For all the hype about the potential effect of fintech on banking services in the developed world, technology’s impact on Africa has been plain for all to see for some time. Over the past 20 years, millions of citizens have gained access to banking services without ever setting foot in a traditional bank branch, enjoying the benefits of mobile banking before Apple launched its first iPhone.
The spread of mobile banking services on the continent occurred for the most part using the most basic USSD mobile technology – available on the simplest and cheapest mobile phones – and with minimal investment in additional infrastructure. As Africa’s mobile banking revolution progresses into its second decade, it shows no sign of slowing, with key markets opening up for the first time, and smarter technology poised to offer a fuller service offering on even simple devices.
“There’s definitely plenty of room for mobile banking services to grow and develop in Africa,” says Thecla Mbongue, a senior research analyst for the Middle East and Africa at technology consultancy Ovum. “Beyond person-to-person [P2P] money transfers, additional services such as e-commerce payments, microfinance and insurance services will be the next drivers for growth.”
From tiny acorns
The story of Africa’s mobile banking revolution is widely known, and is held up as a classic case study of the economic, social and political empowerment potential of mobile technology. As mobile telephony exploded in Africa in the early 2000s thanks to the launch of prepaid services, operators such as MTN and Vodacom began offering customers the ability to purchase and transfer mobile airtime between mobile accounts via SMS and USSD. Such a facility, initially designed to cut costs and enable the easy purchase of small denominations of credit, subsequently became used as a money transfer system for countries that lacked effective national banking systems.
Mobile banking’s year zero however came in 2007, with the launch of M-Pesa by Safaricom, Kenya’s largest mobile operator. Initially conceived as a vehicle for microloans, the service exploded in popularity as people discovered it could be used as a de facto banking service, requiring no more than the use of a basic mobile phone.
The service had 22.6 million active users in Kenya at the end of March 2019 – about half the country’s population – and has spread to Tanzania, Lesotho, Egypt and Mozambique. While M-Pesa’s forays into larger markets such as South Africa, India, Romania and Albania were ultimately unsuccessful, it remains popular in Afghanistan, where it operates as M-Paisa.
Similar mobile banking services subsequently swept through much of Africa, providing financial services to large and previously unbanked populations. There were 132 mobile banking offerings in sub-Saharan Africa at the end of 2018, according to telecoms industry body the Groupe Spécial Mobile Association (GSMA), nearly half of the global figure. Some 1.7 billion mobile money transactions worth $26.8bn were carried out in Africa in 2018, a 15.3% year-on-year growth in value, according to the GSMA.
Bringing in the big guns
Such a growth has been achieved despite relative inactivity in the continent’s three most populous markets of Nigeria, Ethiopia and Egypt. Recent regulatory reforms, however, suggest all three markets are likely to experience significant growth in the coming five years.
In its 2018 State of the Industry Report on Mobile Money, the GSMA said: “In 2018, regulatory reforms were introduced in Nigeria and Egypt to harness the potential of mobile money to drive financial inclusion, and reforms and an ambitious financial inclusion strategy in Ethiopia have been attracting the attention of both MNOs [mobile network operators] and non-MNO-led players.
“Despite the challenges to overcome, we anticipate that these reforms could spark a wave of adoption in these three countries – more than 110 million new mobile money accounts in the next five years – and help to achieve the financial inclusion targets set out in their respective national financial inclusion strategies.”
Nigeria makes its move
The launch in 2019 of the first genuine mobile banking services in Nigeria, the world’s seventh most populous country, is of key significance to fuelling growth. “Until the second quarter of 2019, Nigerian mobile operators were legally restricted as they didn’t have a licence to offer banking services, and had to rely on their banking partners,” says Ms Mbongue at Ovum.
That all changed in late 2018, however, when Nigeria’s central bank brought in new rules permitting non-banking institutions such as telcos and courier companies to become ‘payment service banks’, which can make payments and take deposits, and also offer debit card services. “[Mobile operators] MTN and Airtel were recently licensed as mobile money agents, which gives them more flexibility and more room to pilot their expansion plans independently. We expect them to drive P2P growth in the next two years,” says Ms Mbongue.
Yet while incumbent lenders felt the impact of early mobile banking offerings such as Safaricom keenly, they are less daunted by the prospect of new mobile entrants in Nigeria in 2019. In contrast to the relatively open regulatory regime of Kenya, for example, Nigeria’s payment service banks will operate (at least initially) with strict limits on what services they can offer.
And while M-Pesa’s mobile banking offering caught banks on the back foot in 2007, lenders have subsequently learnt to embrace technology. “Payment service banks have limited capabilities in that they’re unable to lend,” says Sola David-Borha, CEO for African regions at Standard Bank. “Everything that a payment service bank can do can already be done on our system.”
Standard Bank in Nigeria is working on what Ms David-Borha describes as a virtual banking offering, with clients able to apply for loans of up to $1000 via mobile channels, receiving approval within minutes, as well as asset management products. “We want to put as much as possible in terms of our financial services offering on online channels, and make sure our clients can access those and [help us] grow our market share,” she says.
