Africa’s world-beating mobile money sector continues to go from strength to strength. On a global scale, eight out of the 10 countries with the highest use of mobile money services can be found on the continent, while it is also the region with the highest number of mobile financial service accounts in the world, according to the Boston Consulting Group.
A mix of regulatory, socio-economic and geographical features has contributed to Africa’s leading role in this sector. But looking ahead, it seems that the complex and often dynamic relationship between the continent’s banks and mobile network operators (MNOs), as well as between the MNOs themselves, is likely take this revolution to the next level. For consumers and regional governments alike, this is good news. As the mobile money revolution unfolds, it is expected to drive down the cost of transferring funds, while promoting financial inclusion and economic development.
Profits and partnerships
In markets across Africa, the relationship between financial institutions and their telecommunications counterparts differs greatly. In recent years, competition between these two groups in some markets has been fierce and characterised by a struggle for market share that has encouraged frantic product and service development. While this remains true today, these rivals are also finding new ways to form partnerships in order to capitalise on their respective competitive advantages.
“Partnerships have made all the difference. Telecoms companies do not want to be banks but the technological platform they have invested in can be used for financial services,” says Njuguna Ndung’u, the former governor of the Central Bank of Kenya, whose tenure oversaw the rise of the country’s lauded mobile money service known as M-Pesa.
According to Mr Ndung’u, the Kenyan experience has witnessed three distinct ‘generations’ of mobile money development. In the first, the revolutionary introduction of mobile payments, settlements and transfers systems by telecommunications firms that occurred from 2006 was accompanied by the first government recognition of electronic units of money. In the second generation, many of Kenya’s local lenders developed mobile money services that complemented existing offerings from the telecoms groups. In the third generation, existing transactions and savings data from these mobile money developments is now being used to generate credit scores and disburse affordable credit to the under-banked.
Kenya's pioneer
Though the Kenyan market has, in many ways, pioneered the continent’s mobile money revolution, developments elsewhere have not evolved in such a linear fashion. In some cases, lack of effective regulatory oversight has been problematic, while a limited number of market players have led to reduced competition.
Similarly, few markets have much in common with the success and dominance of Safaricom’s M-Pesa system. First introduced in 2007 by Vodafone’s in-country partner, M-Pesa is now used by more than half of Kenya’s adult population and has an active user base of nearly 14 million people.
The service allows customers to deposit cash with agents across the country that is then credited to individual accounts, similar to mobile air-time purchases. Withdrawals can also be made through these agents, who deduct the amount from the account and provide the customer with cash. In addition, M-Pesa has partnered with about 30 banks and a number of other financial institutions to allow customers to transfer funds from their bank accounts to their M-Pesa wallets.
“When mobile money was first introduced to Kenya in 2007, competition between banks and telecoms companies was fierce. But the concept [of mobile money] developed so quickly that the banks had no choice but to co-operate. The fact that the Central Bank of Kenya took a progressive regulatory stance towards mobile money also helped the banks to change their attitude and look at what could be gained from this revolution,” says Paul Githinji, the manager of the chief operating officer’s office at Equity Bank, Kenya’s second largest lender by assets.
The competitive element
Nevertheless, while the banks may have accepted the mobile money revolution, competition remains a feature of the environment. Indeed, new competitive considerations are emerging alongside more traditional concerns. “Competition [still exists] when individual banks choose which telecoms company to go to and partner with – based on the available capacity and results to be replicated,” says Mr Ndung’u.
Here, Equity Bank made a bold statement in the middle of 2015 by partnering with telecommunications group Airtel Kenya to offer mobile banking services under its Equitel subsidiary. By utilising Airtel’s telecoms infrastructure, Equitel essentially operates as a mobile virtual network operator that provides both telecom services, including voice and data, as well as mobile money and banking services through a bank provisioned sim card. Equitel was officially launched in July 2015 with a guarantee that transfers between Equity Bank customers would be free, thereby undercutting M-Pesa, which charges its users a small fee to transfer funds.
Just a few months after launch, a transfer fee conflict emerged as Safaricom raised, then subsequently suspended, higher fees between Equitel and M-Pesa customers. While the competition between the two offerings continues to simmer, the Kenyan consumer has emerged as the winner. With a broader range of mobile money and mobile banking options on offer and at cheaper prices, the implications for the country’s financial inclusion agenda are positive.
Getting connected
But discussions around the cost of transfer fees point to more encouraging developments around connectivity taking place across the region. The interoperability of mobile money offerings between telecoms companies, as well as their partner banks, is one aspect of the mobile money revolution that has failed to evolve. To date, telecoms firms and banking players have tended to focus their efforts on securing market share within a specific jurisdiction.
“Despite the obvious success of Safaricom’s M-Pesa, one of the drawbacks often cited of the model is that it only works between its customers. It would be more successful if it improved operability between different mobile network operators,” says Chris Low, managing director of financial services firm Letshego, which has a footprint across sub-Saharan Africa.
In this respect, change is afoot. With growing frequency, mobile network operators are looking to achieve greater connectivity by enhancing cross-border financial flows. “Interoperability allows you to conduct mobile money transactions between different MNOs and banks at a relatively low cost,” says Mr Low.
Indeed, the opportunity is large. The World Bank estimates that Africans sent and received about $48bn in remittances in 2014. Encouragingly, the recent conclusion of agreements between some of the continent’s largest mobile network operators points to the progress being made on this front. UK telecoms giant Vodafone, part owner of Kenya’s Safaricom, signed an agreement with South Africa’s MTN Group to facilitate greater connectivity between key regions in sub-Saharan Africa.
Under the terms of the agreement, Vodafone customers in Kenya and the Democratic Republic of the Congo can execute low-cost transfers to MTN subscribers in Zambia, Rwanda, South Sudan and Uganda. The deal is expected to generate significant savings for customers in these countries moving forward, while contributing to more robust economic growth across the region.
Regulatory burden
Yet, regulation remains one of the key hurdles to the development of these kinds of initiatives. In particular, such arrangements typically require central bank approval to send and receive money from abroad, a process that can often be both time consuming and onerous. “The regulatory regimes are quite different in this space. Some markets, such as Mozambique, want to ensure that the credit and fiduciary side of banking are directly overseen by financial institutions. In other jurisdictions, a more liberal approach has been adopted,” says Mr Low.
In a positive development, a small degree of harmonisation and sharing of regulatory best practice is beginning to emerge. Kenya, in particular, has shared its guidelines and approach with members of the African Mobile Phone Financial Services Policy Initiative, as well as the Alliance for Financial Inclusion. A more accommodating regulatory environment is now emerging in a number of key markets, including Ghana and Côte d’Ivoire, according to Mr Ndung’u.
Taken together, the healthy mix of competition and partnership among banks and telecoms firms is ensuring that Africa is maintaining it lead in the mobile money stakes. More promisingly, the positive implications for financial inclusion and economic growth will only increase as this revolution develops.
