Mobile money in emerging markets still fragile

Activity in mobile payment services, and more broadly mobile money services, is accelerating in many emerging markets. The report from research firm, Ovum, finds the market is still in its infancy, yet it has the potential to become a massmarket service, penetrating one third of all mobile users in emerging markets in five years’ time.

However, much will hinge on how well the industry addresses various market barriers, and its ability to nurture user demand with clear, simple and attractive propositions, Ovum stated.

The mobile money market has accelerated in the last two years in emerging markets, mostly in more mature markets, said Angel Dobardziev, emerging markets practice leader at Ovum, who commented: “The success of Vodafone’s Kenya subsidiary Safaricom with its mobile money service M-Pesa has underlined the potential for mobile money services.” Yet, despite more than 100 launches of mobile money services by both service providers and banks globally the market remains in a fragile state with few well established services.

While there is a range of alternative scenarios, Ovum predicts that the most likely scenario will be a market where service penetration reaches between 30% and 40% of the emerging market’s mobile users in 2014. Where the industry resolves the market barriers more quickly than envisaged, an optimistic scenario is possible where strong user demand propels mobile money services to penetrate between 60% and 70% of the mobile users in the emerging market by 2014.

One of the key factors influencing market uptake of mobile money services is the relatively low penetration of access to financial services compared to higher (and fast growing) penetration of mobile services.
Service providers along with banks will need to target unbanked and connected customers as they are the key demand driver for the market today, says the report.

“Recruitment, training, incentivising and support of networks of mobile money agents will be key to service providers’ mobile money strategies, particularly when it comes to targeting unbanked customers”, said Dobardziev. “Without access to an extensive distribution network for the users to deposit and withdraw cash as they make use of the service, users will be prevented from making the most of the service.”

In order to ensure early user disappointments do not extinguish the market, services providers must get the basics of the service right. “This means not losing sight of the fact that telecoms and banking have very different volume, size, margin and error tolerances on their core transactions. As the two worlds draw closer with mobile banking, this will mean a different mindset and approach to service provision, reliability and security,” Dobardziev concluded.

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