Inspiring innovation
This competition between banks and telcos will only fuel innovation in the banking space in the coming years. “With the next generation of mobile payments and finance, the telcos are becoming increasingly advanced in terms of the offerings they have for their own digital wallet services, and the partnerships they have with local banks,” says Edward George, an independent expert on African tech and former head of research at Ecobank. “It’s going to get more and more difficult when it comes to digital banking to tell the difference between a telco and a bank.”
One sign of this convergence is the small but growing number of African banks offering banking services via messaging service WhatsApp. The Facebook-owned company, which has 1.5 billion users worldwide, is Africa’s most popular social platform, with its audio notes feature proving popular in countries with low literacy levels.
In July 2018, South Africa’s Absa became one of the first banks on the continent to offer banking services over WhatsApp, signing up more than 10,000 customers in the first 20 days. Nigerian banks United Bank for Africa, Guaranty Trust Bank, Access Bank and FirstBank quickly followed suit in the following months. There have been similar launches from lenders including Kenyan mortgage provider HF Group, Zambia’s ZB Financial Holdings and Access Bank, and Mozambique’s Millennium bim in 2019.
“What we see is that people use more and more social networks to communicate, not just send pictures and so on,” says José Reino da Costa, Millennium bim’s CEO. “It is much easier to move clients to Whats-App than to [our smartphone app]. The majority of people are very poor, and they don’t have money to buy big data packages. What telcos do is that they sell a small package where they give free access to Facebook and WhatsApp and not much else.” Millennium bim signed up 10,000 users to the service in the first month following a soft launch, and is targeting 50,000 clients by the end of 2019.
However, how far such services will transform the delivery of banking services remains open to question. “WhatsApp services are likely to be more of a continuation of a trend than a game changer,” says Ms Mbongue. “The banks are adapting to the latest technologies and means of communication. The service is mostly a value-added service or a retention tool for their existing customers and I doubt it will be a key driver for people opening new accounts.”
New product development
Beyond the spread of simple banking services to the continent’s 400 million unbanked citizens, mobile banking offerings are rapidly developing to incorporate more sophisticated financial products in Africa, such as insurance, asset management and funeral funding. For Mr George, the digitisation of crowdfunding is a particularly intriguing prospect.
“Crowdsourcing is as African as okra, but now you’re able to digitise the process,” he says. “For example in Kenya, everyone understands the concept of ‘harambee’ – where a community comes together to fundraise – but now it can be digitised. So now you can see on the screen who’s lending money to whom, see who you know and who you don’t know, [and] easily return the money to people if there’s a problem.”
An early example of digital crowdsourcing is M-Changa, founded in Kenya in 2012 by Kenyan-American entrepreneur Kyai Mullei and American David Mark. The company, which partners with local mobile operators, as well as Visa and PayPal, has hosted nearly 35,000 fundraisers in its seven years of operation.
“If people are still finding it difficult to get a bank account, you can sign up digitally to a service that connects you to people who can lend you $100,” says Mr George. “I think the formalisation, or rather the digitalisation, of informal networks could prove a big challenge to traditional banks.”
Developing ID systems
In addition to the development of such services, the creation of national digital ID systems is an increasingly pressing issue in Africa, as a means of providing would-be customers with a verifiable identity, and to help those in the informal sector establish credit histories. In its recent Goalkeepers 2019 report on global inequality, the Bill and Melinda Gates Foundation praised the use of India’s biometric-based Aadhaar ID system, used alongside mobile-led financial inclusion programmes from banks, as a means of empowering impoverished communities, and women in particular.
“The big problem in most emerging markets is that people have very poor data about themselves,” says Mr George. “Many people live on land over which they have no title, despite having lived there for generations, and often they may not have a birth certificate. There are a number of initiatives under way at the moment to create a single digital identity for individual citizens, who can have control over that data, which can be used for know your customer and credit history purposes.”
One such initiative is the Kiva Protocol, a partnership between the government of Sierra Leone and US-based microloans company, Kiva Project. The blockchain-based financial inclusion programme, which launched in Sierra Leone in August 2019, links a person’s thumbprint with their identity, and is designed to create the country’s first universal credit bureau, enabling banks to lend with greater confidence to people without traditional credit histories.
“There are millions of unbanked people who are very active in the informal sector, but when they first interact with the formal sector they’re unable to have that history recognised, and therefore a bank has no real option but to treat them as if they have no credit history,” says Matthew Davie, chief strategy officer of Kiva Project. “The government, meanwhile, wants to be able to audit and regulate the informal sector more effectively, which is hard when transactions aren’t digitally recorded, and it also wants to uphold consumer protection and privacy.”
Kiva is hoping to sign up all of Sierra Leone’s major banks and microfinance institutions to its scheme by the end of 2019, and be in a position to provide credit reporting functionality in 2020. Mr Davie says that Kiva Project is in discussions with other countries about adopting the Kiva Protocol – declining to say whether they are African or not – and hopes to make further announcements early in 2020.
