Mapping Mobile Money: Challenge and Opportunity (The Monito Briefing Issue #5)

Hello! This week, we're exploring the world of mobile money and its rapid rise as a payment method in Africa and across much of the developing world.

Then, we focus our lens on the size and scope of international mobile money transfers in particular and what a recent report from GSMA hints about these trends going forward.

Industry Highlights

First thing's first, here's what's been happening over the past two weeks:

• Cross-border payments are set to be the focus of a new local wallet to be launched in China by PayPal, sidestepping Alipay and WeChat Pay in the process;
• Despite its age and size, currency exchange giant Western Union seeks to assert itself in digital cross-border payments by expanding its online business segment and testing blockchain technology, according to CFO Raj Agrawal;
• US pharmacy chain Walgreens has become the latest brick-and-mortar retailer to launch a mobile and online bank account in a bid to diversify its revenue stream.

Mobile Money on the Rise in Africa

Rapidly on the rise across much of the developing world, mobile money is a mobile phone-based money transfer method in which mobile wallets are used to bypass the need for formal bank accounts and credit cards.

In Africa in particular, mobile money is playing an intriguing role in the continent's financial development. Often the only available alternative to cash, mobile money has been labelled by the World Bank as the main driver of financial inclusion in the continent, pointing out in 2018 that while banking uptake in sub-Saharan Africa has remained flat since 2014, the share of people with a mobile money account almost doubled over that period.

Fast forward to 2021 and mobile wallets seem to be continuing their advance into the continent, with the following milestones standing out above the rest:

• South African telecoms giant MTN — which recently valued its continent-wide mobile money arm (affectionately known as "MTN MoMo") at US$5 billion and is mulling over going public according to Bloomberg — recorded transactions worth US$152 billion in 2020 despite the pandemic, according to the group's latest integrated report. MTN MoMo, which currently operates across 15 African countries, recorded 46 million subscribers in 2020 and has plans to more than double this number to 100 million by 2025;
• Mauritian payments firm MFS Africa reported offering coverage to more than 60% of Africa's mobile money share through its integration point, meaning that payment interoperability to African mobile wallets is becoming progressively easier for financial institutions, including international money transfer operators and banks;
• Mobile money service Airtel Africa (which partnered with MoneyGram last year) recently received US$300 million in investment from Mastercard and TPG, signalling strong investor optimism in Africa's mobile payments sector.

A Picture of International Mobile Money Transfers

Despite being accessible from the point of view of the consumer, mobile wallets as a receiving method for international transfers remain a complex financial service — one that's not distributed equally from region to region.

For example, according to data from Monito's comparison search engine over the fifteen-month period between January 2020 and April 2021, the total number of clickouts to IMTOs for mobile wallet transfers on the receiving side was dominated by Ghana (23%) and Kenya (16.9%), followed by the Philippines (11.8%) in third place.

The trend appeared similar on a regional scale, where a majority of mobile money clickouts were destined for Africa (57%), followed by the Asia-Pacific (31.2%) and Latin America (7%). Mobile money clickouts to Europe, North America, and the Arab States were negligible, together constituting around 4.8% of the total.

On the sending side, countries such as the United States, India, and Canada contributed to the greatest source of money mobile transfers to the above countries, with a large number of international money transfer operators boasting extensive (and growing) partnerships with mobile phone-based money transfer services across the globe.

In terms of pricing competitiveness, the receiving end saw a strong performance from WorldRemit, which was the cheapest IMTO offering mobile money transfers on more than 80% of clickouts between January 2020 and April 2021 in the regions of Latin America, Europe, and the Arab States. 

Meanwhile in Africa and the Asia-Pacific — where the absolute receiving volume of mobile money transfers was highest — WorldRemit took the backseat to Remitly, which offered the cheapest international money transfers to mobile wallets on 50.45% and 41.11% of clickouts to the two regions respectively.

What To Watch

One of the particular features of mobile money services is their interconnectedness with mobile phone service providers, who often outright run them. On the global level, this means they fall within the purview of the GSMA, which unites and represents the interests of hundreds of financial services throughout the world that have a stake in mobile money. The GSMA is thus equipped both to monitor the state and to accelerate the development of the mobile money ecosystem through its dedicated Mobile Money group. Their recent State of the Industry Report outlines several interesting trends to watch:

• One of the largest and most obvious trends in the mobile money ecosystem is the impact of COVID-19. The use of mobile money for merchant payments rose by 15% over 2020, while their total value soared by 43% – compared to 28% in 2019 – to a monthly total of US$2.3 billion, reflecting a higher recourse to non-cash solutions to alleviate fears of contamination, allowing informal economies to continue to function.
• Although the mobile money industry still has progress to make with respect to interoperability, the numbers are encouraging. Transactions flowing between mobile money services and traditional banks grew from US$15 billion in 2015 to US$68 billion in 2020, while one in 20 peer-to-peer mobile money transactions is now made across provider networks, compared to just one in 50 in 2015.

• With initiatives such as the GSMA's updated Gender Analysis and Identification Toolkit (GAIT), the hope with these projects is that encouraging access to mobile money will empower often under- or unbanked women to have more choice and say in their finances, while also helping female entrepreneurs to get ahead with the help of financial services to which they previously did not have access.
• Remittances via mobile money services have grown from US$3.1 billion in 2015 to US$12.7 billion in 2020 – an increase perhaps fueled by the COVID-19 pandemic, since it has skyrocketed by 65% from US$7.7 billion in 2019. Although this is still a small number within remittance flows totaling US$508 billion in 2020 according to the World Bank, its potential for growth should not be underestimated, especially since mobile money remittances target a specific market of workers making lower-value but frequent transactions. Mobile money services also have a card to play at other steps of the remittance process. For example, a 2020 GSMA report on a pilot project integrating remittance provider Valyou with mobile money services in Malaysia highlights the way mobile money provided migrant workers in rural areas with a cheaper and more efficient remittance solution, shifting Valyou’s business model from 99% cash and over-the-counter transaction to just 35% over three years.

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