NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, March 6, 2015

(Reuters) – Globally, an estimated 2.5 billion people don’t have a bank account, but many own a cellphone, fuelling a race to turn these phones into bank books for the ’unbanked’ to store cash, manage their accounts, make purchases and send and receive money – part of so-called ’financial inclusion’.

In a report this week, the GSMA, the association of mobile phone companies, said mobile money “has been growing at a dizzying rate.” The Boston Consulting Group said last month mobile money transfers in sub-Saharan Africa alone could generate fees of up to $1.5 billion by 2019.

However, consultants and others working at banks, government agencies and even the phone companies note that, while many people have mobile money accounts – usually with the phone companies – few are actively used. While money flows through these networks, nearly two thirds of the volume comes from users merely topping up prepaid mobile accounts in transactions averaging less than a dollar.

“If you take out air-time, you have a true view of mobile money, and it’s not a good story, more than a decade on,” says South Africa-based Johan de Lange, who works with banks and phone companies.

And, when people do make remittances, those receiving the money tend to cash it in, taking the money out of the system and limiting the potential for mobile money to become a medium of exchange – a mobile wallet for buying things or to provide banking services over mobile networks.