Mobile money is a specialized financial service that allows users to receive, store, and spend money using a mobile phone. Unlike traditional mobile banking, which requires a smartphone and an internet connection, mobile money systems such as M-Pesa in Kenya are often built on the cellular network using USSD (Unstructured Supplementary Service Data).
This technology has become the primary driver of financial inclusion in infrastructure-poor regions, where a large portion of the population is “unbanked” but has access to a basic mobile phone.
The GSMA counted 2.3 billion registered mobile money accounts and 593 million active 30-day accounts in 2025. Transaction value in 2025 was $2.1 trillion.
What is USSD-based mobile money?
USSD is the same technology used for simple tasks like checking your pre-paid phone balance. It works through short codes, such as Safaricom *334# for M-Pesa, that trigger an interactive menu on the user’s screen.
- SIM-as-a-Card: In a mobile money system, your SIM card and phone number act as your bank account identifier.
- No Internet Required: Transactions are processed entirely over the signaling channel of the GSM network. This means the service works even on “dumb phones” and in areas with zero data coverage.
- Low Latency: USSD messages are handled as a priority by the network, ensuring that transaction prompts are responsive and near-instant.
How does the “Agent Network” model work?
The “Agent Network” is the physical layer that makes mobile money possible. Since most mobile money users operate in cash-heavy economies, they need a way to move physical cash in and out of the digital system.
Agents are typically local entrepreneurs—shopkeepers, gas station owners, or specialized kiosks—who act as the bank’s “branches.”
- Cash-In: A user gives physical cash to an agent. The agent then performs a digital transfer of mobile money “e-value” from their own balance to the user’s phone number.
- Cash-Out: When a user needs physical cash, they send mobile money to the agent’s phone number. The agent then provides the equivalent amount in cash, after deducting a small commission.
This model allows financial services to reach remote villages where a traditional bank could never afford to build a physical branch.
What are the roles of “Telco Wallet” providers?
Mobile money is often provided by telecommunications companies (Telcos) rather than traditional banks. This creates a unique regulatory structure.
- Landed Funds: Safaricom terms, updated September 2, 2026, define an M-Pesa balance as e-money equal to cash held by the trustee, M-PESA Holding Company Limited. Kenya’s National Payment System Regulations require that trust balance to stay at least equal to customer claims. The provider may not move those funds into its operating account. The regulations allow the trust to sit in licensed banks or Government of Kenya securities.
- Interoperability: In many countries, the government mandates that different mobile money providers (e.g., Safaricom vs. Airtel) must be “interoperable.” This allows a user on one network to send money directly to a user on another.
- Beyond Payments: Mobile money ecosystems have expanded to include Micro-Lending, Micro-Insurance, and pre-paid utility payments (e.g., pay-as-you-go solar power).
What are the tradeoffs for mobile money users?
For millions of people, a mobile money account is their first entry into the formal financial system. However, the model has specific constraints.
- High Transaction Costs: Because the agent network requires commissions and the Telco must pay for network signaling, the fees for small P2P transfers can be a significant percentage of the transaction amount.
- Liquidity Risk: In remote areas, an agent may run out of cash (“float”), making it impossible for a user to “Cash-Out” until the agent re-liquefies their position.
- Security: While USSD is convenient, it is not encrypted to the same level as modern internet banking. SIM-swapping—where a fraudster clones a user’s SIM card to take over their account—is a major risk in the mobile money ecosystem.
Mobile money has proved that financial services do not require branches or even internet access to scale. By leveraging the existing mobile infrastructure, these systems provide millions of people with the ability to participate in the formal economy for the first time.
