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Mobile Money in Emerging Markets: Business Case for Financial Inclusion

Mobile money systems offer a dual promise, as an engine for financial inclusion and as an emerging market business opportunity for providers. Most people and small businesses in emerging economies today do not fully participate in the formal financial system.

Two billion individuals and 200 million small businesses today lack access to formal savings and credit. For providers of digital financial services, mobile money can be a gateway into huge and largely untouched markets.

Digital finance has the potential to reach over 1.6 billion new retail customers in emerging economies and to increase the volume of loans extended to individuals and businesses by $2.1 trillion.

By building digital finance capabilities, companies will gain the opportunity to develop new business models. Payments systems realise significant benefits of scale when fixed costs become small on a relative basis and when network effects kick in—both for individual providers and at the market level. McKinsey estimates that above scale, mobile money can be a 35 percent-margin business; but small providers may need to spend over two times what they earn just to maintain their size.

Regulatory decisions can impact mobile money providers’ profitability and ability to scale. However, such mobile money providers make money by some combination of four types of activities: those associated with opening and maintaining accounts, CICO services, transactions between two accounts, and adjacent activities tied to the mobile money wallets.

Looking ahead, even more significant opportunities await: increases in digital transactions will boost the bottom line and new business models will give providers access to entirely new revenue streams.

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