INTRODUCTION
Poverty is more than just a lack of money. It involves a lack of access to the instruments and means through which the poor could improve their lives. Exclusion from the formal financial system has increasingly been identified as one of the barriers to a world without poverty. In many developing countries, more than half of households lack an account with a financial institution, while small firms frequently cite difficulty in accessing and affording financing as a key constraint on their growth. In a report jointly released by the Microfinance information Exchange (MIX) and MasterCard Foundation, it was revealed that over 80 million Nigerians do not have access to financial services. This exclusion does not necessarily mean that the poor lack active financial lives; in fact, the fragility of their situation has led to the development of sophisticated informal financial instruments. However, the use of only informal instruments means that the poor are limited in their ability to save, repay debts, and manage risk responsibly. On a macroeconomic level, these financial constraints on the poor can exacerbate inequality (Demirguç-Kunt. Beck, and Honahan 2008).
In another similar study by the Enhancing Financial Innovation & Access (EFInA) in 2012(Access to Financial Services in Nigeria 2010) ,it was revealed that there was only a marginal increase in the number of those served by formal financial market from 35 percent in 2005 to 36.3 percent in 2010, five years after the launching of the microfinance policy. The survey showed that the main barriers why people do not have bank accounts include unsteady income distance to bank branches, etc. The central Bank of Nigeria (CBN) in 2012, also puts the ratio of bank branch to the total population at 24, 224 persons. Unfortunately, robust economic growth cannot be achieved without putting in place well-focused services that increase access of poor and low income earners to factors of production, especially credit. Financial inclusion is now a common objective for many central banks among the developing nations, particularly as it remains a major factor in driving economic growth they are committed to. In its desire to extending financial services to a wider segment of Nigerians, the CBN identified mobile telephony as a veritable tool for addressing financial inclusion). Since mobile phones have become widely acceptable and used in the country; The ubiquity of cell phone services offer the possibility of’ service in remote areas of a country where it would be otherwise economically unsustainable to provide banking services. These services could enhance financial inclusion especially when appropriate model(s) is/are well implemented and adopted. It is in this regard that this study looks into models of mobile money services and provides policy recommendation. The rest of the study proceed as follows; following the introduction above is stylized facts in section two. Theoretical issues and Review of literature is undertaken in section three, Section four discusses expected economic benefits of the services Models of mobile money services are examined in section five. While section six offers policy recommendation and concludes.
STYLIZED FACTS
The Mobile Money Transfer program, was jointly launched by the GSM Association (GSMA) and Western Union in October 2007, there are now more than 120 mobile money projects being undertaken in about 70 emerging markets. The rapid rise in the growth of mobile technology throughout the world is a phenomenon that has been particularly remarkable among poor people, largely because of the prepaid model. As a result, all classes of society now have access to financial services as people become increasingly familiar with a mobile- money system. In fact, mobile technology, viewed as a payment or banking channel, has the potential to allow two important questions to be addressed at the same time: on the demand side. it represents an opportunity for financial inclusion among a population that is underserved by traditional banking services. On the supply side, it opens up possibilities for financial institutions to deliver a great diversity of services at low cost to a large clientele of the poorest sections of society and people living in remote areas. (Beshouri et al, 2010). The lack of access to formal banking in the mass market in Africa has opened the door for mobile operators to build successful mobile payment services. The gap between banking penetration and mobile penetration means that while many people do not have access to financial services, they do have a mobile phone. Capitalizing on the phenomenal growth of mobile telecommunications in Africa, a number of service