According to
an article in a Kenyan business paper:
Increased
uptake of M-Pesa, Kenya’s dominant money transfer service, has fuelled
inflation as the service grew large enough to influence implementation
of monetary policy, an African Development Bank (AfDB) study claims.
Recently speculation broke out on Kenyan online business forum
Wazua that Safaricom, Kenya’s top mobile and M-Pesa operator, would
buy a bank.
Whether such speculations are true or not, one thing is for sure,
mobile money has come a long way in a relatively short-term and it’s
affecting economies at the household level but also at a national level.
This area of M-Finance, as it were, will become an area of increasing
interest in future.
1. The household level A
couple of years ago William Jack of Georgetown University and Tavneet
Suri of MIT Sloan carried out a survey in which they sought to
investigate the “
Economics of M-Pesa“. Apparently the survey had the blessing of the Central Bank of Kenya, Safaricom and Vodafone.
Perhaps the most interesting effects of mobile money on households relates to ease of movement of funds and saving capacity.
The
survey found that M-Pesa encouraged people to feel safe about keeping
funds in their M-Pesa account for fairly extended periods of time. On
the other hand, mobile money also affords an easy and cost friendly
means of moving money.
It is true that Safaricom is moving massive
amounts per day via M-Pesa — estimates suggest about 2-billion
shillings (US$24-million) a day. It’s interesting that this amount is
actually a minor fraction of the total money moved within the country.
According to the same report (based on fairly dated information):
…the
volume of transactions effected between banks under the RTGS (Real Time
Gross Settlement] method is nearly 700 times the daily value transacted
through M‐Pesa. On the other hand, the average mobile transaction is
about a hundred times smaller than the average check transaction
(Automated Clearing House, or ACH), and even just half the size of the
average Automatic Teller Machine (ATM) transaction. Thus M‐Pesa is not
designed to replace all payment mechanisms, but has found and filled a
niche in the market in which it provides significantly enhanced
financial services.
2. The community level
Beyond households, mobile money is affecting local community economics.
The
Bill & Melinda Gates Foundation funded a project in 2010 that was
designed to examine the impact of financial services on the lives of
poor people across the developing world.
The study found that M-Pesa had four overarching economic effects at the community level:
- Local economic expansion:
In essence, the team found that M-Pesa facilitated increased money
circulation which had an effect of increasing local consumption, which
of course means more business for local store owners and the like. In
addition, new business and employment opportunities arise — for example
the establishment of M-Pesa agents. Existing store owners could also
diversify their offering by including this service that is now in much
demand.
- Security: Other than physical security
(i.e. muggers realising that few people carry liquid cash) the study
found that M-Pesa contributed to money security, that is by enabling
people to safely store funds in their mobile money account.
- Capital accumulation:
Being able to save money instead of spend it enables wage earners to
accumulate financial resources on their phone safely, even without
having to have a bank account or resort to a less secure mechanism such
as keeping cash under the mattress.
- Business environment:
Jack and Suri reckon that “M-Pesa reduces the overall transaction cost
of moving capital along a network and increases the flow of capital.
While the amount of money M-Pesa moves is relatively small among formal
financial systems in Kenya, the number of transactions and volume of
flow is increasing and covers larger segments of Kenya’s population in
terms of income, age and depth and breadth of access”.
The national level: monetary policy
This is where things get really interesting. The effects at the
household and even community level are fairly predictable. The national
economic effects however have been more gradual and have become more
pronounced with the increased adoption and use of mobile money services.
Impact of Mobile Money on GDP Menekse Gencer of
mPay Connect Consulting believes mobile money
has triggered improvements in GDP. Genker believes that a 10% rise in
mobile subscribers in emerging markets would lead to a 0.6% to 1.2%
increase in GDP. Why would mobile money make contributions to a
country’s GDP? According to Menekse, the answer lies in 5 forces
inherent to mobile money:
- The ubiquity of data transmission
that mobile provides means that financial services can be extended to
reach people who were previously unreachable.
- Mobile money as a
new industry that is precipitating new investments for new ventures, new
jobs and new revenue streams for existing companies.
- Mobile money as an infrastructure supporting new businesses in other industries.
- Mobile
money formalizes the informal financial sector , enabling savings,
loans and investments in lieu of “cash under the mattress”.
- Mobile
money enables efficiencies associated with digitization and reduces
frictions associated with cash (such as theft or “shoe leather costs”).
Impact of mobile money on monetary policy
Mobile money would affect monetary policy in two ways: supply and velocity
Supply
- Currency
circulation: Mobile money creates a situation where people have more
money in their pockets in the form of mobile money. What happens if
these stores become vastly more than actual cash in supply?
- Demand
deposits: Traditionally demand deposits have been considered to include
easily accessible funds stored in demand deposit accounts in a
commercial bank. Well, how does storing money on your mobile phone fit
into this? Furthermore, what if you could move the money offshore?
Velocity
The velocity of money is the average frequency with which a unit of
money is spent in a specific period of time. Simply put, money held in
M-Pesa accounts has much higher transactional velocity.
“Evidence
shows that the transactions velocity of M-Pesa may be three to four
times higher than the transactions velocity of other components of
money. The increase in the velocity of money induced by these activities
may have in turn propagated self-fulfilling inflation expectations and
complicated monetary policy implementation,” said AfDB in a brief on
inflation dynamics in selected East African Countries.
The fact of
the matter is that mobile money is not only disruptive in terms of
technology, but also as far as economics goes. And this trend will
continue into the future, perhaps becoming even more interesting as the
uptake of mobile money increases, mobile payments and mobile
transactions become mainstream (and even cross-border) as well as
integrated to other forms of money stores.
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