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Mobile Banking: Doorway to Upward Mobility

Buying a pizza, sharing an Uber, or buying concert tickets–the pinnacle of the mundane for college students–all make use of an astounding technological advancement: mobile banking. Mobile banking is already growing at an increasing rate in developed countries as a form of payment. Venmo, owned by PayPal, is one of the most widely-used “digital wallets” on the App Store with nearly 40 million users on the platform. Such platforms allow users to make and share payments, make purchases, and transfer money to their personal bank accounts. While in developed countries this technology is accessible and is gradually becoming widespread, this is not the case in the rest of the world. Yet mobile banking shows great promise for being able to help the many unbanked populations in developing countries as well as providing women and other marginalised groups with more financial independence. 

Whereas in the United States one can find a Bank of America, Chase, or Wells Fargo on every street corner, about a third of the world’s population lives miles away from the closest bank branches. In developing countries, access to financial services is nonexistent for the majority of the population. Based on a financial inclusion report published by the World Bank, roughly one third of the world’s adults, or 1.7 billion people, are still “unbanked”.  Receiving wages or sending money to family members can be a difficult task without a working bank. Jay Rosengard, adjunct lecturer in public policy at the Harvard Kennedy School, notes that  “financial inclusion” is a critical part of equitable economic development.  Mobile banking has the potential to close the gap between those with bank accounts and the unbanked. 

All you need to get started with mobile banking is a phone, which can cost as little as $10 USD.  According to a United Nations report, four out of five people in all 47 countries highlighted by the 2030 Agenda for Sustainable Development have gained access to a 3G mobile-cellular network since the launch of the UN Sustainable Development Goals Agenda.  In fact, many established tech corporations are working to propel this initiative. Facebook, for example, has launched internet.org, which works with local mobile network operators to provide free mobile internet to users in developing countries.  Another widespread project is ProjectLoon, which was started by workers at T-Mobile. ProjectLoon aims to sustainably bring affordable internet to rural areas by transporting the essential components of a cell tower in balloons 20 kilometers above the Earth. With access to the internet growing at a rapid pace, many in developing countries already have the foundation needed for mobile banking. 

Mobile banking brings a wealth of benefits to its users. Due to its low set-up cost, it makes money transfers much more affordable. Moreover, according to a Consultative Group to Assist the Poor (CGAP) report, “by lowering transaction costs and helping spread risk and capital across the country, financial inclusion improves the livelihood of individual families and spurs local and national economic growth.” Even once banks are physically established, it’s difficult to bring over the manpower to run the institutions, and they’re usually built in areas that are hard to travel to. Likewise, there are often two-hour queues; consequently, transactions are frequently delayed. Mobile banking streamlines this process. It gives every user the ability to set up their finances immediately, with no waiting or traveling times. 

One of the most successful examples of mobile banking implementation that helped a country’s economy is M-PESA, a mobile payment  service used by the majority of Kenya’s population. Today, Kenya stands as one of the world’s leading nations in mobile banking. Even without a formal banking network, users are able to gain access to a fully-fledged financial service: they can take out loans, build up their savings, and make transfer payments. For many Kenyans, M-PESA is regarded as more secure than even the pre-existing banks. M-PESA has created a mobile banking revolution in Kenya, resulting in the country being able to surpass others when it comes to financial inclusion. A large part as to why M-PESA was so successful was because 80 percent of the population already had Safaricom, a mobile service equivalent to AT&T offered by M-PESA;hence, incorporating M-PESA’s banking service was an easy next step. The percentage of those in Kenya with access to a financial account is now nearly triple the rate in other developing countries. 

Mobile banking can also increase financial inclusion for women and other marginalised groups that are typically discriminated against. Take the story of Amylene Dingle, who lives in an impoverished neighborhood in the Philippines with her husband and daughter. Her husband brought in $80 a week. Dingle wanted to start her own business, but lacked the ability to get a credit card or bank loan. When Dingle saw a Facebook ad for Tala, a California-based startup that makes small loans via an app, she responded. Once providing Tala with access to her phone, she got a 30-day, $20 loan that transformed her family’s finances. She now owns a thriving food business that brings in $70 in weekly profits, nearly doubling her family’s income.  Moreover, mobile banking streamlines the process of connecting individuals with non-profits such as the Aga Khan Development Network that microfinance small female-owned businesses. 

The question is: with such obvious benefits, why isn’t mobile banking already more widespread? In the past, technology was much more expensive. It is only in recent years that tech companies have been able to reduce the cost of technology to the point where it can be affordable for anyone, no matter their financial situation. Likewise, the rural broadband networks that cell phones once needed used to be bulky and carry large environmental costs. Now, however, rural broadband networks have been reengineered to be environmentally-conscious and compact. Thus far, efforts have been concentrated into establishing physical financial institutions. For governments, such a solution, while more costly and difficult to establish, allows greater oversight over the economy of a country. Previously, mobile banking was thought of as independent from the government. However, it is becoming clear that this doesn’t have to be the case. In order for mobile banking to be as effective as possible, collaboration between corporations and governments is encouraged. Financial literacy is crucial to the success of mobile banking. Thus, part of the implementation of mobile banking would involve governments working with NGOs to establish such programs. Another critique of mobile banking that has delayed its growth within developing countries is that the currency of such countries is incredibly volatile. However, in most cases, the governments of such countries are equally volatile. Mobile banking serves as an investment; as more money is circulated within a country, mobile banking as well as the currency of that country will decrease in volatility. This is because as the economy of a country grows, it’s currency becomes more widespread and access to financial resources becomes more widespread. Moreover, It also serves as an investment into quality of life, providing upward mobility. 

Mobile banking allows family members to rapidly transfer money to one another in cases of emergency, allows parents to send the money necessary for school supplies to a child living away from home, connects small business owners with microfinancing options, and allows women to start small businesses. An expansion of mobile banking would clearly be beneficial to the world’s large unbanked community. Not only will such a solution be much quicker to implement than expanding access to bank accounts, but it’s more feasible and cost-effective as well. The many NGOs already present in developing countries could serve as a link connecting users to a mobile banking system by helping to provide the necessary monetary resources as well as financial literacy programs. In the simplest of terms, mobile banking is the missing link to allowing us to provide billions of people with financial independence.

Photo: Image via WorldRemit Comms (Flickr)

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