Delivering on the Savings Promise of Mobile Money

by Ignacio Mas : Tuesday, April 26, 2011

People’s savings goals generally relate to future payments they would like to make: for school fees, housing, weddings, working capital for trading activities or health emergencies. By planning payments, households can seek to stabilize their daily circumstances, develop opportunities to improve their condition in the future, and mitigate shocks that can set their families back. Thus, the notions of savings, payments and budgeting are inextricably linked.

Yet most savings services available to the poor do not link these three elements. Budgeting is often treated as a financial education matter, not directly facilitated by savings products. And the basic accounts of many banks and financial coops often stand in splendid isolation, offering few if any payment benefits.

The innovation of mobile money has been to put payments as the first rung in the ladder of financial inclusion, but now we are observing that the step from sending and receiving money in real time to storing value over time looms large for most users. Budgeting tools may be a missing link in mobile money. To make mobile money services more relevant, they need to be packaged as elements of a broader savings proposition based around helping people budget for today and plan for tomorrow. This should accommodate the mental models that they already use today, just with better tools.

Mobile phones offer a special opportunity for integrating savings, payment and budgeting tools seamlessly for the client. The phone offers a level of immediacy and interactivity that no other kind of banking touch point can deliver. It needs to evolve from being a mere payment instrument (a card and point-of-sale terminal replacement technology) and become a tool that helps people manage their money. The phone can act as a passbook, a calculator, a channel for alerts and reminders – all at your fingertips.

The mobile user interface –the set of screens that people use to handle their finances on a mobile phone—will therefore be a key determinant of how successful mobile money turns out to be in facilitating fuller financial inclusion. How will mobile money providers present the range of budgeting tools, savings options and payment services to their clients? The product challenges in the front end (user interaction on a very limited user interface) will eclipse the traditional challenges in the back end (integration into the core banking system).

Mobile money is not just a cost reduction story; it ought to be a service creation and integration story as well. Mobile phones offer the possibility for banks to maintain a constant presence in their customers’ lives, helping them budget for today and plan for tomorrow.

–Ignacio Mas is the Deputy Director of the Financial Services for the Poor program at the Bill & Melinda Gates Foundation. The views expressed in this post are entirely those of the author and should not be attributed in any manner to the Gates Foundation.

The next post in a new CGAP series on savings. We look forward to your comments in the coming weeks.

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  1. April 27th, 2011 at 10:07 am, Bob Bragar, Amsterdam NL ()

    I think mobile banking is great, because it eases the lives of the poor. Its efficiencies are undeniable But we have to ask the question: Does it make poor people less poor? Is “financial inclusion” more than just a convenience in this case? Can it help to affect structural change that will bring people out of poverty? Or is it really being promoted as a new market, a new profit center for technology and cell phone companies? That’s not evil, per se, but it’s different than poverty alleviation.

  • May 2nd, 2011 at 1:23 pm, David Stoker ()

    Widespread mobile banking will be a massive structural change that will open up all sorts of possibilities for poverty alleviation strategies because, among many examples, it will create a digital identity and history, lower transaction costs and increase the speed of the movement of money which are both particularly disruptive innovations in low infrastructure and rural environments.

    I would anticipate that remittances, matched savings, and government payments would be the next round of transactions that could move to mobile platforms.

  • May 6th, 2011 at 1:34 am, mobile budgeting ()

    Saving the money via mobile phone is great concept. I really like that

  • May 7th, 2011 at 9:19 am, Dr.V.Rengarajan ()

    Ignacio Mas
    ny innovative model using technology in particular under Microfinance arena need to focus on the poor segment and should result in poverty reduction. This mobile money, no doubt, would facilitate for the financial institutions for easy out reach and help faster financial inclusion with cost reduction: but at poor client level the question “to what extent does this mobile money facilitate poverty reduction ultimately ?” need to be probed. In such cases, the efficacy of this technology largely hinges on technology education, medium of communication and post sales mobile device services with the given literacy level in remote areas.

    Further in poverty segment, the migratory poor laborers in services sector particularly are very much in need of transferring money(wage income) from the place of work to their native villages frequently mainly for the purpose of consumption and financial obligation of their family and also keep some saving protected . I am more interested to know How far does this mobile money could address the problems of these category of the poor ?
    Rengarajan

  • May 10th, 2011 at 12:07 am, MICROCAPITAL BRIEF: CGAP (Consultative Group to Assist the Poor) Microfinance Blog Discusses Role of Mobile Phones in Integrating Savings, Payments, Budgeting Services ()

    [...] CGAP (Consultative Group to Assist the Poor) Microfinance Blog, “Delivering on the Savings Promise of Mobile Money”, http://microfinance.cgap.org/2011/04/26/delivering-on-the-savings-promise-of-mobile-money/ [...]

  • May 12th, 2011 at 7:07 am, Ignacio Mas ()

    Dear Dr Rengarajan

    Yours are of course very valid questions, which we are all anxious to see answered empirically. So far we can look at the experience in relatively few markets, where it’s taken on at scale.

    The diffusion of mobile money in Kenya has proceeded at a speed and to an extent that few of us could have imagined. See the detailed survey work done by Billy Jack of Georgetown University and Tavneet Suri of MIT (http://www9.georgetown.edu/faculty/wgj/papers/Jack_Suri-Economics-of-M-PESA.pdf). They report that, 2.5 years after the launch of M-PESA, 70% of households had at least one M-PESA user, including 50% of unbanked and 60% of rural households. It may not be reaching the poorest, but it’s well on its way. Fingers crossed.

    Ignacio

  • May 14th, 2011 at 10:40 am, Dr.V.Rengarajan ()

    Thank you for your response. I appreciate the effort for outreaching the unbanked and rural area with mobile money in Kenya. What I wish to share that out reaching need to be ensured with social impact eventually at Household level. Further, the survey report quoted, indicates that the households studied represent unbanked and rural households. However it is not clear in the report also whether they actually belong to the MF target group – the poor. Can we assume that all people in unbanked and rural area belong to poor in Kenya? I am glad to note that out reaching the poorest is on its way. Still, by the time, the impact of this mobile technology may likely widen the ‘inequity gap’ between the poor and the poorest in the poverty pyramid due to ‘tech divide’.
    It is not against any technoly but what I emphsize that it is only menas in the battle against poverty and it should not become ‘end’ itself.
    With good wishes
    Rengarajan

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