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One out of four accounts ‘dormant’ as mobile money takes over banking

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Consumers are gradually ditching their financial institution accounts and shifting to mobile money due to the ubiquity and expanded utility of cellphone-based cash services. TEA GRAPHIC | NATION MEDIA GROUP 

By CORRESPONDENT, The EastAfrican

posted  Saturday, May 23  2015 at  19:12

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  • Consumers are gradually ditching their financial institution accounts and shifting to mobile money due to the ubiquity and expanded utility of cellphone-based cash services, an analysis of these surveys reveals.
  • East African adults living in the poorest 40 per cent of households are more than twice as likely to have a dormant bank account compared with adults living in the richest 60 per cent of households, says the World Bank report.
  • The revelation that a quarter of East Africa’s bank accounts lie idle pours cold water on recent recruitment drives by financial institutions to sign up customers with promises of zero tariff accounts.

Nearly one out of every four bank accounts in East Africa remains inactive as consumers trade traditional banking for the convenience of mobile money services, the findings of two separate studies show.

Rwanda tops the list with 37 per cent of its bank accounts classified as dormant — unused for more than 90 days — followed by Kenya with 25 per cent inactive accounts, according to a study by InterMedia, a Washington-based research firm.

In Tanzania, 24 per cent of bank accounts have been lying idle for more than three months, and 21 per cent of Ugandan financial institution accounts are inactive, the report shows.

Meanwhile, the World Bank’s 2014 Global Findex report puts Tanzania’s bank account dormancy rates at 37 per cent followed by Kenya with 21 per cent; Uganda is at 12 per cent and Rwanda at seven per cent.

Financial institution accounts with zero deposits or withdrawals over a one-year period were classified as “inactive,” the World Bank says.

Interestingly, the report establishes that holders of these bank accounts are still financially active and engage in other fiscal transactions mostly via mobile money — such as sending money to family and friends, paying utility bills and receiving diaspora remittances.

Consumers are gradually ditching their financial institution accounts and shifting to mobile money due to the ubiquity and expanded utility of cellphone-based cash services, an analysis of these surveys reveals.

“This may reflect the relatively greater convenience and lower cost of payment using a mobile phone compared with using an account at a financial institution,” said Leora Klapper, a lead economist at the World Bank and co-author of the 2014 Global Findex report.

East African adults living in the poorest 40 per cent of households are more than twice as likely to have a dormant bank account compared with adults living in the richest 60 per cent of households, says the World Bank report.

The range of services now available via mobile money has grown beyond the domestic cash transfer service to include payment of utility bills — such as water, rent and electricity — shopping and other retail payments, dividends, diaspora remittances as well as government taxes.

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