The rise of mobile money in Zambia. Has this digital technology lived up to its promises?

Global mobile money transactions are driven by users in Africa with values exceeding billions of dollars. Mobile money has been seen as a tool for expanding access to financial services in low-resource environments. Using just a mobile phone, people are able to quickly transfer money at a low cost and without needing access to a banking account.

The question stands: What is mobile money?

Mobile money is a digital payment platform that allows for the transfer of money between cellphone devices. This technology is installed in the SIM card of the mobile device and can be used on regular and smartphone devices. Mobile money users can receive, withdraw, and send money freely without being connected to the banking system. This digital payment platform differs from mobile banking as users connect using internet-enabled mobile devices to manage funds in their bank accounts.

Where families and friends financially support each other, even when geographically distant—are particularly well-placed to realize the benefits of this technology. Prior to Zambia\’s recent growth in mobile money services, household members had to find creative ways to send money to loved ones who lived across the country. Mobile money offered a solution with direct person-to-person transfers quickly and securely.

But does this technology live up to its promises? How are households who use mobile money impacted?.

Mobile money can generate financial freedom.
Research is emerging with a consistent finding that households are able to better respond to unforeseen difficulties when they have access to mobile money. When an unexpected negative event—such as a flood or a child falling ill—occurs, households with mobile money are able to rely on the easy and affordable transfer of money from family and friends even if they are living far away.

In Zambia, a study technique has shown that the impact of mobile money on a household’s resilience can be sizable. Households who had access to a mobile money platform during a negative event such as unexpected bad weather or illness in the family were able to respond promptly and did not have to reduce their spending on food and other expenses in response to the event. This is because mobile money helps in sharing risk among the community or family irrespective of location, strengthening the need for these network platforms.

In related work that also uses a methodology, researchers looked at the effects of a health ailment and found households who used mobile money were able to spend more on health-related expenses while keeping up with other household payments. Households who didn’t use mobile money financed their health-related expenses by cutting down on household expenses.

Mobile money can encourage higher savings for households, it can also be helpful for financial discipline as it enhances saving. In Zambia, mobile money accounts for women are used to easily and safely allocate and label money for savings. Researchers found that labeling an account, such as encouraging women to use the account for emergency expenses and savings, along with a one-on-one activity eliciting savings goals and weekly SMS reminders on the savings goals especially led to an increment in the amount saved. This amount accrued helped women respond to unplanned expenses and made them less reliant on others for support.

Households with mobile money accounts were 14–20 percent more likely to save and their average household savings increased.

Mobile money facilitates transparency and formalization as it electronically records all transactions, which improves the security of payments as well as their transparency, the consequences of which could have a positive effect on the economy.

Transparency of transactions could greatly improve tax collection. A mobile money system could also foster formalization of the economy, integrating informal sector users into formal banking and insurance, and allowing for stronger links to the government through social protection schemes, tax collection, and other government programs.

In the long run, mobile money has been found to change the way that individuals within households make decisions around their occupation. In Zambia, researchers used a difference-in-difference methodology to examine the long-run effects of mobile money usage and found that higher access to the platform changed occupation choices, especially among women. The study shows that a high turnout of women moved from agriculture to small-scale retail as a result of access to mobile money.

Similarly, access to mobile money led to a shift from farm-based work to self-employment in Zambia and migration from rural to urban areas where the income is higher. The latter was because mobile money increased individuals’ trust that they could easily and safely send money to their families in the rural areas.

The researchers proved that mobile money could give women in male-headed households, more financial independence. Agent density played a key role. Increased agent density in specific areas was linked to a higher percentage of women taking up this business than their male colleagues.

While mobile money looks promising,however, it also has a few cons.
As described above, the effects of mobile money on poverty reduction, and its ability to mitigate the effects of negative events, are impressive. However, there are a number of factors required for these impacts to be achieved. These include:

Developing a strong network of agents to deliver the mobile money system.
Making the registration or use of the technology simple and user friendly for the consumer;
Creating a strong regulatory environment once the technology has been developed.
Individuals must have access to mobile devices and they must understand how to operate mobile money transactions.

With all the promise that mobile money holds, it is not without any challenges and risks.

Infrastructure challenges: Mobile money requires telecom infrastructure and a lack of broadband infrastructure in an area means there will be limited integration with other digital financial products. Mobile money is often reliant on SMS-based technology which makes it difficult to link mobile money with internet-based digital products.

Operational risks: Evidence also suggests that mobile money opens room for fraud. Research shows many mobile money companies are vulnerable to hackers due to improperly encrypted communications, potentially allowing a hacker to steal money.

Regulatory challenges: Finally, many policymakers and private sector companies still struggle with unanswered questions around how to design mobile money platforms and networks, link these to their digital identification systems, and increase the spread of mobile money to create stronger financial markets.

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