These findings are part of a three-year study at the London School of Economics and Political Science (LSE), analysing the uptake and implementation of Mobile Payment Services offered by banking and telecommunication groups in emerging economies where access to traditional financial services is absent for much of the population.
The study is supported by LSEs International Growth Centre, the Leverhume Trust and LSEs Department of Management.
Professor Saul Estrin (LSE), who co-led the research with Dr. Susanna Khavul (San Jose State University/LSE) and Dr. Adeline Pelletier (Goldsmiths/LSE), says,
The historically perceived high risk and costs associated with offering financial services to those in poverty means that many banks have failed to penetrate such markets. This has created the opportunity for telecommunications providers to offer mobile money services as an alternative. Our research showed that mobile payments can help to stimulate economic development by formalising transactions within informal economic structures, building virtual paperchains of information exchange thus helping to generate trust between users.
However, despite its potential, the researchers note there are limits to how far this technology can go in boosting economic development, as mobile money has traditionally only focused on providing payments and credit services. To ensure financial inclusion for individuals and businesses operating in such regions, and encourage economic growth, the ability to access savings and insurance products via mobile money services is vital.
The research concludes that such services should be generated through collaboration between Mobile Payment Service providers, banks, governments and other stakeholders.
To encourage this, greater regulation of the industry is needed.
Dr. Susanna Khavul says,
The regulation of mobile money is complex because it spans the intersection of the banking and telecommunications industries, each of which have vastly different regulatory regimes. The key is to find a balance between consumer protection and financial innovation too much regulation may lead to onerous requirements which cannot be met by the large numbers of people previously excluded from the financial system and may restrict the reach of mobile money, particularly in remote areas.
The findings of this study were discussed last month at the Mobile Money and Financial Development Conference, hosted by researchers and the International Growth Centre at LSE.
Panels of experts from academia, government and a number of global banks and financial services providers considered the evolution of mobile money in emerging economies, and agreed upon several actions to encourage progression;
- Mobile money should be seen by service providers as a gateway for financial inclusion and an integral tool for money management, and should be better positioned as such
- The technology currently underpinning mobile money is not sufficient on its own to bring about financial inclusion for users. Financial development in this area will depend on carefully constructed business processes and the creation of enabling regulatory environments
- Though mobile money does represent one of the biggest opportunities for financial development, it needs the collaboration of the private sector, governments, and regulators to be effective