Over the last two months, we discussed the state of mobile money usage, access, product offerings, ecosystem, revenues and mobile insurance. And in today’s final blog post in this series I will try to answer the following question: how has mobile technology expanded credit and savings services?
In this year’s State of the Industry report, for the first time, MMU looked at the state of mobile credit and savings. The MMU Deployment Tracker reveals 39 live mobile insurance services, 11 of which launched in 2013. In addition, 15 Global Adoption Survey respondents reported they were planning to launch a mobile credit or savings service in the next twelve months.
Introduction
In developing countries, there are many adults without bank accounts and hence if any money is saved, it is probably under a mattress or locked away, not accruing any interest. Mobile credit and saving services are an innovative way of encouraging a culture of saving without requiring minimum account balances and other traditional banking-style fees. Mobile technology can also provide avenues for people to access loan products.
Whilst the potential of the mobile credit and savings industry is identifiable, it will need to rely on the infrastructure of mobile money deployments in order to succeed in reaching unbanked communities. As a result, the most successful mobile credit and savings services to date are in countries where mobile money ‘sprinter’ services have already reached a large proportion of the population (Kenya, Zimbabwe, Pakistan).
Can traditional mobile money services be used for savings?
Indeed, some people will cash-in and store value on their mobile money account until the point that they need to perform a digital transaction or cash-out. This use case can be quite common in some markets. For example, CGAP analysed usage of mobile money services in West Africa and found that savings was the most popular use case [i]. There is customer demand for a mobile-enabled solution allowing people to store and save value in a secure and convenient way. However, traditional mobile money services do not offer optimal user experience when it comes to savings and so a number of companies have decided to develop specialised mobile savings solutions.
What do mobile savings services offer?
Not all mobile money savings schemes pay interest; nearly half of the providers in our sample do not pay interest, including some banks. Some mobile savings customers choose to save, even though they don’t earn interest, demonstrating there is customer demand for mobile savings either for securing against theft or saving for high-price purchases. Given most bank accounts in emerging markets are effectively negative interest, the fees exceed any possible interest earnings for low-income individuals. A truly no-fee, no-interest account is actually a step up from the status quo.
Transitioning from traditional to mobile credit and savings services
Informal means of collecting and lending money through a savings club or a money lender is used throughout the world and has over 200 different names that vary from country to country, including Susu in Ghana, Chama in Kenya or Chit Fund in India. Initially, many people expected these types of savings groups to adopt mobile technology in a bid to improve transparency and accountability, whilst this hasn’t happened on a large scale, mobile credit services are being set up to provide micro loans to low-income individuals as an addition to traditional credit and savings groups.
Impact of mobile technology: using customer call history for credit scoring
Algorithms using airtime purchases and call history data for credit scoring allow providers to measure consumer purchasing power and reliability, lower the cost of customer acquisition, and reduce default rates, all of which improve the ability of both traditional micro finance institutions and mobile credit providers to offer credit services to greater numbers of people.
This has resulted in multiple mobile credit services being offered on one mobile money deployment, such as M-Shwari (service offered by Kenya’s Safaricom) and Musoni (service offered by a third party provider), proving that these services are not strictly the domain of mobile money deployments and that there is an opportunity for other third party providers to jump on board.
Conclusion
Most mobile credit and savings services are still in early stages of development. Given they both require the rails laid down by mobile money deployments, the evolution of these products will take time. However, early successes we have seen so far are very encouraging to the industry.
Download the 2013 State of the Industry Report & presentation slides
[i] CGAP, “Usage Behaviors of Customers of a Mobile Money Service in West Africa” (May 2013), available at: http://www.slideshare.net/CGAP/usage-behaviors-of-customers-of-a-mobile-money-service-in-west-africa