HOW MOBILE MONEY IS SOFTENING THE ECONOMIC IMPACT OF COVID-19

Mobile finance finds itself at an inflection point as the world continues to tackle the socioeconomic fallout of the COVID-19 crisis .The pandemic could be a game changer for digital   Mobile-based payments .They have proved to be resilient to the pandemic and are expected to overtake card payments as their uptake will accelerate due to ongoing social distancing measures and concerns over usage of cash and plastic. 

Economic lockdowns, social distancing and sometimes self-quarantining, patchy social protection systems and the high level of informality have been great impediments to the task of providing hassle-free financial services to vulnerable populations.

In these critical times of the pandemic, mobile money has helped the governments in navigating the financial dystopia and addressing the practical challenge of delivering affordable and efficient financial services. Mobile money is as an effective and physical-distancing-friendly option to avoid cash, which can act as a carrier of the virus. Contactless digital payments at the point of sale, such as facial recognition, Quick Response (QR) codes or near-field communications (NFC), can make it less likely for the virus to spread to others through cash exchanges.  

Digitization has been able to turn a Smartphone into a wallet, a cheque book, a bank branch and an accounting ledger all in one. The ubiquity of the mobile phone has made it possible to bring financial services to people for whom a bank account was a distant dream. Frictionless, real-time payment through mobile phones is already ensuring that the financially excluded are thinning fast and there are strong hopes that the process will accelerate further. Mobile finance can create the next wave of financial inclusion if we address the consumers’ concerns prudently. 

Several million people in emerging and developing markets have cell phones but no bank accounts, credit cards or debit cards. For them, mobile money is beginning to fill gaps in financial services. It serves as a lifeline, bringing those who currently lack access into the financial mainstream; enabling them to take initial steps to healthier financial lives 

Money can now be transferred quickly, efficiently and securely with a fraction of cost of other channels. People in far-flung villages are now able to make payments, deposit money, transfer funds in real time, receive social benefits and wages and buy rations — all of this affordably and reliably without the hassle of opening a bank account. It helps overcome inadequate infrastructure, such as bad roads and slow postal services, allowing information to move more freely, making markets more efficient.

 Quantum leap in financial inclusion

The penetration of mobile phones puts developing counties in an advantage to make a quantum leap in financial inclusion. Mobile money offers strong openings for progress because it is simple, low-cost, and convenient and basically acts as substitute for a bank1. Most unbanked households usually have access to a mobile phone. For these communities, with low literacy levels and sporadic incomes, mobile money can transform the socio-economic landscape. Mobile banking is enabling women to overcome common barriers — reducing the need to travel long distances to access money and providing a level of privacy and security. It is thereby saving several hours of commute and transaction time. 

Banks cannot afford to put branches in every corner of the country — for logistical, economic and security reasons. The high cost of building and operating brick-and-mortar bank branches has been a major obstacle to extending financial services to the poor. They are also are not viable for service providers nor are they affordable for low-income communities who live in areas difficult and expensive to serve. 

Mobile banking eliminates the problem of geographical inaccessibility and high set-up cost of bank branches. Banks, mobile operators and third-party providers are all leveraging technologies on mobile phones to offer basic financial services at a lower cost than traditional banking allows. Several new types of delivery channels are emerging such as managers, agent network, payment aggregators and others who are helping build a more far-reaching and efficient digital finance ecosystem.

Relatively simple, text-based mobile phones allow the use of mobile money accounts, and smart phones enable access to a wide site of financial transactions at formal institutions. The mobile money canvas is defined by financial and telecom industry firms, and a heterogeneous regulatory landscape.

Comparative advantages of mobile banking 

Mobile finance offers at least three major advantages over traditional financial models. First, digital transactions are essentially free. In-person services and cash transactions account for a majority of routine banking expenses. But mobile finance clients keep their money in digital form. They can send and receive money often, even with distant counter parties, without incurring transaction costs from their banks or mobile service providers. Second, mobile communication generates copious amounts of data which banks and other providers can use to develop more profitable services. It even acts as a substitute for traditional credit scores (which can be hard for those without formal records or financial histories to obtain). Third, mobile platforms link banks to their clients in real time. This means that banks can instantly relay account information or send reminders; and clients can quickly sign up for services on their own.

Digital footprints and transaction data can be of great help to assess individual credit worthiness. Mobile network operators are teaming up with banks, financial tech companies and data analytics specialists to use the data they have on customers to gauge their credit risk and offer microfinance products to some who would otherwise lack any proof of their capacity to repay a loan. Since they know how much consumers are spending on airtime and are able to infer other relevant information, such as whether a subscriber has a job, mobile operators can gauge how affluent an individual is and what size of loan they can afford.

Since mobile operators know how much consumers are spending on airtime and are able to infer other relevant information, such as whether a subscriber has a job, mobile operators can gauge financial profile of prospective borrowers and their appetite for risk and the capacity for repayment. If the customer is a regular user of a mobile money transfer service, the operator may also be able to assess how much disposable income they have. In fact, mobile operators’ data can be good enough to lower the lender’s risk significantly, enabling interest rates to fall and making microfinance a more attractive proposition for small businesses and individuals alike.

But such success stories do not happen in a vacuum.  To begin with, everyone needs a mobile phone with an affordable data plan. It is incumbent upon governments and non-governmental organizations to extend mobile networks to low-return areas and remote populations. Governments must also ensure that networks between banks and telecommunications companies are interoperable; otherwise, widespread use of mobile phones for financial services and payments would be impossible.

Mobile money will also have to address the limitations which prevent a countrywide adoption of the channel. Exchanging mobile money for cash can still be expensive. And digital and financial illiteracy are known to hinder adoption of digital mobile services. People in rural and remote areas may lack mobile coverage, easy access to money agents, or simply electricity. A robust identification system, widespread, consistent internet access and trustworthy ways to get money into digital formats could be important for digital payments to thrive.

Women’s access to a mobile finance is affected by the fact that far fewer women own a mobile phone than do men. Few poor households, including urban ones, have access to smartphones, and even the feature phones are largely owned by men. Adoption of technology and allowing multiple models and partnerships to emerge is necessary to address significant pockets of exclusion, particularly women. 

The promises of mobile finance are certainly very seductive. However, the reality is much harder than we can imagine. It is easier to spread technology than to bring about extensive change in social attitudes and human attitude. It is easier to purchase a thousand PCs than to provide real education for a thousand children. 

Although mobile telephony might entail initial fixed costs, the variable costs associated with their use are significantly lower, enabling an overall reduction in transactions costs. Mobile banking can be a strong income stream for mobile-telecom operators, helping them to counter slowing subscription growth and growing competition in traditional niches. The key is information technology spending in annual fixed costs for a mobile banking system. Again, that spending is significant for small providers, but is minimal for large players. This means financial firms looking to expand into emerging markets via mobile banking would require good financial stamina.

Since success is in everyone’s best interest, mobile and financial industries and regulators should work collaboratively with each other to unlock the transformative social impact of mobile money. It is only then that we will be able to deliver life-changing mobile financial services to millions of people across the world that still have no access to traditional banking.

The pandemic shows that the trend towards greater digitalization of financial services is here to stay. The ongoing crisis is certainly going  to test the way the various players in the digital and financial ecosystems respond. .Governments must close the digital divide to reap the benefits of digital financial services. This means finding the right balance between enabling financial innovation and addressing several risks: lack of financial and digital literacy, insufficient consumer protection, and unequal access to digital infrastructure, and data bases.