Mobile money has demonstrated the usability of FinTech by dramatically raising the user base
What do cows, cowries, and copper coins have in common? All were once forms of money, and coins even have etymological connections- the English usage of the word “cash” can be traced back to the Tamil kaasu, meaning “coin money”. These bulky items have been replaced by more portable and digital upgrades - including the most recent Bitcoin - a transformation made possible by the advent of FinTech, or Financial Technologies.
FinTech has catered to the fast movement of money across platforms, geographies, currencies, and usage contexts. Operating digitally, FinTech has revolutionised how we pay for goods and services, with Mobile Money (or “MoMo”) being its most successful application. Understanding the leap of money from metal pieces and promissory notes to MoMo requires appreciating the shift towards “cashless” transactions. FinTech builds on the cashless push, and replaces pocket wallets with mobile phone apps, and expands the mandate of MoMo to lines of credit, investments, insurance products, and much more. Universal access to formal finance isn’t fully realised in India, but as a recent World Bank report shows, MoMo holds huge potential to achieve this goal.
MoMo has demonstrated the usability of FinTech, dramatically raising the user base and acting as a beacon of financial access. Solutions like MoMo factor in the needs of a large and diverse population who are typically mobile-first internet users, who (be)come online for prospects of education and entertainment, and stay for the utility of internet-facilitated services. It also represents the ‘shampoo-sachet’ moment (as articulated by CK Prahlad in the Fortune at the Bottom of the Pyramid) of FinTech in developing economies where the uptake of technology is driven by vernacular needs and small margins. Such reimagination of the poor as users who can access bite-sized products lays the foundation for bridging the financial gap through a digital solution.
There is an untapped opportunity in the deployment of MoMo to mitigate credit access issues, especially given India’s challenge of limited access to formal banking services. Data shows that every fifth Jan Dhan account opened under the scheme to enhance financial inclusion, especially in rural areas, is inoperative as of 2020. The World Bank’s Global Findex Report 2017 highlights that an increase in account ownership does not correspond to an increase in formal savings. Simultaneously, mobile phone ownership among the unbanked in developing economies tends to be high, at ~50% in India. These observations point at the role MoMo can play in banking the unbanked and offering a savings and credit opportunity to at least a sixth of India’s population.
Another avenue that could use a digital makeover is in mediating welfare transfers from the government to beneficiaries. India’s tryst with Direct Benefit Transfers (DBTs) in the form of subsidies (for cooking gas, discounted grain & pulses), anti-poverty schemes (like MGNREGA), and Conditional Cash Transfers to achieve targeted outcomes (Mother & Child nutrition) shows that there is a real potential for impact at scale using MoMo. With the ubiquitous internet-equipped smartphone, MoMo can be a conduit for government-citizen interactions, increasing accountability in fund transfers to eligible beneficiaries. This also reduces the dependence on scant bank branches in remote areas.
MoMo also has a role to play in contexts where well-developed banking infrastructure is absent. Evidence from the last decade in Asia and Africa indicates that MoMo can act as wire-transfer channels for small amounts, as illustrated by the success of m-Pesa. MoMo as microcredit addresses demands such as cash flow-based lending which can extend financial access to many. For example, startups such as Avail Finance and others, allow platform workers receive collateral-free loans to kickstart their micro-entrepreneurial journey and cover personal expenses as well. Thus, the interoperability of MoMo with many digital platforms unlocks millions of livelihood opportunities in India.
The promise of MoMo is in its ability to bridge. Today, MoMo is not merely an urban-first industry but is rapidly expanding into rural India, bridging the digital divide and making rural consumers digitally and financially proficient. Startups like Jai Kisan offer instant and inexpensive credit to farmers in over 10 states in India, harnessing the power of MoMo. These efforts point at the jostling between the incumbents and the emerging technology players to cater to the next billion users across the developing world, as there is good money to be made doing business with “sachet” buyers.
Overall, MoMo brings poverty alleviation tools to the mobile phone. It acts as a medium of exchange, doubles up as small savings, and can extend credit efficiently. Undoubtedly, MoMo has the transformative potential to secure financial futures at scale, catalysing the next revolution of growth with prosperity in India.
Aishwarya Raman, Associate Director and Head of Research, Ola Mobility Institute, and Sreelakshmi Ramachandran, Research Associate
DISCLAIMER: Views expressed are the authors' own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.