Scaling Mobile Money: The Absence of Banks
By Dr. Ignacio Mas
About 2.5 billion adults need access to essential financial services, which banks must meet. Banks are unavailable as they find operating in poor and rural areas unprofitable. There are only two bank branches and 1.3 ATMs per 100,000 people in the poorest quintile, compared to 33 branches and 67 ATMs in the wealthiest quintile. It drives poor households to rely on risky and expensive informal financial tools.
Changing Retail Banking Economics
Banks, mobile operators, and payment providers are exploring branchless banking models to reduce costs by moving small transactions to local retail shops. Mobile money leverages existing infrastructure to convert cash into electronic value, allowing customers to transact securely.
Mobile money changes retail banking economics by:
1. Using local retail and telecommunications networks to reach unbanked populations.
2. Converting fixed costs into variable costs lowers the revenue needed for operations.
3. Adopting usage-based revenue models that cater to poorer customers.
4. Expanding financial possibilities for users, enabling remote payments.
Speed to Scale
Mobile money systems struggle to scale due to:
1. Network Effects: The value increases with more users, complicating early adoption.
2. Chicken-and-Egg Trap: Attracting both customers and merchants is challenging.
3. Trust Issues: Customers must feel secure using non-bank outlets for transactions.
These challenges become advantages once critical mass is reached, encouraging more users and merchants.
Ensuring Consistent Customer Experience
Mobile money schemes must develop a strong distribution channel to ensure access to cash and electronic money. It includes recruiting and training retail outlets and effectively managing cash and e-money.
Concluding Thoughts: Getting to Critical Mass
To avoid the sub-scale trap, scheme promoters should invest significantly in marketing, merchant commissions, and training after technical trials. It will help overcome barriers like network effects, the chicken-and-egg dilemma, and trust issues, enabling successful payment systems to flourish.
Sourced and extracted from Scaling mobile money – By Ignacio Mas.
