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Among countries where mobile device penetration is increasing, more are adopting segments of the app-based economy, starting with payment systems. Micropayments via mobile phones can help consumers conduct transactions with limited or frictionless purchases. The majority of these apps are using the current fiat currency system in their countries, rather than cryptocurrency. For example, in South Africa, the MTN “MoMo” service allows financial payments across multiple messenger platforms, and Kenya has a similar mobile payment platform, M-Pesa.
These transactions are all dependent on functioning digital infrastructure. While the developed world is headed for fifth-generation (5G) wireless networks, much of the world’s population outside of urban areas are on “slow G” to virtually “No G.” While broadband connectivity is slowly increasing in areas of limited connectivity in countries throughout Africa and Central Asia, many of these countries are working on another part of the technology puzzle, the challenge of authenticating users.
Creating a digital identity for users allows consumers to access more services. Much of the technological innovation in these countries is through more centralized systems than the models we have in the United States. Rather than using a commercial social media account company, such as Google or Facebook to authenticate users, these countries use a much more centralized process from the beginning of the identification process. Identifying authorities often rely on physical proof of existence in these trust-anchored relationships. Utility companies or actual government agencies act as the backbone to these systems, identifying the consumer to develop a digital identity. Other countries’ identity management, starting from physical infrastructure to bond an individual’s identity to a trusted source, offers lessons for the US. When this level of personal identification is secured, it allows users to access the digital economy and financial instruments at a potentially larger scale than just via the use of a single app.
Digital financial services play an important role in helping people escaping the cycle of poverty. In many African countries, it’s common for large pockets of the population to be “unbanked,” not using any formal banking service for financial transactions. Africa’s remittance costs are 20 percent higher than any other region in the world. The more substantial money transfer services such as Western Union and MoneyGram are expensive and introduce financial friction that comes with a third-party money transfer. The advent of higher global adoption of mobile payment technologies could be a significant boon for much of the world that is “unbanked.” BBC News recently noted that that more than 139 million Facebook users are in Africa. These individuals could be adopters of many new platforms, including Facebook’s Libra “cryptocurrency” through WhatsApp, or eventually, the Facebook app itself.
The World Bank reports that 60 percent of adults now have access to a mobile money provider or a banking system via their mobile device. While 1.7 billion adults are estimated to remain “unbanked,” almost two-thirds of those have access to a mobile device that can provide mobile cash transactions. The share of sub-Saharan Africans with mobile money accounts has nearly doubled to 21 percent since 2014. In this region, 20 percent of adults use a mobile money account, rather than a bank, outside of cash payments. China’s WeChat and Alipay are the gateway to over a billion Chinese consumers, many who never gained access to credit through a traditional bank.
Many developing countries are using digital payment providers to process government paychecks, pensions, and social benefits by depositing them directly into digital accounts. Melinda Gates pointed out one key aspect of this:
We already know a lot about how to make sure women have equal access to financial services that can change their lives . . . When the government deposits social welfare payments or other subsidies directly into women’s digital bank accounts, the impact is amazing. Women gain decision-making power in their homes, and with more financial tools at their disposal they invest in their families’ prosperity and help drive broad economic growth.
Using financial technology and moving away from traditional cash payments brings a new tool to balance the economics of individuals and family structures. Creating financial inclusion through technology can bring more people into the economy, giving them the ability to grow and use their funds for purposes beyond everyday survival. Increasing earnings and providing savings opportunities in these communities can improve living conditions. Furthermore, the ability to pay for services as they are needed reduces reliance on physical assets that can be stolen or inhibit cash flow.
Mobile payments and the advent of cryptocurrency markets are a significant development for large numbers of people without access to financial tools globally. Financial technology grants people the ability to save money and make payments, enhancing social and economic welfare at every level of the economy. While the developed world debates regulatory aspects of the next new cryptocurrency, we should keep in mind technology’s ability to create smaller scale financial systems, which can enable digital markets increase participation in the global economy.
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