Mobile Wallet: The catalyst for a cashless economy and financial inclusion
Technology innovations over the last few decades paved the way for plastic money, which brought easy portability of money along with security. It also helped governments to deal with the challenge of money laundering by providing an effective and consistent trail of all the transactions. However, the benefits of plastic money could only be reaped by people who were included in the banking system or the banking network. As it happens, banks cannot reach out to every person or be participants in every financial activity, and this points us to a longstanding problem - a significant portion of the world's population is still unbanked and survives on paper money. The percentage of unbanked population is especially high in most African and South Asian countries. This makes it difficult for the governments in these regions to draw an effective economic policy, to extend financial benefits to its citizens, or even curb financial irregularities for that matter. A possible solution to these problems could be the mobile wallet - a recent technology that can pave the way for a cashless economy and lead to global financial inclusion.
The internet and mobile phones have a far better penetration in all parts of the world when compared to any banking system. This makes the mobile wallet a more relevant choice from among the new-age technologies that can take banking to the unbanked population of the world.
This is because one requires neither a bank account, nor any credit checks to possess a mobile wallet. They offer support for multiple channels, such as SMS, WAP browser, mobile apps, and GPS (Apple's Passbook automatically brings up coupons and tickets on the phone's screen based on the user's location). This technology overcomes the hassles associated even with low value transactions such as valet parking and tips given at restaurants. In fact, MiPayWay has begun testing a mobile payment system that allows tipping without cash.
Nordic countries are fast headed towards becoming truly cashless economies. The Mobile Pay app launched by Danske Bank in Denmark already has 1.8 million users in a nation of 5.6 million people.
Coming back to financial inclusion, M-Pesa presents to the industry a success story of a mobile payment solution that has now gathered millions of consumers in Kenya. Due to the lack of a banking network, lesser than 25% of the Kenyan rural population was included in the banking system. Even where there were banks, the lengthy credit check processes and the minimum balance requirements posed serious challenges to consumers. However, with a high mobile adoption rate and an attractive transaction fee structure, M-Pesa became a preferred service among consumers as well as businesses in Kenya. Today, almost 70 percent of the Kenyan adult population uses M-Pesa.
In India, one of fastest growing economies in the world, currency notes in circulation account for 12.3% of the gross domestic product (GDP), whereas globally, they account for 2.5% to 8%. Also, bank account penetration is just around 53%, which is lower than the world average. A study by IAMAI and KPMG suggests that the number of mobile internet users in India will cross the 300 million mark by 2017 - that's almost double of the 159 million users in 2014. India is one of the largest markets for smart phones and thus, the mobile wallet can prove to be a technology revolution that achieves what traditional banking has not been able to, so far.
Today, there is a race in the market among players from different industries offering mobile wallet solutions. This includes various institutions, such as banks, telecom companies, tech giants (such as Google and Apple), and even merchants, each with their own strengths and weaknesses. Where banks enjoy the trust of customers for being the all-time custodians of their money, tech companies are beating everyone on the innovation front. Additionally, other players are bringing rewards, offers, and other value propositions, based on the nature of their respective industries.
However, to realize the bigger picture of tapping the unbanked population and replacing paper money, we need to have mobile wallets form the basis of all financial activities, instead of restricting them to a particular industry, select products, specific transactions, or even the current generation of customers. A large number of people are still uncomfortable handling money matters electronically. This is either due to old habits or a lack of education and awareness on the matter. To increase the adoption of mobile wallets, end users' concerns around identity theft, hacking of devices, or loss of personal information during transactions need to be satisfactorily addressed. Different players enabling the mobile wallet ecosystem, such as banks, merchants, telecom service providers, device manufacturers, and payment processors, need to develop a common platform that serves all financial activities in a consistent and convenient manner.
Not just individuals, but also businesses need to move to mobile wallets. A common payment platform for all the merchants is the need of the hour. Various mobile wallet solutions, operating independently today in the market, should allow money movement or transfer between each other - in the same manner banks allowed customers to withdraw money from any ATM. Governments can also play an active role by associating perks and rewards with mobile wallet transactions. Given the fact that there is a significant cost associated with the handling of paper money, which is borne today by the governments, reducing the use of paper money can certainly lead to significant savings. In the end, governments need to pass these benefits on to the end users and merchants.
A truly cashless economy will have fewer frauds, consistent audit trails, more compliance, and an effective management of money movement. All this is achievable by effectively leveraging available technology to replace physical money with virtual money and thereby ensure safety and convenience for the end users.