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.

“Our data indeed shows that people with dormant accounts may instead make transactions via their mobile phone,” said Dr Klapper.

Some 62 per cent of those with dormant bank accounts in Tanzania reported making mobile money transactions, while 84 per cent of Kenya’s inactive account holders said they had turned to mobile money, the World Bank report says.

Sibel Kusimba, an anthropology lecturer at American University, said mobile money services have become a primary banking service due to the ease of access.

“Mobile phones not only help one person connect with another, but they help people create groups of close contacts. These groups of close contacts could form the basis of greater innovation in digital money,” said Prof Kusimba, who has done extensive research on mobile money in Kenya.

READ: Kenya tops list of banked population due to high mobile money uptake

“Perhaps we have not seen the final impact of mobile money,” said InterMedia chief executive Christopher Fleury in an interview with The EastAfrican.

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.

Experts say the rush to enrol new customers without offering financial literacy on the range of services offered resulted in the dormant accounts, as consumers — especially low-income and rural dwellers — find banking services expensive, opaque and inaccessible.

“Even for lower middle and middle class consumers, banks have traditionally not offered very much in the way of effective service, particularly credit,” said Bill Maurer, director of the Institute for Money, Technology and Financial Inclusion at the University of California, Irvine.

“Mobile money has met some of those needs; for low-cost money transfer, for cash access, and for effective distribution of services,” said Dr Maurer.

The Bank of Uganda declined to reveal the statistics on dormant accounts, but said the law stipulates that after two years of inactivity, an account should be moved to the dormant accounts ledger of the financial institution. “Accounts declared dormant get activated in every institution, and many that are advertised can get re-activated.

So pinpointing a specific figure would be speculative,” Uganda’s banking sector regulator said in an e-mail.

The World Bank ranks East Africa as having the highest mobile money penetration rates in the world, with Kenya being the cradle of mobile cash where Safaricom’s M-Pesa was unveiled in March 2007.

Anastasia Mirzoyants-McKnight, the director of research and operations at InterMedia Africa, said mobile money users still use banking services such as ATMs.

“We cannot say that something is really dying out — most of the things in the financial sector integrate,” said Dr Mirzoyants-McKnight in an interview.

Telcos in the EAC are cashing in on the mobile money trend by partnering with retailers, governments and diaspora remittance firms.

Last week, the Uganda Revenue Authority signed a deal with Warid Telecom to allow payment of fees such as traffic penalties, driving permits and motor vehicle transfers via mobile money.

Ugandans can now use M-Pesa to pay for government services.

Global diaspora remittance firms are wooing consumers with the option of sending cash directly to mobile phones.

Western Union, which in 2011 signed up direct transfers to Safaricom’s M-Pesa, has now expanded the service to 17 telcos worldwide including Vodacom Tanzania, MTN Mobile in Uganda and Econet Zimbabwe.

READ: M-Pesa now spreads to seven African countries

“We were the early adopters of sending money to mobile wallets,” said Khalid Fellahi, the company’s senior vice president and general manager of Western Union Digital.