Building capacity to help Africa trade better

Mobile payments to determine future of global economy


Mobile payments to determine future of global economy

Mobile payments to determine future of global economy
A man uses his mobile phone in rural Mauritania. Photo credit: Kristin Palitza | IPS

Half the global working age population does not have a bank account, yet six billion people have access to a mobile phone. Ninety percent of people in developing countries have mobile phone subscriptions and 84 percent have signed up to mobile broadband subscriptions.

This supports an upward trend in adoption of mobile payment technologies in developing countries, where many users now have a means to utilise previously inaccessible financial services via their mobile phones.

It has been predicted that mobile payment subscribers will reach almost 1.1 billion users by the end of 2015, with an annual 1.3 trillion dollars in global mobile commerce by 2017.

The growth of mobile data traffic in Africa is also expected to increase 20 times between 2013 and 2019, Latin America is forecasted to experience a 67 percent growth in mobile data traffic by 2017, and Asia Pacific will produce 47 percent of all global mobile data traffic within this same period.

On a global scale, mobile data traffic will surpass growth rates of Internet access, driven primarily by developing economies that are reliant on mobile data to access the internet. Mobile devices will continue to be more common than desktop or laptop computers in developing countries, signaling that mobile commerce will continue to dominate e-commerce.

Societies that have weaker financial systems with less regulation are quicker to accept m-payment technologies, with better consumer response than in developed economies, possibly due to different expectations than those in developed economies.

These emerging economies will face a range of growing pains as regulations and competition surface in markets where digital transactions represent the first ‘mainstream’ financial system. It’s unclear whether the current model will be sustainable.

It’s highly likely that emerging economies will bypass diffusion of credit or debit cards completely. Current trends have demonstrated a move directly from cash to mobile. In order to get a credit or debit card, individuals must go through a lengthy process and merchants must invest in hardware to accept cards. Using mobile payments typically just requires a basic mobile phone subscription in developing countries.

Mobile payments and mobile banking in developing countries will establish a financial system which will be led primarily by private sector telecommunication companies.

Banks will try to enter these new markets, utilising this technology, but in many areas, telcos are already dominating the marketplace. For example, Safaricom’s M-Pesa service in Kenya has already encompassed 92 percent of the market.

“If banks try to enter markets where they’re not very well known, they’re going to have to spend huge sums trying to gain market traction and convert customers, whereas telecommunications providers are there already. Most of the services available are heavily engrained,” said Markus Milsted, CEO of mobile payment solutions provider, Omlis.

“The natural synergy is that a telecommunications provider and a financial institution sign up together, to provide banking facilities through a mobile phone which is regulated by the bank, controlled by the bank, but there’s a joint venture partnership.”

Estimates say that there is over one billion dollars in cash being saved outside of formal financial services in Africa. A reliance on cash has been shown to initiate crime, but putting money into digital accounts may drive crime rates down and secure finances for those who never had access to protection.

Populations that have never had access to a bank gain will now have access to transaction services, bill-pay, insurance, and credit scoring through new mobile payment systems.

Traditional forms of currency aren’t likely to become obsolete anytime soon, but the number of people using them will diminish in the years to come. When it comes to decentralised systems like cryptocurrency networks and the introduction of new payment technologies, complex parametres will need to be implemented for global regulation of currencies and the management of new and emerging technologies.

Digital transactions will also shed light on previously unmonitored financial activity in emerging markets. Data will become available that can help economists develop a further understanding of how money flows between people and places.

However, financial services provided by unregulated and unpracticed private companies could also result in higher costs, monopolies, and inflation. Entire populations begin to rely on unregulated systems for storing their money, placing trust in an entity that may not be secure.

With the right technology and improved security, new opportunities become available to emerging economies, enabling new business development and individual progress, borderless transactions, and financial inclusion.

“The last 50 years has seen us accelerate massively, with profound changes in terms of actually using transactions and currency as a primary method of trade. So in terms of what the future holds for digital payments, we’re only beginning to see the start. I don’t think 2015 or 2016 will be the year of mobile payments, but I think it will be 2020 before we see the critical mass of mobile payments,” said Milsted.

“This is because of certain political, cultural and socioeconomic trends and the global world pace, and the fact that it takes a while to get that technology into the mass hands. The critical changing point will be when you take mobile payments at the merchant point of sale, where the merchant isn’t competing with the providers of the mobile payments, when there is a standardised approach and the mobile can be used by people of all types, generations, backgrounds, and creeds.”

Emma Thompson is Marketing Executive at UK-based Omlis Ltd.


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