Press "Enter" to skip to content

Mobile Money: Why consumers are yearning for more from the buffet

A very large part of the population is
still unbanked. The penetration rate of banking services remains very low, at
16%.

Mobile payments herald financial opportunity in Somalia. But for whom? And for how long?If Somalia’s telecommunications sector is the locomotive driving the economy, mobile money is the highway, transferring value and extending access to the economic playing field, nowadays at a rapid pace. 

Somalia’s mobile money services, such as Hormuud’s EVC+ or Telesom’s Zaad, have been acting as a virtual, dollarized currency since their inception. However, mobile money usage, and the extent of the dollarization and virtualization of the currency it represents, is actually far higher than previously thought. 

Research conducted with Altai Consulting through the World Bank’s Somalia ICT Sector Support Project and spanning all economic zones and Federally Ministered States, finds that it is the current mobile money ecosystem that achieves all this, and more. 

A stark example is the prevalence of mobile money usage (73%) compared to the 15% of the population who have accounts with formal banks. And the use of mobile money to transfer incoming international remittances domestically reflects the strong links that exist between mobile network operators and money transfer businesses (MTBs). 

This is a substantially different environment than telecommunications in countries across the rest of the African continent, which have been dominated by incoming multi-national companies such as India’s Bharti Telecom or France’s Orange. 

Given the complexity of operating in the Somali political environment, investment in telecommunications has been almost exclusively led by Somalis, both from the diaspora and within the country. As a result, the ICT sector has been able to leverage Somali social and business networks, and has created products uniquely suited to the Somali context. 

Mobile money services are often used for cash-in transactions or deposits of eMoney to mobile money accounts, cash-out transactions, and cash withdrawals. They are also used for bills, salary receipts, and merchant payment transactions typically ranging between US$20-US$200 each.

A very large part of the population is still unbanked. The penetration rate of banking services remains very low, at 16%.

To leverage the full potential of Somalia’s mobile money industry, operators need to offer more diverse, value added services to build up their user base and spur more use of mobile finance

Digital transactions are overall well known, while Somalis have low levels of understanding of loans and insurance services. People with lower levels of education tend to be less financially literate.

Usage of financial services remains very limited: 47% of Somalis do not send nor receive money domestically; 55% do not save nor borrow money.37% of Somalis have received international remittances over the last year. More than half of international remittances recipients receive more than US$100 per month.

For many Somalis, mobile money is unreliable and carries significant risks for their money as the system does not provide any guarantees for customers. In particular, Somalis perceive that mobile money services are more unsafe for their money and more unreliable than banks or hawalas.

Mobile money is also prone to technical issues and mistakes, users also deplore the lack of interconnectivity between the different mobile money services. Issues with cash/e-float management were also reported: for 22%, agents struggle to maintain enough cash to be able to conduct successfully all cash-out transactions. Many Somalis report that mobile money is unreliable and puts their money at risk because of a lack of interoperability between different services and transparency over funds.

The ecosystem is already robust, with nearly two-thirds of users choosing to keep funds in their mobile accounts rather than cashing them out. Large shares in the value mix of disbursements and bill and merchant payments, suggest an expanding ecosystem as increasing numbers of institutions and businesses start using mobile money.

Yet, just as mobile money in Somalia offers startling opportunities, it also comes with staggering risks. The current system in use in the majority of Somali territory lacks formal Know Your Customer requirements on customer identity, and parity between eMoney and cash in banks.

Yet despite these concerns, the sector is growing, and Somalia is forecast to play a significant role in reaching  725 million unique mobile money subscribers in Africa by 2020.

As such, the following policy priorities are crucial for sustainable growth:

  • Establishing parity between online and offline credit for mobile payments
  • Developing trusted “know your customer” systems
  • Ensuring interconnection of mobile payments between operators
  • Enabling Somali Shilling based mobile money transactions (alongside US$ based payments)

To leverage the full potential of Somalia’s mobile money industry, operators need to offer more diverse, value added services to build up their user base and spur more use of mobile finance. This will require reliable regulatory support from the government, as well as private sector adherence to financial and consumer security requirements. This could then help the industry gain more trust from the international community and Somali consumers.

Sharing is caring!

Be First to Comment

Leave a Reply

©2020 All Rights Reserved.
shares
0