providers are already active in deploying mobile banking services to tap the demand from the large unbanked population. In November 2012, the United Nations Conference on Trade and Development (IJNCTAD) disclosed that 40 million mobile money users currently exist in Africa. This figure will rise to 1.2 billion by 2015. According to the GSMA, as November 2012, the trade association for mobile operators, the number of mobile phone users has exceeded credit card users by 50° o while the ratio of mobile phone users to automated teller machines (ATMs) users is 2,000 to 1. In addition, there is a sizeable migrant worker market in developing economies such as Africa, Asia and the Middle East, where low-income groups are seeking better working opportunities in developed nations. This creates a substantial need for systems to enable these workers to send money back home to their families. According to the World Bank, recorded remittances to developing countries were estimated at US$240 billion in 2007 (double the value of 2002). This represented three-quarters of the world’s total remittance inflows. India, China, Mexico and the Philippines were the top four remittance- recipient countries with a combined value of US$95 billion. Mobile money transfer therefore extends remittance services to billions of the under banked population. Kenya is currently the dominant player in Africa’s mobile payment markets with over 20 million subscribers. Uganda’s mobile money market too has also expanded to an estimated 1.5 million users between three providers. Additionally, 37 per cent of South Africa’s cell phone users also use mobile banking services. According to data from the GSM Association, most of the 100-plus deployments of mobile money systems have been in developing countries, with around half in Africa alone
In a globalized world, where current migrations occur at a very large scale, remittances and remote payments are an important use of mobile money. Worldwide flows of remittances reached the amount of $318 billion dollars in 2007. Latin America and the Caribbean (LAC) region remains the largest recipient of (recorded) remittances (Rhata, Mohapatra, Vijayalakshmi & Xu, 2007). According to the Inter-American Development Bank (1DB, 2008), LAC received remittances of USD$ 65,000 million. Mexico is the leading receiver (24 million), while for countries like Guatemala, El Salvador, Honduras and Nicaragua, remittances account for more than IO°/o of its Gross Domestic Product (GDP). However, the majority of the populations in these countries do not have a hank account. For example in Mexico the remittance recipient with bank account is 29°o, in Guatemala 4O%, in El Salvador 31%, in Colombia 50% and in Peru 37% (1DB, 2008). The lack of access to formal banking in the mass market in Africa has opened the door for mobile operators to build successful mobile payment services. The gap between banking penetration and mobile penetration means that while many people do not have access to financial services, they do have a mobile phone. Capitalizing on the phenomenal growth of mobile telecommunications in Africa. a number of service providers are already active in deploying mobile banking services to tap the demand from the large unbanked population.
Mobile money applications offer a channel to expand traditional services and extend access to multiple segments including underserved or unserved groups. These applications address the very different banking needs for both the banked population in developed markets and the unbanked population in developing economies such as Asia, Africa and Latin America. In developed markets, the service is at the initial stage and is seen as a convenience that does not generate high revenues, hut one on which to build value-added applications. in emerging markets, the large rural populations provide a perfect base to tap the unbanked group with no bank account but a mobile phone (GSMA 2012).
An Overview of Mobile Money Services in Africa:
The lack of access to formal banking in the mass market in Africa has opened the door for mobile operators to build successful mobile payment services. The gap between banking penetration and mobile penetration means that while many people do not have access to financial services, they do have a mobile phone. Capitalizing on the phenomenal growth of mobile telecommunications in Africa, a number of service providers are already active in deploying mobile banking services to tap the demand from the large unbanked population There is strong evidence that these services can improve access to formal financial services in developing countries most especially in Africa where financial exclusion is rather high (GSMA 2011).
