Why ATMs and Mobile platforms are not the solution for financial exclusion

Financial transactions via mobile and Automated Teller Machines (ATMs) have grown tremendously in recent years. They are believed to be the major drivers of financial inclusion in Africa where 53 percent of the world’s active mobile money accounts are used. But if 98 percent of transactions in Kenya believed to be the home of mobile money, is still happening in cash — what do these numbers really mean?

“ATMs are not the solution for Africa…and neither is mobile the only answer,” said John Staley, CFO and Executive Director of Kenya’s Equity Bank at the first Business Forum East Africa organised by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

Although, M-PESA has been largely described as an African success story, Staley says the platform is still not focused on the continent’s poor. He explained that the mobile money platform is largely digitising transactions of $30-40 upwards. “Poor people are transacting from $5 down. This is a huge gap.”

“We made an assumption that poor people have electronic money; they do not,” he stressed.

Staley admitted that the growth of mobile money in Kenya is impressive and is having a huge impact on transactions which are rising significantly. The accessibility is enjoyed by the people, he notes, but argued that for the service to truly improve financial inclusion, more needs to be done. “It’s not just about giving people accounts, it’s about giving people accounts that they can use.”

The International Monetary Fund, in its 2014 Financial Access Survey (FAS), reported a dramatic increase in the number of active mobile money accounts in Kenya. The number of mobile money transactions increased by more than 130 times, from 5.5 million in 2007 to more than 700 million in 2013.

This statistic is not surprising given the incredible uptake of M-Pesa, a mobile phone-based money transfer and micro-financing service launched in Kenya by Vodafone in 2007. Upwards of 75 percent of Kenya’s adult population now use M-Pesa to process payments for a range of goods and services, they are not just account holders as suggested by Staley.

Despite the growth of mobile money, the level of financial inclusion in East Africa remains generally low. In the continent’s rural communities, where most of the financially excluded reside, access to formal financial services, usage of financial tools and presence of mobile infrastructure are still a concern. This is an integral factor that could drive economic empowerment in rural communities, factors hindering the growth of financial inclusion needs to be addressed. The solution forms the foundation for the sustainable economic development of Africa’s poor.

Stephen Mwaura, Head, National Payments System at Central Bank of Kenya, adds that access to financial services and inclusion will be the best way of eliminating poverty. He challenged banks to be more innovative.

“In the 100 years that we have been doing banking in Kenya, only 20% of the population has gained access to banking. It makes you wonder whether the system is working properly. When 80% of the population is unbanked you cannot effectively implement monetary policy either,” he said.

While the growth of mobile money is forcing banks to be more creative in reaching the unbanked, Visa is also pushing to grow financial inclusion in East Africa. Through a public-private partnership with the government of Rwanda. “We are working to enable a government and empower a whole nation,” said Natalie Baatjies, Senior Director, Financial Inclusion, Visa.

The company has put in place a financial literacy programme, established a payment acceptance network – in shops, hotels, garages and supermarkets – and helped the government to increase the number of ATMs.

While Staley insists neither mobile money nor ATMs are going to solve the problem of financial exclusion, mobile money growth in East Africa and increase in interoperability and accessibility by banks and partners hold great hope for the future of financial inclusion in the region and Africa at large.

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