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Mobile money interoperability: what does it mean for emerging economies?

Nick Perzhanovskiy
Nick Perzhanovskiy Business Development Manager
7 minutes to read
impact of mobile money on emerging economies

Everyone knows Bill Gates as the richest men and the founder of one of the most successful tech companies in the world. 

But he’s also the most generous philanthropist and the leader of Bill & Melinda Gates Foundation whose main task is to combat extreme poverty and poor health in developing countries.

Interoperability of mobile money (MMI) is one of the aspects the Foundation focuses on.

In simple terms, MMI means that if you have some money topped up in your Vodafone account, you can freely transfer it to your friend using another Keepgo. 

Bill and Melinda believe that tech innovations and new approaches will help people and SMMEs improve the entire standard of living and boost the economy.

Let’s learn how.

If you have a particular question on mobile money interoperability, reach out to our team and let's see how we can help.
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What’s the impact of mobile money on emerging markets?

In a broad sense, interoperability is the ability of two or more systems to exchange information in a pre-defined manner, just like Facebook can interact with Apple iTunes or Google Play Music, for example.

MMI covers the retail banking and mobile payments where interactions take place between any service company (bank, mobile operator), through any medium (smartphone, PC) and in the form of any product, mainly as payments and money withdrawals.

According to NextBillion, there are several types of MMI:

  • account-to-account interoperability (A2A). For instance, three users of different network providers in Kenya (Safaricom, Airtel and Telkom Kenya) can send money to each other through the ecosystem in real-time;
  • agent interoperability takes place in off-net transactions. A payer, a client of Agent A, sends the money to a payee, a client of Agent B, who wants to cash-out. The payee is sent a code via an SMS, which he/she needs to show to the payer’s mobile money service to get the remittance in cash;
  •  ecosystem interoperability relates to operations between financial institutions such as banks, payment systems and mobile money operators and takes a form of merchant/ payments.

Also, there is domestic interoperability when you can send money between different mobile networks in one country. If you’re in Tanzania and making a transfer to a friend in Nigeria via Western Union, it’s what they call International remittance or International money transfer (IMT).

Despite being here for over a decade, only the last year mobile money products in emerging markets were taken to a new level.

What happened in 2019?

  • the number of registered accounts reached 1B, and daily transactions grew to 2B. It means that one in eight people engages in mobile payments daily;
  • in June 2019 alone, at least 26 million unique customers made savings via mobile money (it’s 39% higher than in 2018);
  • 60% of service providers reported about a positive EBITDA, which means that revenues generated by mobile money were directed into advanced products and services, network expansion, and reasonable agent commissions
  • the number of agents has tripled over the past five years and in rural areas agents have a transformative impact on financial inclusion;
  • and what’s very important, now the ratio of digital to cash-based transactions is 50% higher than it was in 2017.
what is mobile money interoperability 10
The annual transaction value of the next-generation payment technology market worldwide from 2015 to 2022. Source: Statista

These are just numbers.

But what’s behind them is a leapfrog towards overall financial inclusion and fewer unbanked people. 

GSMA, one of our clients, who is very much involved in mobile money adoption in emerging markets, conducts surveys on the state of the industry regularly.

In a recent one, they highlight a few significant trends changing the industry landscape:

  • service providers are becoming commercially sustainable;
  • ‘payments as a platform’ model is gaining momentum;
  • new customer segments, including traditionally underserved and cash reliant customers;
  • new regulations (sector-specific taxation and data localization requirements);
  • mobile money driving financial inclusion for women;
  • unlocking access to utility services;
  • digitization of agricultural value chain payments.
what is mobile money interoperability 4
Regulation can affect provider profitability and ability to scale. Source: McKinsey

Benefits and challenges of mobile money impact

There is plenty of characteristics of developing countries, including:

  • low per capita real income, e.i. the population doesn’t earn enough money to invest or save money;
  • high rates of unemployment;
  • the domination of the primary sector (75% of the population is low-income);
  • low financial literacy and education level;
  • a large amount of cash in the circulation and a significant number of unbanked people.

The further expansion of MMI is going to solve the above problems partially. From successful business cases, the benefits of mobile money interoperability become apparent:

1. The more info, the better decisions 

Currently, there’s only 33% of the world’s adult population with credit history records. Often, lenders lack info and reject loan applications. The partnership between mobile providers and credit bureaus is going to provide more data for more informed decisions.

2. Save. Plan. Prosper 

Savings and investments are one of the essential products offered within the MMI system. Having access to smart investments opportunities, people will be able to cover such needs as education, home improvement and health support. Plus, they’ll have the financial cushion in the event of seasonal loss of employment.   