The story of the growth of mobile telephones in Africa is one of a tectonic and unexpected change in communications technology. From virtually unconnected in the 1990’s, over 60 percent of Africans now have mobile phone coverage, and there are now over ten times as many mobile phones as landline phones in use (Aker and Mbiti, 2010). Even with the story of mobile phones’ growth as a background, the growth of M-Pesa is startling. M-PESA (“M” for mobile, “pesa” is Swahili word for money) is a mobile phone based money transfer service launched in 2007 in collaboration with Kenya’s dominant mobile network operator, Safaricom. M-PESA was started and is owned by Vodafone, which is the majority shareholder of Safaricom. M-PESA has been highly successful and, along with two rn-money companies in the Philippines, is the best example of’ a typical m-rnoney service for the unbanked and underbanked. Initially launched in 2007 for person-to-person (P2P) transfers, by 2010, M-PESA had more than 9.4 million customers (figure2) and more than 18,000 agents, and accounted for US$5.27 billion in P2P transfers. There is scarcely a household in Kenya that is not an M-PESA user. Between 2009 and March 2010, more than 13 percent of the Kenyan gross domestic product (GDP) was transferred through M-PESA. The service allows users to deposit money into an account stored cm their cell phones, to send balances using SMS technology to other users (including sellers of goods and services), and to redeem deposits for regular money. Charges, deducted from users’ accounts, are levied when e-float is sent, and when cash is withdrawn. As a money transfer service, M-PESA started by serving the needs of the many families split between rural and urban areas, It has since grown to provide many’ other financial services.
Following on from the success in Kenya, Vodafone has replicated the M-PESA solution in Tanzania through its partnership with Vodacom. South Africa In 2005, South African based MTN — the largest mobile operator in Africa — teamed up with Standard Bank — the largest banking group in Africa — to form MTN Banking which at the time was one of the first truly mobile banks globally. The rationale behind this joint venture was to bring a large number of the previously unbanked population into the formal banking sector in a low cost and easily accessible way. Launched in December 2004, Wizzit, a startup mobile banking provider in South Africa, is targeting rural low-income consumers. Wizzit offers a low-cost transactional bank account to unbanked and underbanked people to make person-to-person payments, transfers and prepaid purchases, independent of mobile operators. In November 2007, the International Finance Corporation, a member of the World Bank, acquired 10% of Wizzit as part of its efforts to extend banking services to the poor. African telecom company Zain is also attempting to create a borderless mobile banking network across Africa. It has launched its mobile banking product. Zap in Kenya, Tanzania and Uganda, with plans to roll out services to all of its African operations. Partnering with leading international and regional banks including Citigroup and Standard Chartered, Zap will be included as part of Zain’s cross-border One Network service. Its recent alliance with the money transfer giant Western Union to link its platform to the Western Union’s global agent network has further strengthened the initiative, allowing customers to receive cash in their mobile accounts or at a Western Union agent location.
THE ORETICAL ISSUES AND REVIEW OF LITERATURE
The definition of “mobile money” varies across the industry as it covers a wide scope of overlapping applications. In general, mobile money is a term describing the services that allow electronic money transactions over a mobile phone. It is also referred to as mobile financial services, mobile wallet and mobile payment.(Lrnst &young 2009).
A wide range of mobile money applications have developed over time; Some of which are;
I. Mobile Banking – use of a mobile phone to remotely access a bank account, primarily for account balance checkup and bill payment services
2. Mobile Money Transfer (Remittance) — a peer-to-peer application making use of a mobile phone to send money to family or friends, primarily across international borders
3. Mobile Commerce (Payment) – use of a mobile phone to perform financial transactions for purchases or sales, either remotely or on-site, retrieve promotion information or coupons. and deliver gift items.
Kim et al., 2009; Tiwari and Buse, 2000 Luo, Li, Zhang and Shin 2010, defined mobile banking as an innovative method for accessing banking services via a channel whereby the customer interacts with a bank using a mobile device (e.g. mobile phone or personal digital assistant (PDA)). Mobile Commerce (rn-commerce) is defined as a business transaction conducted through mobile communication networks or the Internet (Siau and Shen, 2003). M-commerce can offer value to consumers by providing convenience and flexibility through time and place independence (Kim, Shin and Lee, 2009; Venkatesh, Morris, David and Davis, 2003).
