Cell Phones Are a Powerful Force for Economic Development
More people in the world have access to cell phones than to toilets. As crazy as that sounds, it just goes to show the potential of financial technology (fintech) for global economic development and poverty reduction.
Even with all the billions of dollars spent on conventional poverty reduction initiatives around the world, over half of the world’s 7.5 billion people still live on less than $4 a day.
Mobile financial services, on the other hand, are proving to be a dramatic game-changer in increasing economic opportunities for people globally. Here are a few reasons why:
- Safety: While cash may be the physical symbol we associate with wealth, it actually can cause a lot of problems. Theft and inefficiency in government taxing are two examples. While it’s easy to avoid reporting cash income on our taxes, it usually means the government ends up with less funding for public programs and services that help us. Of course, mobile services have their own set of safety issues with hackers, but the benefits likely outweigh the negatives. Managing our money via our cell phones also gives easy access to our bank accounts, allowing us, as well as our bank, to monitor our accounts more closely and quickly notice when suspicious or fraudulent activity occurs.
- Affordability: One of the key benefits of mobile banking is more affordable services. With no overhead for expensive branches, mobile services are less expensive to provide and banks are able to pass those savings along to customers, which also makes banking more accessible to lower income populations. It’s a win-win for everyone!
- Fast and easy transactions: Speed is especially important for people sending money across borders to family and friends who depend on it for their livelihoods. In fact, Mexican migrant laborers in the U.S. send as much as 80% of their paychecks back home to family in Mexico. The global volume of these payments, known as remittances, was over $435 billion in 2015, which is more than three times greater than the volume of official foreign aid delivered by governments. Needless to say, quick transactions that we can initiate 24/7 and that immediately update in our accounts is a major plus, particularly for senders and receivers of remittances.
- Accessibility: Not only do lower fees make it easier for people of all economic backgrounds to participate in the banking system, but mobile banking can be done from anywhere, giving access to rural or isolated communities that were previously excluded due to location. Increased accessibility is empowering communities all over the world and helping them take charge of their finances for the first time. Across Africa for example, fintech companies are building a financial infrastructure where none has existed previously, such as M-Pesa and MFS Africa.
Much like the days before the internet when we needed to go to a library for research, it’s hard to believe that we once had to travel to visit a physical branch for all of our banking needs. And this is only the beginning.
As mobile banking services become more comprehensive, we can expect to see big changes in the way we address poverty reduction around the world!