Mobile Banking: From Concept to Reality

June 25, 2009    

More than a billion people worldwide lack bank accounts, but do have mobile phones, providing a dramatic opportunity to achieve greater financial inclusion. That’s just one of many new insights CGAP has found with the GSMA Association through the Mobile Money Market Sizing Study. The study estimates the size of global mobile financial services market among an unbanked population of 3 billion. The results were released this week at GSMA’s annual Mobile Money Summit on mobile phone banking, co-organized by CGAP, DFID, and the IFC.

The study, conducted in 147 countries, is not the first mobile banking—or m-banking—forecast, but it is the first to focus on people without bank accounts. It goes beyond the standard evaluation of payment services and also seeks to understand how savings, credit and more can be offered through mobile phones.

Sharp growth is there for the taking, should mobile network operators succeed in addressing concerns of the unbanked customer; CGAP and GSMA project that 364 million low-income, unbanked people could use mobile financial services in 2012. These projections are based on relatively conservative assumptions about the number of mobile operators who will launch such services and the percent of customers who will use them. The explosive growth of mobile phones underpins the potential opportunity. By 2012, the number of people without a bank account but with a mobile phone is estimated to grow from 1 to 1.7 billion.

Mobile network operators stand to earn USD 7.8 billion in direct and indirect revenues from serving the 364 million clients of 2012—compelling market opportunity. In the process, mobile financial services can address one of operators’ biggest challenges: turnover of customers—also known as churn.

The Philippines provides a window into this issue. To root the global market sizing in real world data, CGAP, GSMA and McKinsey analyzed, unbanked consumers in the Philippines, where two of the global leaders in m-banking operate (Smart, and Globe). One half (1.6 million) of active mobile banking users in the Philippines are unbanked. Furthermore, 26 percent of active users have incomes below $5 per day. On average, unbanked mobile money users spent $1.9 more per month than peers who do not. This is a considerable gain for mobile operators who saw average revenues per user (ARPU) as low as $4.04 in the 4th quarter of 2008, according to Wireless Intelligence.

To successfully capture this opportunity, operators—in the Philippines and beyond—must base their mobile money offerings on an understanding of the complex financial lives of the unbanked, low-income consumer.

Reaching the unbanked poor: Insight from the Philippines
Mobile money reaches a base of financially active people. In the Philippines, more than half of the people interviewed for the study reported using at least one financial product. This mirrors findings in other countries showing the poor to be active money managers. Savings is the most common financial product in the Philippines, with low-income mobile money users and nonusers reporting that they save an average of $34. Informal mechanisms for saving dominate the market. 

Ninety-eight percent of unbanked Filipinos receive their income in cash, and overwhelmingly use informal saving instruments, such as keeping their money at home in a safe hiding place, giving money to a friend or family to hold, or joining a saving club. CGAP and GSMA estimate low-income Filipinos save an estimated $450 million in informal, actively managed with frequent deposits and withdrawals.

Though their financial needs are broad, low-income Filipinos primarily use mobile money to send and receive domestic remittances, on average sending $57, and receiving $48. The biggest differentiator between mobile money users and nonusers is not income, but the extent to which they send and receive money transfers. Sixty-eight percent of mobile money users send money, compared to nine percent of nonusers, or 7.5 times more frequently. Users give their mobile money services high marks: 92%would recommend mobile money to friends and family, and 90% feel their money is safe in a mobile wallet.

However, this masks a more complex reality which indicates that people who use mobile money users are not all alike. One third of mobile money users do no remittances at all, bucking the prevailing perception of the service. A significant group use mobile money quite intensively: more than 4 times per month, with more than half of their transactions going to something other than sending/receiving money – e.g. airtime top-up or cashless purchases in stores. Surprisingly, 12 percent of low-income mobile money users do not own their phone. These represent sub-segments of the population worth exploring further.

Operators should explore services beyond remittances and airtime top-up. Savings holds particular promise as a highly demanded service. When asked what additional services they would be likely to try over mobile money, low-income users enthusiastically said savings (65%). One in ten unbanked mobile money users is already storing an average of $31 in their mobile wallet, or about one-quarter of their household savings.