3. Inclusive insurance

The majority of the population in emerging companies is vulnerable, and mobile insurance is going to solve this problem. According to GSMA, over 14M of new policies were issued in 2019 alone, the most popular of which was life, health and accident insurance. Again based on Big Data coming from mobile devices and apps and providing patterns of typical behaviour, providers can offer more relevant products to different types of clients.  

what is mobile money interoperability
Source: GSMA

4. Saying no to the gender gap

Gender equality is one of the burning issues in the developing world. Women are consistently less aware of mobile money than men and often don’t own any mobile account. The main reason for it is a preference for using cash. Another one is low literacy, digital and financial skills. New products within the MMI framework are to better target existing and potential female customers.

Other merits include: expanding the reach of utility services, providing  humanitarian cash assistance, making agricultural value chains more efficient

The success of mobile money in emerging markets: from Nigeria to Peru

Innovations continue to push boundaries in Sun-Sahara Africa, East Asia and Pacific. We’ve collected the most successful examples of mobile money and financial services in emerging economies. Let’s see how little things can make great changes.

Nigerian-based Interswitch is an integrated digital payments and commerce company facilitating the electronic circulation of money between individuals and organizations.

The company offers solutions for individuals (Verve rewards and payment platforms), business (retail payments and funds disbursement), and opportunities for industries.

https://www.gsma.com/mobilefordevelopment/uncategorized/beyond-one-billion-accounts-how-is-mobile-money-helping-us-become-more-financially-resilient/
Interswitch

Interswitch financial inclusion system is based on agents who deliver services on behalf of the provider. These services include bill payments, cash deposit and withdrawal, among others. 

A Ugandan startup Ensibuuko which is partially funded by the GSMA Ecosystem Accelerator programme strives to address the challenges around financial inclusion in Africa.

Microfinance solutions the company offers helps businesses automate business flows like data, processing and payments.

Mobile Money & SMS Integration is a  free add-on for any of Ensibuuko Microfinance software allowing clients to receive and pay-out funds, manage Telecom payment accounts.     

what is mobile money interoperability
Ensibuuko Mobis solution

In Ghana, Bank of Ghana launched the first MMI System aimed at making transfers across the various mobile money networks in the country smooth and comfy.

Citizens can quickly get access to the system. They should simply dial their existing mobile money shortcode to access the service, and the mobile network will provide the menus to use the MMI service.

The MMI system isn’t only limited with A2A payments, you can transfer money between banks accounts, mobile money wallets and e-zwich cards. 

The objectives of the project are to reduce financial exclusion, lower cost of transactions, increase service reach and reduce reliance on cash for payments.

what is mobile money interoperability
Bank of Ghana MMI system

Peruvian Modelo Bim mobile money platform is a collaboration between financial institutions, telecom companies, and the government. It’s designed specifically to better serve the nation’s unbanked and underbanked population. 

The platform is innovative because it consists of three layers – government, telecoms, and financial institutions. Core operations users of Bim (“Bimers”) can complete: 

  • cash in/cash out;
  • P2P transfers;
  • P2B and P2G payments;
  • specific services like airtime purchases.  

Despite the challenges preventing the project from a widespread usage, it will likely to remain a great alternative to traditional banking services in Peru.

GSMA interoperability test platform

Reliability is the core feature of any MMI system. Since every developing country has a purpose of developing a robust ecosystem, there should be tools to test and support it.

GSMA’s Inclusive Tech Lab is currently developing the first joint test environment based on GSMA Mobile Money API and Mojaloop. Once the project is completed, it will enable digital finance service providers to test their systems across different use cases.

How does the system work?

Users select a scenario (e.g. service provider user testing), then choose a use case (e.g. account verification) and run reliability testing.

The platform solves complex testing scenarios through the simulation of the different ecosystem entities, the different APIs and different use cases.”
 Bart-Jan Pors, Director, Inclusive Fintech, GSMA

What’s under the hood of the Test Platform?

  • user dashboard to track the day-to-day evaluation;
  • minimal requirements for configuration;
  • pre-built test cases;
  • full-flow diagrams;
  • automatic validation of messages.

what is mobile money interoperability

Learn more about the project from our case study.

On a side note

Some of the key insights on mobile money interoperability you may want to take away:

  • MMI refers to digital financial services and implies the ability of mobile operators, financial institutions and other service providers initiate mobile payments between users;
  • the adoption of mobile money solutions is crucial for population and businesses in developing countries like Ghana, Pakistan, India, Peru, etc;
  • main benefits of MMI for emerging markets line in combating financial exclusion, decreasing poverty, eliminating gender gap, developing national economy;
  • every MMI system should be carefully tested for its reliability and robustness.
Are you working on a mobile money project? Then we have things to discuss.
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