Technology Inequality: Opportunities and Challenges for Mobile Financial Services
Ten years after the debut of mobile financial services (MFS), the sector is preparing for a switch to smartphones that will enable even more and better services. This report sounds a cautionary note about the readiness of the sector for a large-scale shift to smartphone and internet-based MFS, particularly for low-end consumers. While smartphones promise more intuitive and richer user interfaces, this promise will take some time to materialize fully and robustly. The key findings in the report are:
- The backbone of mobile financial services to date has been the combination of feature phones with Unstructured Supplementary Service Data (USSD) or SIM Application Toolkit (STK) platforms that display MFS menus. These combinations are well-adapted to low-end conditions, especially in rural areas in developing countries, because they operate reliably with inexpensive handsets in areas with poor (e.g., 2G) connectivity. The widespread coverage, low cost and reliability of the "traditional" MFS systems make them essential for reaching financial inclusion target populations for the foreseeable future.
- On the other hand, the smartphone revolution is not yet mature. Gaps in geographic coverage of high-speed data transmission, relatively cheap smartphone handsets that use substandard components, and numerous compatibility issues with smartphone apps all contribute to system fragility. Even though smartphones are penetrating markets, the handset capabilities, data transmission speeds and fraud protection must improve before the standards needed for MFS are consistently met.
- Feature phone handsets are getting better, cheaper and smarter, and sales are rising.
The report urges regulators and technology providers to continue supporting MFS based on feature phones, even as they work to create paths for new-generation services. If mobile financial services are to be a force for financial inclusion, stakeholders must not prematurely abandon older technologies as they concurrently push to create a smartphone-based future.