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Mobile payments will change the way we access cash

Categories : Uncategorized
May 30, 2016
Published in : Africa, Asia, Availability, Cash substitution, Mobile Payments, Payments competition, US
Many observers and payments experts have viewed mobile payments as the silver bullet to replace cash. Mobile handsets have become ubiquitous; the growth of m-commerce creates a natural market for m-payments; the handset can become a natural link between the physical and digital worlds. There are nonetheless several reasons why they are unlikely to replace cash.
Guillaume Lepecq

In October 2014, ApplePay was launched in the US. Shortly after, Apple CEO Tim Cook proclaimed «2015 will be the year of Apple Pay.»  According to Pymnts.com, in October 2015, only 16.6%  of iPhone 6 and 6+ owners had ever tried Apple Pay.

Many other players offer mobile payments solutions. For example, Samsung Pay is currently available in the US and Korea, Swish is popular in Sweden and, of course, there is M-Pesa in Kenya. The latter is often considered the success story in mobile-based payments; it has  shown that sophisticated smartphones are not a pre-requisite for mobile payments and that developing countries have a huge potential.

Many observers and payments experts have viewed mobile payments as the silver bullet to replace cash. Mobile handsets have become ubiquitous; the growth of m-commerce creates a natural market for m-payments; the handset can become a natural link between the physical and digital worlds.

There are nonetheless several reasons why they are unlikely to replace cash.

Firstly, mobile phones represent a significant cost, both for users and countries. A research article[1] from the Department of Geography at Trinity College Dublin and the Department of Geography, Environmental Management, and Energy at the University of Johannesburg in South Africa concludes that «mobile phones may, at times, be implicated directly in the production of poverty.» This is illustrated through several striking examples:

  • In Ethiopia, the poorest 75% of the population who use mobile phones spend 27% of their income on them.
  • In Niger, the cost of a one minute call off-network is $0.38 per minute, representing 40% of a household’s daily income.
  • Research among university students in Tanzania found that they were spending five times more on mobile phone connectivity than they were on food.

Secondly, far from displacing cash, mobile phones are simply changing the way consumers access it. M-Pesa provides a clear illustration. M-Pesa (“pesa” is Swahili for money) was launched in Kenya in 2007 by telecommunications provider Safaricom as a money transfer service, enabling users to send and receive money through their mobile phones. Today M-Pesa is the most developed mobile money system in the world and often recognised as one of the key innovations in payments of the last decade. While numerous features have been added to M-Pesa since its inception, it remains essentially a cash transfer system using a network of over 60,000 agents. According to the World Bank, in 2012, 21 million Kenyans made 527 million transactions. Between 2007 and 2012, the value of banknotes in circulation increased by 63%.

As for mobile wallets, they are enabling ATM cash withdrawals. Citi has been testing a cardless ATM concept that lets customers make transactions using their mobile device instead of a card.  Wells Fargo has developed a mobile wallet which will enable customers to withdraw cash ATMs using their Android handsets. Over 40% of the bank’s ATMs will be NFC-enabled by 2016.

I have no doubt mobile phones will play a growing role in payments in the future. I don’t believe this will happen to the detriment of cash. On the contrary, mobile phones could well contribute to increase the velocity of cash.

 


[1] The Informationalization of Poverty in Africa? Mobile Phones and Economic Structure, Padraig Carmody, Associate Professor Department of Geography Trinity College Dublin and Department of Geography, Environmental Management and Energy University of Johannesburg South Africa

 

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