What’s next for mobile finance?

With an average cost 19% lower than traditional banking, mobile banking has been an important driver of access to financial services; so big, in fact, that international institutions like the IMF have started to include mobile money indicators in their measurement of financial inclusion.

Mobile finance is now available in 89 countries, 61% of which have more than one service provider. Services have also diversified, expanding from person-to-person transfers and airtime top-ups to include more complex products like savings, credit or insurance.

This has significant implications for the developing world. Mobile crop insurance, for example, helps farmers hedge the impacts of droughts, enabling them to invest in their farms and increase yield—by up to 16%, according to weather insurance provider Kilimo Salama.

Innovations in financial services also include mobile financing for start-ups and mobile payment of remittances. The market for the latter, estimated at $435bn in 2014 by the World Bank, represents a major opportunity for mobile companies. Under traditional banking methods, the cost of sending remittances can be high: 9% on average and up to 11% for Africa, according to the World Bank. Using mobile payments, companies like WorldRemit can now offer the same service at half the cost (5%).

Low usage remains an issue for the mobile finance industry, however. In 2013, only 30% of mobile money accounts and 48% of registered agents were regularly used, for example.

Addressing this problem is as crucial for the industry’s growth as it is for financial inclusion of the poor. One way will be to increase access—in Nigeria and Uganda, less than half of the population lives within 5km of a mobile money agent or a bank branch. Another will be to provide customised services. Data on airtime purchases and mobile transaction history could be used to tailor a loan to the customer’s ability to pay, for example.

Interoperability agreements between providers will also help increase liquidity in the market. Positive developments have been seen in this space, with the world’s first interoperability agreement signed last June in Tanzania—one of Africa’s most active mobile finance markets.

Last but not least, increasing competition and cooperation in the industry will also help. “Its a great example of the democratisation [power] of technology: Instead of people begging for assistance, now people are coming to them,” said Dylan Higgins, CEO of Kopo Kopo and keynote speaker at this week’s Mobile World Congress.

Mobile money in its most basic form was revolutionary. The test of its long-term impact as a tool for financial inclusion will be in its next stage: better targeting of unreached populations and the provision of more complex and impactful financial services.

This post first appeared on GE LookAhead. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Abigail Higgins is a journalist reporting from East Africa and The United States.

Image: A Somali man browses the internet on his mobile phone. REUTERS/Feisal Omar.