Mobile phone ownership has increased across much of the developing world in recent years, reaching over 75% of the population in sub-Saharan Africa and South Asia (WDI). This raises the potential for mobile money to be a key tool to broaden and deepen financial access.
However, the mobile money sector continues to face a number of challenges, notably a struggle to achieve operational profitability and regulation that is often stifling to innovation and disproportionately onerous compared to the low risk posed by mobile money functions. Few deployments have reached sufficient scale to become profitable. A major barrier to achieving scale is that transaction fees remain too high for small retail payments (Suri, 2017).
Despite these difficulties, and contrary to the lacklustre results seen under previous micro-financing programmes, mobile money is undoubtedly having positive impacts on economic outcomes, particularly for women. Study findings on the economic impacts of M-PESA may reveal something significant – that the route out of poverty for women may not be an increase in access to financial resources (through credit or grants), but financial inclusion that allows them to better manage existing financial resources (Suri & Jack, 2016).
This brief proposes four policy recommendations:
- As the market matures, governments should ensure adequate competition in the sector.
- Tiered regulation should be used, ensuring that regulation is flexible and proportional to the level of risk posed by different mobile money services and the value of transactions.
- Government should act as a catalyst for sector growth, effecting social transfers and payment of civil servant salaries by mobile money in order to reduce leakage and lower recurrent delivery costs. Government should also develop the platforms needed for tax and other payments to be paid using mobile money, to raise revenues through an expanded tax base.
- To drive continued growth in the sector, innovation in new product development is vital, whether undertaken within MNOs or through opening up platforms to entrepreneurs. New products offer additional benefits for users, and government has a role in designing regulation that supports (rather than stifles) innovation.