July 23, 2024

Advancing Digital Growth

Pioneering Technological Innovation

Transforming the Future of Financial Services

6 min read

By Michael Wallis-Brown, Global Head of Mobile Financial Services, Ericsson

 

 

 

 

 

Over the last two decades, the global economic landscape has been transformed as the digital world and mobile connectivity have reshaped how individuals access financial services.

Today, users have become accustomed to the simplicity and accessibility offered by mobile financial services, specifically in catering to the needs of rural communities and developing nations. It’s here that mobile network operators (MNOs) are most apparent, playing pivotal roles in tapping into this vast demographic and providing mobile financial services in a way traditional banking structures have previously overlooked—thus allowing millions of individuals who were previously excluded to store, send and receive money using their mobile phones.

The impacts of digital financial services have been profound, with millions of people benefiting from improved financial literacy alongside enhanced security, leading to new economic prospects. Today, fintechs (financial technology firms) and those operating within the telco (telecommunications) ecosystem are taking digital financial services to the next level, empowering individuals and communities worldwide.

By harnessing new technologies and embracing customer-led innovations, the industry is expanding its reach and providing critical financial services while enhancing the resilience and prosperity of individuals and communities across the world.

Customer-driven digital finance is bridging the gap.

The growth of digital financial services has been fueled by their aligning with customers’ needs and demands rather than being dictated by global financial institutions’ needs. This customer-centric approach has led to groundbreaking success stories, such as that of M-PESA, launched by Safaricom and Vodafone in Kenya in 2007. Customers began purchasing “airtime” in bulk and using the funds to transfer “mobile money” to relatives and pay for services within their communities without cash changing hands.

This spontaneous initiative illustrates the remarkable ability of digital financial services to address gaps left by traditional financial structures. They not only provide financial empowerment but also enhance resilience against economic shocks, foster the growth of micro, small and medium-sized enterprises (MSMEs), create job opportunities and uplift entire communities.

Indeed, a key reason behind the rapid growth of digital financial services is their role in addressing the critical and pervasive issue of financial exclusion. According to the World Bank, an estimated 1.4 billion adults worldwide still lack access to a bank account. The reasons behind this are multifaceted, such as geographical distances from physical banks, the inability of traditional banks to cater to rural communities and informal sectors, and the lack of financial literacy.

Financial exclusion has significant and far-reaching consequences. It hinders individuals’ abilities to transfer funds, obtain insurance, access credit and improve their financial well-being over time. Moreover, it poses significant barriers to economic growth and prosperity at both community and national levels. Digital financial services emerge as potent tools for tackling this disparity, offering a promising solution to enhance financial inclusion and foster socioeconomic development globally.

Reaching the unbanked

The expansion of mobile financial services has been remarkable, driven by the focus on serving the vast unbanked demographic and offering a wide range of services beyond simple transactions.

It is estimated that by 2028, 40 percent of mobile subscribers worldwide will embrace these services, representing an 80-percent surge in transaction value. With nearly 8.46 billion mobile subscriptions worldwide as of November 2023, this trend represents a significant shift away from cash toward mobile financial services.

This momentum, driven by the rising popularity of digital wallets—particularly in regions such as Africa and the Americas, where adoption rates are expected to grow by 36 percent and 72 percent, respectively, in the next five years—underscores the growing demand for seamless financial transactions. Digital-wallet transactions are set to exceed $16 trillion by 2028, potentially surpassing credit cards in online transactions.

The rise of digital wallets—and with them, embedded finance platforms—demonstrates the industry’s evolution beyond basic transactions. MNOs now offer comprehensive solutions for customers—streamlining financial transactions, fostering seamless banking experiences across various industries and eliminating the need for lengthy forms or administrative processes.

One notable example is MTN Mobile Money (MoMo), Africa’s foremost mobile financial service, boasting around 69.1 million users. Powered by Ericsson’s Mobile Financial Services platform, the provider has significantly expanded its impacts by widening its partner ecosystem to integrate with third-party providers—paving the way for novel financial use cases and services—including banks, corporations, utilities, retailers and SMEs, among others. This collaborative environment, with more than 24,000 developers engaged through the OpenAPI platform, has fostered innovation and enhanced accessibility, driving the economy’s transformative digitization.

How to lead the charge with tech-driven finance

As the industry looks ahead, key challenges such as regulation, taxation, cash preference and security threats loom large.

MNOs and digital banks are poised to tackle these hurdles by curating fintech network platforms—integrating new technologies as they emerge, overcoming obstacles and meeting customers’ demands. Advanced services such as merchant and e-commerce payments, micro-lending and buy now, pay later (BNPL) options are at the forefront of this evolution. The rise of open-API (application programming interface) and open-architecture ecosystems has further expanded the possibilities, enabling seamless banking experiences across diverse industries.

Consider the gig economy, or “agent economy”, as an example, within which non-traditional income streams flourish, offering flexible work for millions of people. Workers often face barriers to accessing advanced financial services and microloans, as traditional financial institutions are unable to cater to them. Micro-merchant services are also nonexistent due to the lack of a developer ecosystem.

Fintech platforms and SaaS (software-as-a-service) products offered by the developer ecosystem now offer mobile-centric, localized solutions and services for gig-economy workers to manage their finances. These localized mobile solutions eliminate the frictions associated with more traditional banking processes. By offering tailored services, such as instant payouts, flexible financial options and leveraging insights into users’ cash flows and repayment capabilities, workers are almost guaranteed access to timely payments and financial tools, such as credit scoring, that are aligned with their income streams.

Of course, artificial intelligence (AI) stands as a cornerstone for reshaping the future of financial services. Its transformative potential is clear in its ability to enhance customer care and fortify security measures. AI-driven algorithms offer personalized financial recommendations based on users’ spending activities while also boosting fraud-detection capabilities. However, more crucially, AI is revolutionizing the practices of know-your-customer (KYC) and digital identities, which serve as the bedrocks of financial security and compliance.

KYC procedures are fundamental to mitigating the risks associated with digital-identity management, securing transactions and ensuring regulatory compliance. By harnessing AI’s power, institutions can streamline and enhance KYC processes, evaluating trust scores through a wide range of data points that were previously not possible. This enables customers to access advanced services while minimizing potential risks, especially as they grapple with evolving threats. They can also foster user convenience by automating digital-identity-verification processes and analyzing vast amounts of data. This means that onboarding procedures can be expedited, reducing friction for customers and establishing trust and confidence in digital platforms.

The next frontier for digital financial services is already underway

Digital financial services are igniting a revolutionary phase in banking and reshaping our perceptions of money, payments and financial inclusion. As MNOs enthusiastically embrace these transformations, the future of finance gravitates towards a mobile-centric model, offering amplified convenience, accessibility and economic empowerment worldwide.

While the fintech landscape evolves, fintech platforms are positioned to be pioneers, leading the charge with stable, adaptable and resilient systems. By prioritizing customer needs, they navigate the changing terrain with agility, ensuring that innovation remains rooted in user-centric principles.

As the journey continues towards a mobile-driven financial future, organizations need to actively engage with new technologies and collaborative platforms. By fostering an environment of innovation and inclusivity, we can collectively propel the evolution of finance and unlock opportunities for individuals and communities alike.

 

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