core banking system, it provides a platform for low-cost micro-transactions. EKO hopes to tap a huge potential market in India, where three quarters of the country’s 1.25 billion people live on less than USD 2 a day. The Reserve Bank of India recently removed restrictions on agent exclusivity, so customers can now transact at customer service points of one bank even if their accounts are held at another bank. Such interoperability should mean greater efficiency and lower costs across the system.



Interoperability protects the customer and could be a factor in promoting financial inclusion. But these benefits are hard to achieve because the way interoperability works is complex.

At the technical level, decisions have to be taken on how to handle payment clearing and settlement between the different operators. In a country with just a few mobile payment operators, it might be possible to do this bilaterally or multilaterally. But as the number of operators increases, the relationships between them grow exponentially.

Governments have an important role in facilitating mobile money payments in order to promote financial inclusion. In emerging markets, interbank settlement systems, and often payment switches, are operated by a consortium of local banks which may not have the greatest incentive to see mobile payments take off.

Some countries allow interoperability without making it compulsory, an example being Pakistan’s many-to-many model, while others make no provision for it at all. And without being obliged to do so, operators have little incentive to make their services interoperable. Governments wishing to ensure interoperability may have to amend existing regulations.

GSMA’s global “Mobile Money for the Unbanked” initiative looks at interoperability of transfers at the level of an international multilateral hub, rather than at local level. Currently, there are bilateral agreements between mobile network operators and other members of the mobile money ecosystem. GSMA’s approach aims to replace these with a multilateral agreement. A multilateral model would enable operators to save on costs and resources. Each operator connected to a multilateral hub would then be able to send a remittance to any mobile phone user in the world on any other participating network without any additional negotiation or agreement.

Security matters

Mobile money transfer applications use various communication channels, some of which are not secure.
Short message service (SMS) is the most commonly used application in mobile money transfers in developing countries for low-value payments because it is simple to use and is compatible with a variety of phones including low-end devices. But SMS is not the ideal platform for making payments because messages travel and are stored on the mobile device in plain text without end-to-end encryption.

Unstructured supplementary service data (USSD) has the advantage of informing the user whether a message has reached the recipient or not. But the message is sent in plain text, as with SMS. South Africa’s WIZZIT mobile money transfer service uses USSD.

The SIM Application Toolkit (commonly referred to as STK) is a standard from GSM which has been used since 1998 to secure mobile phone applications, especially for mobile banking and privacy. A passcode or PIN is needed to access the application, and information is encrypted for wireless transfer. M‑PESA makes use of STK to secure the application.

Wireless Application Protocol (WAP)-based implementations, commonly used by banks, provide better security, because data are encrypted between the customer and the merchant or bank.


There are no common technology standards for mobile money transfer. Many different mobile phone devices and client- and server-based technologies are being used. Banks face a challenge in offering mobile banking on any type of device. The end user must be able to transfer money to anyone, even if the recipient is unbanked. But interoperability is becoming tougher with ever more complex banking transactions and the proliferation of smartphone apps for mobile money.

ITU–T Study Group 17 is the lead study group on telecommunication security. Its terms of reference include developing and maintaining security outreach material, coordination of security-related work, and identification of needs and assignment and prioritization of work to encourage timely development of telecommunication security recommendations. ITU–T Study Group 17 could investigate both security and interoperability under a new Question on mobile money security architectures.

A way forward

ITU could work towards developing a code of practice for regulators (especially in the developing world) with a view to creating a level playing field that will enable stakeholders to engage in mobile money services. As a first step, ITU could establish a Task Force on Mobile Money for Emerging Economies, including stakeholders such as GSMA, the World Bank, and the Bill and Melinda Gates Foundation, to discuss standards, technology for mobile payments, and regulations for mobile money.

ITU could also play an important role in facilitating the standardization of innovations in the area of mobile money in emerging economies, possibly by setting up an ITU–T Focus Group on Mobile Money.

“The Mobile Money Revolution. Part 2: Financial Inclusion Enabler,” is a Technology Watch report published by ITU–T in May 2013. Technology Watch reports assess new technologies with regard to existing standards inside and outside ITU–T and their likely impact on future standardization. This report, along with other Technology Watch reports, can be found at http://www.itu.int/techwatch.


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