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Mobile money transaction

Mobile money transaction


Mobile money transferis a recent innovation that provides financial transaction services via mobile phone, including to the unbanked global poor. The technology has spread rapidly in the developing world, “leapfrogging” the provision of formal banking services by solving the problems of weak institutional infrastructure and the cost structure of conventional banking. This article examines the evolution of mobile money and its important role in widening financial inclusion. It explores the channels of economic influence of mobile money from a micro perspective, and critically reviews the empirical literature on the economic impact of mobile money. The evidence convincingly suggests that mobile money fosters risk-sharing, but direct evidence of the promotion of welfare and saving is still mostly rather less robust.


The technological innovation has helped ameliorate the perennial asymmetric information constraint faced by conventional banks in lending to the collateral-less poor.3 The movement of cash into electronic accounts gives a record, for the first time for the unbanked, of the history of their financial transactions in real time. By using algorithms, these records can provide evolving individual credit scores for the unbanked.4 After a designated period of usage and once a score is available, registered users of mobile money may obtain a pathway to formal banking services accessed only through a mobile phone: to interest-bearing savings accounts that can protect assets; to credit extension to invest in livelihoods; and insurance products that reduce risk.

Apart from reducing asymmetric information, the impact of enhancing transparency through electronic records is far-reaching. Tax collection could be improved by the rise of more visible spending, quite apart from the greater ease of tax collection via mobile money payments. The increased transparency of records protects customers’ rights and fosters trust in business, promoting the growth of efficient payments networks. Mobile money should make international transactions more readily traceable and therefore facilitate identification and better control of money laundering. If the high cost of remittances were reduced by mobile money, this could attract more official remittances, and re-channel “informal” remittances through official channels, raising recorded remittances.5 In essence, mature mobile money systems and the records they produce help foster the “formalization” of the economy, integrating informal sector users into business networks, formal banking and insurance, and linking them to government through social security, tax, and secure wages payments. However, there are legal data privacy considerations concerning access to and use of mobile money records which have barely begun to be addresse

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The channels through which mobile money can affect the economy are many and complex, and not necessarily well-understood. A burgeoning body of empirical literature has attempted to quantify the possible economic gains for different countries of access to secure financial services through mobile money (e.g., improved risk-sharing, food security, consumption, business profitability, saving, and use of cash transfers), and the factors driving the adoption of mobile money. Demonstrating welfare and risk-sharing gains from mobile money across countries could bolster the case for significant government and donor support, as well as investment.

Unfortunately, interpreting the evidence on the economic impact of mobile money is not straightforward. The empirical literature is burdened by a range of sometimes serious problems with data, methodology, and identification, which some authors underestimate or choose to ignore. Work on mobile money faces “selection” problems since both the “roll-out” of mobile money by Mobile Network Operators (MNO) and their agents and the adoption or usage of mobile money by individuals may be influenced by other factors such as education, wealth, and changes in technology preference. There is mixed success using various methods and data sets in dealing with the resultant ambiguous causality. Although various studies establish statistically significant relationships, they frequently do not test the robustness of their results to different model specifications, measurement errors, and bias due to the possible omission of variables. Furthermore, in practice it is difficult to generalize from these models.

This article introduces the phenomenon of mobile money and its role in financial inclusion. It examines possible channels for the economic influence of mobile money, and reviews the new empirical literature on mobile money, both to obtain a better understanding of the linkages involved and to critically assess the sometimes strong claims made by the authors. Lessons are distilled for improved practice in the future empirical analysis of mobile money.