Mobile phones – the key to our financial future

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Telenor Group and Boston Consulting Group (BCG) released the results of a new study on the "Socio-economic impact of mobile financial services", exploring the effects of mobile financial services in emerging markets over the next decade.

Today, more than 2.5 billion adults in the developing world are considered “financially excluded”. This means that they do not have access to basic financial services, such as bank accounts, bill payment, credit or saving and insurance products. However, most of these 2.5 billion adults own or have access to a mobile phone.

The Telenor Group wanted to explore the impact of mobile-based financial services in emerging economies, looking at how having bank accounts and access to credit, for example, will change the way people live, work and develop over the next decade. To conduct this study, Telenor commissioned the Boston Consulting Group (BCG) to study financial services’ overall impact, as well as look into the specific effects in Telenor’s Asian markets (Pakistan, Bangladesh, Malaysia and India) and Serbia.

What are the causes of financial exclusion?

Financial exclusion predominates in the world’s emerging economies, often as a result of lack of credit history, overly complicated financial products, limited access to banking branches and little trust in the existing financial institutions. The 2.5 billion unbanked people manage to work around the system by borrowing or loaning between friends and family, obtaining short-term credit from employers, forming illegal savings clubs or seeking out illegal moneylenders, for example. These options are often risky, costly and with indeterminate results.

“The mobile phone is emerging as a key tool for bringing financial services to unbanked populations. It allows users to complete basic payments and remittances via the mobile phone, and gives easier access to savings, credit and insurance products,” said Jon Fredrik Baksaas, President and CEO of Telenor Group. “We as a telecom company have a unique advantage in bringing mobile financial services to the unbanked. We have a pre-established relationship with the customers, who already have mobile devices in their hands. And we are a trusted and established brand in the regions we operate, with a large and secure distribution network.”

An overview of the mobile financial services impact by 2020

While it is widely agreed that mobile financial services are positively affecting emerging economies already, Telenor and BCG explored what the picture will look by the year 2020. According to BCG estimates, mobile financial services may result in a 5 – 20 percent reduction of financial exclusion by 2020. In Pakistan alone, the reduction may be as much as 20 percent.

BCG estimates that mobile financial services have the power to increase gross domestic product (GDP) by up to five percent by 2020. This GDP growth may be stimulated by increased access to credit, which prompts new business creation, as well the benefits of formal remittances and increased savings.

A tool for societal change

With mobile financial services reaching a potential 341 million people, in the five studied Telenor markets, by 2020, there is bound to be significant social impact as well.

BCG specifically explored the financial burdens experienced by families during times of disaster, looking into how mobile financial services could provide some relief. They found that mobile financial services serve as an important tool for responding and preparing for natural disasters. A solution such as Telenor Pakistan’s easypaisa can be used as a means to solicit and distribute donations, for example.

“While BCG’s perspective on mobile financial services is promising, we must also be ready to face a few hurdles along our way to a financially inclusive 2020,” said Baksaas. “The consumers must be educated, a distribution network and business model must be in place and the approval of the regulators must be gained. These steps are vital for the successful spread of financial services, and Telenor will continue to face these challenges and create more services that improve quality of life for our customers.”