Mobile Money - Cashless payment revolution in developing countries

According to the State of the Industry Report on Mobile Money 2019 by GSMA, implementation of mobile money contributes significantly to global economic growth. The value of mobile money transactions in 2019 is $690 billion, up 20% from the past year. GSMA estimates, if usage of mobile money continues to grow at its current pace, by 2023, over $1 trillion will be transacted via mobile money, which means the industry will process more than $2.8 billion worth of transactions each day.

Mobile money can contribute greatly to economic growth in developing countries. Mr. Nguyen Manh Hung - Vietnam’s Minister of Information and Communications said "International experiences show that facilitating the use of mobile money can generate 0.5% of economic growth."

4 characteristics distinguishing mobile money and other digital payment method

  1. Money is mainly transacted via mobile phones

  2. Accessible to all the parts of the country by a nationwide telecommunications network and transferable to physical cash through a variety of physical retail stores and services that take on the dual role of being a mobile money agent (e.g. bank branches, retails stores, telecom distribution agents, convenience stores); 

  3. Users are usually the unbanked and underbanked population; 

  4. Mobile money supports low-value payment (e.g. payment for daily necessities), low-value credit payment, money transfer, top-up and withdrawal of physical money at mobile money agents.

At its core, mobile money is similar to e-Wallets, but does not require banks to access and conduct mobile money transactions. This gives mobile money a number of advantages, such as:

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Low-cost set-up enables penetration in remote regions to serve underbanked and unbanked

The cost of setting up and maintaining bank branches in the rural and remote areas is too high relative to the revenue that can be reaped from serving these sparsely populated, underbanked and unbanked residents. Prepaid mobile recharge agent networks can piggyback on the existing infrastructure and networks set-up by telecommunication companies, lowering the costs of implementing mobile money in unbanked and underbanked populations. Using merely a verified mobile subscription, people can have a mobile money account to pay for transport, food, parking, or even services like tuition fees, medical fees, etc. to limit cash payment in these areas.

Remove geographical barriers to transfer of money

Mobile money implementation is one of the best channels for social programs to reach and provide support to each person who needs it. Mobile money enables family members working in different physical locations to support each other financially through mobile money transfers with ease, rather than having to spend time traveling to send physical money. This applies particularly to international remittances to allow migrants to remit money to their families in their home countries. Mobile money facilitates business transactions and dealings by micro, small and medium enterprises (SMEs) in rural and remote regions who would otherwise have to travel to make payment to suppliers and customers. This is especially useful in large sparsely populated regions that are spread out by large expanse of deserts. During natural disasters, when accessing physical money may be difficult, mobile money enables money to be transferred immediately to affected regions to support them in purchasing much-needed daily necessities and medical supplies.

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Reach of mobile money agents, bank branches and ATMs per 100,000 adults in 2019

Promote e-transactions in rural areas

According to statistics, most e-commerce transactions in Vietnam still mainly use the Cash on Delivery (COD) payment method. This method consumes more time, effort, and imposes costs on both buyers and sellers, while limiting the development of e-commerce. Now, with mobile money, people in remote areas can easily pay for goods and services remotely.

With mobile money, farmers can now sell their goods online directly to increase their income. When selling agricultural products in rural areas, most of the transactions are done face-to-face and are settled via cash payments. This is an inconvenient form of payment and limits the customer base the farmers have. Now, with consumer trends towards factoring in the origin and quality of products, urban households are increasingly purchasing agricultural products directly from the source. Farmers can take advantage of this trend to cut out the middlemen and increase their income by participating in e-commerce. To do so, farmers need access to a convenient and simple payment method - which money mobile provides. This is one of the main reasons why more than 50% of businesses globally that are reliant on mobile money feature products catered to local customers.

Develop online public services

Developing countries, including Vietnam, are now actively building and developing online public services as they are cost-effective, reduce complex administrative procedures, save people time and ease the burden of administration for government agencies. With the implementation of mobile money, development of online public services to serve rural areas will occur in the near future, to enable people to carry out activities and transactions with the government online, such as remote tax payment.

With so many benefits, developing countries recognize the need to focus on facilitating the use of mobile money. The Government of Vietnam is no exception, urgently researching and directing specialized agencies to achieve the target that is expected to be implemented in Q4 2020 to unleash the benefits that cashless payments can bring to the unbanked and underbanked populations.