Although banks are everywhere in the industrialized world, many people still struggle to access basic financial services. In fact, the World Bank estimates at least 1.4 billion adults don't have a bank account. These people are most often lower-income, less educated, women, or living in remote areas.
While bank penetration is lower in many developing regions, cell phones are more commonplace. In 2022, there were an estimated 6.6 billion smartphone users worldwide—that’s well over half the world’s population. The growth in mobile phone use has inspired an alternative banking revolution called "mobile money." Mobile money services offer millions of unbanked people a secure way to send and store funds. So, what is mobile money, and why has it become so influential?
Although banks are everywhere in the industrialized world, many people still struggle to access basic financial services. In fact, the World Bank estimates at least 1.4 billion adults don't have a bank account. These people are most often lower-income, less educated, women, or living in remote areas.
While bank penetration is lower in many developing regions, cell phones are more commonplace. In 2022, there were an estimated 6.6 billion smartphone users worldwide—that’s well over half the world’s population. The growth in mobile phone use has inspired an alternative banking revolution called "mobile money." Mobile money services offer millions of unbanked people a secure way to send and store funds. So, what is mobile money, and why has it become so influential?
Mobile money is a new kind of financial service that lets anyone with a cell phone transfer, store, and request money from their device. These services are similar to fintech apps—financial applications offered by financial institutions or third-party providers—like PayPal and Venmo, but they don't always require a bank account.
Many mobile carriers partner with banks or other financial service providers to offer mobile currency to their customers. In these cases, mobile money functions as "mobile banking" for those who don't have a bank account. People apply mobile money to many of the same functions they would use a standard bank account for, such as saving and transferring funds.
Before mobile money, mobile carriers discovered that people in developing nations were using "airtime" as a form of digital payment. Instead of wiring money between users, people in countries such as Kenya would send cell phone data as a form of mobile currency. People would store and transfer their airtime as they would money in a bank account.
While it's still possible to use airtime as a form of mobile cash, several companies offer services specializing in mobile money transfers. For example, M-Pesa is one of Kenya's most popular mobile money service providers. Created by the telecom company Safaricom, M-Pesa allows users to send or request money in real time using SMS texting. M-Pesa employs thousands of agents—often small mobile phone stores or retail locations—which allow users to deposit and withdraw in-person with cash. This service also allows people to spend digital dollars anywhere mobile money is accepted, such as grocery stores or gas stations. In Kenya, almost every business accepts money via M-Pesa, even in the most remote or poorest regions!
While every mobile money service has a unique set of features, all allow customers to use their phones to send and receive funds. These services must adhere to the financial laws and regulations where they operate, meaning users must submit personal information to verify their identities and access the platforms. Once users connect to a mobile money service, they can use it as a banking alternative for transferring and saving money. Often, a person's mobile phone number doubles as their e-wallet where money is stored.
Mobile money has many of the same uses as financial apps such as Zelle and Venmo. Although many people who have mobile money don't have a standard bank account, they use this tool for many similar functions:
Mobile money provides banking-like services in countries that don't have the same robust financial services found in industrialized countries. Some economists believe mobile money could help developing nations grow without investing excessive capital in building a banking infrastructure. By "leapfrogging"—or skipping past—the traditional banking industry, countries have more money to invest in community development and business growth.
Although mobile money is a relatively new invention, it's already having a profound impact on developing communities. Here are a few of the features that make mobile money so attractive:
Although cryptocurrencies share many traits with mobile money, they aren’t the same thing. Mobile money typically relies on centralized mobile providers to transfer fiat currencies—money backed by a country’s government rather than a physical commodity. However, cryptocurrencies like Bitcoin are decentralized peer-to-peer (P2P) payment networks. Crypto relies on a new technology called "blockchain" to verify transactions without a third-party custodian like an exchange or bank. Anyone with cryptocurrency in their digital wallet could send digital funds directly to anyone with a compatible crypto wallet.
Some crypto projects like Ethereum are attempting to build "decentralized finance" (DeFi) apps that mimic traditional financial services. For example, decentralized exchanges (DEXs) allow anyone to swap cryptocurrencies without providing personal information to a centralized company. There are also decentralized crypto loan services like Aave that accept crypto collateral without requiring a credit check. Many of the services in the DeFi sector are similar to those offered by mobile money, but they use different systems to achieve their goals.
The benefit of crypto is that it doesn't involve centralized intermediaries like mobile companies. This feature makes crypto more censorship-resistant than mobile money networks.
However, cryptocurrencies can have volatile price swings. And since blockchain is a relatively new technology, it is prone to hacks and scams. Plus, the regulation surrounding crypto assets differs throughout the world. There are even some countries, like China, that have firm bans against crypto transfers.
Mobile money opens many exciting economic opportunities for people living in developing nations. As mobile currency continues to grow, more individuals, families, and entrepreneurs can take advantage of an alternative to banking that still allows them to spend, earn, and save. The success of services like M-Pesa may also spur growth in mobile money transfer offerings in the developed world, allowing people to transfer and safeguard their funds outside of traditional banking.
Worldcoin believes cryptocurrency will play a significant role in the future growth of the global economy. To help more people experiment with blockchain technology, we're airdropping DAI stablecoins into millions of crypto wallets. Subscribe to our YouTube channel to learn more.