Even for the most experienced people, financial technology terms can sometimes be confusing. Recently, the overlap between these three concepts: Mobile banking, Mobile money, and USSD banking has caught our attention.
All three technologies have been, and remain key to the expansion of financial inclusion in Africa, however, telling them apart can be a tad difficult. At face value, they sound very similar.
After all, if mobile banking is access to financial services via a mobile phone, then mobile money—which gives access to money via a mobile phone—- should be mobile banking. Furthermore, since you can access your banking services via USSD, it should also qualify as mobile banking. Right?
A while back, we wrote an article making a case for USSD banking to be considered the same as digital banking. While we still think it should be that way, we recognise the differences between these three concepts, especially the technological and regulatory differences.
For this article, we spoke to an expert on the subject. Ben Lyon is CEO and Co-founder of Stax, a pan-African company that allows people access to USSD banking services through a mobile app, reducing the complexity and improving access to the service.
Ben has over 10 years of experience working with different sectors of Africa’s fast-growing financial ecosystem and helped clear up the confusion around these concepts.
Q: What is mobile banking?
Ben Lyon: Mobile banking tends to refer to an electronic (mobile) channel for accessing and managing a bank account. When you check your GT Bank balance via SMS, USSD, or a mobile app, for example, you're participating in mobile banking. That said, mobile banking has different meanings in different jurisdictions, so there's no single definition.
Many microfinance institutions advertise mobile banking services even though they don't have banking licenses, for instance. If you hear mobile banking, it's generally safe to assume--though not always correct--that there's a regulated deposit account in the background.
Writer's Note: A regulated deposit account is an account with a regulated financial institution that allows users to deposit and withdraw money. Think about your bank account, whether current, fixed, or savings. Yes, that’s a regulated deposit account.
Q: What is mobile money?
Ben Lyon: Mobile money tends to refer to an electronic (mobile) channel for accessing and managing a prepaid store of value—typically called a wallet. If you use M-PESA or MTN MoMo, for example, you're using mobile money services.
Importantly, mobile money wallets are distinct from bank accounts because mobile money issuers like Safaricom or MTN are usually prohibited from holding customer deposits like a bank. Instead, mobile money issuers usually have to hold user funds in trust at a regulated bank. Funds held in trust can't be used for lending and mobile money issuers usually have to forgo interest income.
In Kenya, for example, Safaricom moves billions of dollars through its M-PESA Holding trust accounts, but can only use interest income from these accounts for charitable purposes via the Safaricom Foundation. As a shorthand, mobile money services like M-PESA and MTN MoMo can be thought of as general-purpose prepaid debit cards.
Q: What's the difference between mobile banking and mobile money?
Ben Lyon: If we're being technical, the difference between mobile banking and mobile money usually has to do with the underlying license and where the money actually sits. Mobile banking implies deposit accounts and mobile money implies prepaid wallets. In the real world, though, this is increasingly a distinction without a difference.
From the perspective of an individual, You can access financial services--loans, payments—from any number of players, including banks, fintechs, and telcos.
M-PESA users in Kenya can save and access credit via M-Shwari in partnership with NCBA Bank, but only within the M-PESA interface(s) (USSD, SIM Toolkit, mobile app). If you can access deposit and loan services via a wallet, isn't that banking by another name? This distinction will only blur with time as a bank, fintech, and telco strategies converge to one.
How is mobile money different from USSD?
Ben Lyon: Mobile money refers to a type of service and USSD refers to a channel. Any text-based information service can be exposed via USSD. Most banks, fintechs, and telcos expose their services via USSD because USSD works on any GSM device without relying on mobile data—two reasons for its soaring popularity across Africa and Asia.
Q: Are there any similarities between mobile money and USSD?
Ben Lyon: Yes. Across Africa, 94-97% of all digital consumer payments rely on the USSD channel, making it practically synonymous with the underlying services, whether mobile banking or mobile money. In Nigeria, for example, GT Bank pumped a huge amount of money into its *737# marketing campaign, emphasizing the service delivery channel over the technical definition of its service offering.
Taking a closer look at the concepts, it is easier to see the difference between all three.
- Mobile banking is a catch-all phrase for all kinds of banking activities that happen via a mobile device; whether you're accessing those activities through an app or via a USSD interface.
- Mobile money is an e-channel that allows users to access a store of value (money). This e-channel is usually a wallet associated with a mobile phone number.
- Mobile banking usually implies offering a deposit account e.g. accessing your bank account via your mobile phone; while mobile money implies a pre-paid wallet that allows you certain abilities e.g. receiving and transferring out money.
- USSD is a mobile technology that powers most mobile banking and mobile money transactions in Africa.