Mobile banking is an application of rn-commerce which enables customers to access bank accounts through mobile devices to conduct and complete bank-related transactions such as balancing cheques, checking account status, transferring money and selling stocks
Since Solow’s (1956) seminal contribution to the theory of economic growth, and that of Romer 1986 and Lucas, 1988, economists have understood that higher rates of adoption of modern technologies may accelerate the development process. There are a significant numbers of studies which have demonstrated the relevance of mobile telephony in economic and social development in developing countries. Among these studies, there are those which seek to identify how mobiles may contribute to economic growth as well as to poverty reduction. At the macroeconomic level, Thompson & Garbez (2007) identify a positive impact of mobiles on productive efficiency in developing countries while Waverman, Meschi. & Fuss (2005) find that the mobile dividend in developing countries is higher than in developed countries given that it is largely the only source of communication.
Robert Jensen’s study on the fisheries market is perhaps one of the most influential papers that, from a microeconomic perspective, analyses the impact of ICT on welfare. Through a weekly survey applied in three districts in Kerala during six years, Jensen finds a significant positive impact of information in these poorly developed markets. He finds that the addition of mobile phones reduced price dispersion, waste and increased fishermen’s profits and consumer welfare. These findings offer evidence that counters the criticism ICT should not be a priority for poor countries that lack access to health and education. (Jensen, 2007 p. 919). Recently, there has been a number of surveys that explore if and how mobile phones are helpful to diminish poverty by identifying the patterns of use by poor income groups in developing countries. (Donner, 2007; Horst & Miller, 2006; Vodafone, 2005; Ovum, 2006; Bhatia, Bhavani, Chiu, Jnakiram, Silarsky, 2008). The application of surveys by Horst & Miller (2004) in Jamaica and Paragas, (2005) in the Philippines show that Diasporas use mobile phones to communicate with family for both economic and social reasons. Donner finds that mobile ownership increases the income of micro entrepreneurs in Rwanda by increasing communication and enriching social networks. In this same area. Molony (2006) finds that mobile phones are used by micro entrepreneurs in Tanzania to manage reputation while creating virtual offices,
Aker and Mbiti (2010) research first examines the evolution of mobile phone coverage and adoption in SSA over the past decade. They identify the main channels through which mobile phones affect economic outcomes and appraise current evidence of its potential to improve economic development; According to the authors. Mobile telephony has brought new possibilities to the continent. Across urban-rural and rich-poor divides, mobile phones connect individuals to individuals, information, markets, and services. These effects can be particularly dramatic in rural SSA, where in many places mobile phones have represented the first modern telecommunications infrastructure of any kind. Mobile phones have greatly reduced communication costs, thereby allowing individuals and firms to send and to obtain information quickly and cheaply on a variety of economic, social, and political topics. An emerging body of research demonstrates that the reduction in communication costs associated with mobile phones has tangible economic benefits, improving agricultural and labor market efficiency and producer and consumer welfare in specific circumstances and countries. Hartsenko (2004) makes a cross-country comparison of the use of the different payment instruments (such as Mobile phone, Phone bank, Internet bank, Bank card, among others) in the Baltic countries. The author applied regression analysis to identify the effects of individual characteristics on people’s using specific electronic payment instruments and analyzed the impact of consumer characteristics on the use of payment instruments in Estonia. The results show a strong effect of demographics characteristics (age, sex, education, occupation living place, and personal income) on consumers’ use of payment instruments.
Ivatury and Mas (2008) provide additional evidence about the early uses of mobile phones as financial service platforms. Cost reduction, which can be passed on to the user, is a major benefit. In the Philippines, “a typical transaction through a bank branch costs the bank US$2.50; this would cost only US$0.50 if it were automated by using a mobile phone.”
Mobile Money Operators (MA/OS) therefore, have a huge responsibility for expanding financial services in Nigeria. There is the need to make use of technology which will enable us leapfrog development; taking banking services to communities where it would not have been economically feasible in the past using traditional bricks and mortar. The Central Bank of Nigeria (CBN) is extremely proactive and has put in place the levers of success required for the MMOs to succeed in their endeavors.
