It is no surprise to anyone that our world is slowly evolving to a cashless society, where we rely less on physical money to pay for goods and services. While all of that sounds great for people with access to bank accounts and credit cards, it’s not as clear-cut in the developing world. Yet even there, cash is slowly dying. How, you may ask? Let’s find out.
Cash and Card Payments are Not Convenient Enough
Taking into account that there are roughly 7 billion people on this planet, and 2 billion of us have no access to the modern banking and finance infrastructure, something will need to change drastically. Rather than following the same path as the Western world, where card payments are on the rise, unbanked nations are flocking to mobile money like there is no tomorrow.
“For millions of people in developing countries, their lives revolve around cash. People are often forced to save their cash under the mattress. These people use cash for all their transactions. They can only buy things from people close to them.” – Ismail Ahmed, WorldRemit CEO and Founder of DigitalMoneyTimes.
Cash is not the safest payment method in the history of mankind. Granted, it is convenient up to a certain level, assuming you dont mind the hassle of dealing with coins and change. Trouble arises when you are at a counter to pay for something, and there is not enough cash in your wallet. Most people will put back a few items to be able to pay, much to the chagrin of the people waiting in line behind you.
The same can be said for paying with a bank or credit card though. A customer can assume he or she has enough balance in his or her bank account to make the payment, when all of a sudden your card is rejected. Should that ever happen to you, hopefully you’ll have a bit of cash on hand to make the payment. But what about those people on this planet who would rather not use cash — for a variety of reasons — and have no access to bank accounts or credit cards?
Mobile money seems to be the answer in unbanked regions, as most people in those parts of the world have a cheap smartphone at their disposal. In most cases, these mobile phones are used by people in order to access some form of financial services for the very first time in their lives.
Turning a Mobile Phone Number into a Bank Account
Rather than setting up an entirely new financial infrastructure in unbanked regions, mobile phone numbers will act as mobile bank accounts. By the end of 2014, over 103 million active mobile bank accounts were noted, a number more than triple the amount of mobile bank accounts noted at the end of 2013.
The main goal of mobile payments is to make money more accessible for both the customer and the merchant. But there is a secondary purpose that make mobile payments a useful feature, as they enhance audit traceability. In the end, mobile service providers such as M-Pesa have an easier time ensuring funds end up in the rightful hands.
WorldRemit has seen the influence of mobile payments on their own business model as well. Ever since the company introduced its mobile payment options, the number of cash transaction was quickly matched and overtaken. In fact, there have never been as many transactions through WorldRemit until mobile payments were introduced.
And it has to be said, mobile payments offer a ton of advantages for both senders and recipients of funds. First of all, mobile payments are far more convenient than walking around with wads of cash in your pockets. Secondly, it is far cheaper for people to get a hold of their cash, as there are no travel expenses to and from the pickup office.
Even in the Western world, mobile payments are slowly on the rise. Various surveys have pointed out that quite a few people are expecting to use mobile payments for as much as 20% of their daily expenses in the next five years. But when you look around, there is hardly anyone paying with a mobile device right now unless they are testing out services like Apple Pay.
Note from the Author: It is important to note that Apple Pay is a Mobile Payment method, and does not count as “mobile money” in the same way it would in Africa. Apple Pay relies on using a bank account or credit card to make payments, which is virtually impossible in unbanked regions.
Bitcoin is a different breed of mobile money, however — one that could disrupt the mobile payments sector in unbanked regions as well. Granted, mobile payments are already quite cheap, but Bitcoin could make them even cheaper and more convenient to use. Additionally, Bitcoin is a borderless currency, meaning it can boost the entire African economy in one go, rather than forcing people to exchange mobile money to a different local currency.
With so many unbanked people owning a mobile device, Bitcoin is trying to gain a foothold in unbanked regions. But the popular digital currency will be facing some stiff competition, as there are over 250 different services offering mobile payments in unbanked parts of the world. Yet that competition will benefit the consumer in the end, as the battle for lower prices and more convenience rages on.
What are your thoughts on the future of mobile payments in (un)banked regions? Let us know in the comments below!
Source: Wired UK
Images courtesy of M-Pesa,WorldRemit and Shutterstock