Smartphone-Led Digital Finance: Three Areas to Watch

The rapid uptake of smartphones stands to enable a transformational opportunity for digital finance. Last year, less than a third of all connections in developing regions were smartphones, while in the next five years, four in every five smartphone connections globally are predicted to come from developing regions. While basic and feature phones aren’t going extinct in the near future, smartphone-based connectivity presents an opportunity to drive forward digital finance efforts where they have yet to take off.

This dramatic trend also raises important questions concerning meaningful access and design for lower-income consumers as well as privacy and data security, as flagged in CGAP's recent publication, "Doing Digital Finance Right." Here are three areas in particular for the digital finance field to watch as more smartphones make their way into the hands of financial consumers in the developing world: new functionalities, new players and new risks.

A mobile charging station in Uganda
A mobile charging station in Uganda. Photo by Adam Cohn, Flickr.

New functionality

At the end of last year, there were almost 300 million mobile money accounts, but more than 60% were inactive. Mobile money usability research in India found that on average more than 25 errors were made trying to complete a single financial transaction on feature and basic phones. In contrast, smartphones aren’t constrained by USSD-based interactions, which require numerous steps and are prone to timeouts, providing the potential for more intuitive, advanced services.

With the launch of GCash, Lenddo, M-Ledger, pesaDroid and Zuum, we saw the first wave of these more icon-driven and dynamic digital finance apps in emerging markets. More experimentation is under way. For example:

As these apps gain traction, there is an opportunity to move away from error-prone, one-size-fits-all mobile money services and iterate towards more intuitive and and tailored solutions.

New players

The flourishing Android smartphone ecosystem is not only driving down prices – as low as $40 on India’s ecommerce platform Flipkart – it’s also opening up market entry opportunities to new players. At the beginning of the year, Xiaomi, now the world’s third largest smartphone maker, launched an interest-bearing mobile wallet; Google recently launched Android Pay and is in the process of introducing a peer-to-peer payments app; and this month, Samsung has started trialing its new payment service in South Korea.

The financial inclusion field should also be paying particular attention to efforts tackling costly mobile data rates. This area is fertile ground for new business models and partnerships for serving low-income customers. For example:

As more service providers enter the ecosystem and partnerships solidify, there is an opening for competition to not just drive down prices but also continue to catalyze new mobile financial services.

New risks

In 2015, the amount of mobile data traffic around the world is expected to grow 59% compared to last year. As a main contributor, smartphones raise the stakes on data privacy and security measures, and consumers are worried, at least in some markets and some segments. A survey of more than 11,000 mobile internet users across Brazil, Colombia, Indonesia, Malaysia, Singapore, Spain and the UK found that 83% have concerns about sharing their personal information when accessing the internet or apps from a mobile device; however, 80% of users agree to privacy notices without reading them because they tend to be too long or legalistic.

Smartphone data may become harder to protect in this more fragmented ecosystem and ever-changing value chain. Security mishaps, such as what occurred at Venmo in 2014, suggest a prioritization in some companies of growth over security and privacy, and protective measures remain largely reactionary. In addition, reports of data breaches and malicious malware strains are hard to ignore, including an Android-based mobile payment malware that reportedly “could extort money from users by hijacking personal information and spoofing bank apps into sharing personal data.” This impacted users in more than 100 countries including, for example, over sixty thousand users in Vietnam.

As providers continue to garner richer user data through smartphone apps, the leaders in this mobile ecosystem will need to have better solutions and clearer answers to consumer concerns about the safety and privacy of their data. Last year, 6,000 consumers in 12 countries were asked the question, “If you are considering trying a mobile money transfer service, what would make you try it sooner?” Details of security and privacy measures were the top answers cited, and even more pronounced by those surveyed in emerging markets like India, Brazil and China regarding mobile payments.

In sum

With these three trends converging alongside the unprecedented proliferation of smartphones to all corners of the world, what remains to be seen is how digital finance will co-evolve and keep pace with mobile technology’s advancement. However, what is clear is that those in the digital finance space that aren’t experimenting with this new functionality, fostering these new partnerships and coming up with cost-effective and robust ways to mitigate these new risks, may very well be left behind.



This Focus Note explores consumer risk in digital finance—-particularly through the lens of lower-income and less-experienced consumers.


24 July 2015 Submitted by Balu (not verified)

But we do not see tons of transactions using mobile in India as a percentage of transactions.. although they are indeed growing.. thanks to IMPS.. A lot more has to be done to make it popular....

26 July 2015 Submitted by cornelis heesbeen (not verified)

This is good news, it is still very technology led, in our vision; to win the trust of the BOP user, we need to activate the individuals in a platform, in a robust financial rural eco system, we are working in Burundi, and have now more then 50% of the population in our UMVA platform, where they can save, loan, pay on line, buy on line etc. Offering services drive usage, but having that alone is not enough, with our partner HNTPO we organize the community into CAP-az (r), a community activation platform, now they start to gain trust and want to save, the saving programs (also from migrants) make it work, more info

Add new comment