Mobile money needs bank, telco ties

The delivery of mobile financial services in sub-Saharan Africa (SSA) continues to evolve strongly. Mobile network operators (MNOs) now offer a wide variety of services following initial, basic efforts that centred on an airtime top-up and domestic money transfer platform.

The success of Safaricom’s M-Pesa, highlighted to other telecoms operators and banks the revenue opportunities arising from a client base increased through the introduction of mobile financial services.

Following Safaricom’s lead, many banks designed mobile financial services proposals, but lacked the required infrastructure to roll out services. They have, however, started to catch up, and the outlook remains strong because of the large size of the unbanked population across Africa and strong demand for financial services.

Although mobile penetration is estimated at 53 percent, access to financial services is low at about 24 percent of the adult population, according to the World Bank. However, there is a positive outlook for financial access in the region as banks and MNOs aggressively compete to expand financial services to mobile subscribers by providing mobile financial services (dubbed “Mobile Money”) to the unbanked.

MNOs have been leading the race and, so far, have achieved greater success. Pan-African MNOs, including MTN, Airtel, Orange and Tigo, operate their mobile money businesses across several countries such as Ghana, Nigeria, Kenya, Uganda and the Francophone West African countries. In the same way, SSA banks are rapidly launching mobile banking solutions aimed at bank customers.

Currently, MNOs account for more than 80 percent of live mobile money deployments in the region. While the majority of MNOs operate their mobile money businesses in a single country, pan-African MNOs are launching their operations across countries. Surprisingly, Airtel has been leading the race, with live mobile money deployments in 12 countries, ahead of MTN. Safaricom is having its second deployment in Ethiopia.

As a consequence, SSA banks are now playing a catch-up strategy. To deliver mobile financial services to their clients and prospective clients, banks in SSA are using a three-point strategy that categorises mobile financial services into three main product lines: mobile banking, mobile money and mobile savings. This positions the banks to effectively compete with MNOs.

In addition to servicing the needs of bank clients through mobile banking, banks compete with MNOs to reach the unbanked segment of the population by offering mobile money and mobile savings schemes.

This strategy shows a strong desire by banks to compete for their share of mobile financial services revenue. However, the competition is producing partnerships rather than winners and losers. While banks lack the necessary infrastructure to roll out mobile financial services, MNOs lack banking licences and regulatory support in most parts of Africa.

This has resulted in the current necessary partnership between banks and MNOs in the delivery of mobile financial services. However, the expectation is that the nature of competition between banks and MNOs engaged in the provision of mobile financial services will be shaped by regulatory changes in the long-term.

Sub-Saharan Africa MNOs operating mobile money appeal to regulators at every opportunity for the redesign of a regulatory framework that would recognise them as part of the financial system. The MNOs are seeking increased autonomy in the running of mobile money in a bid to boost their overall income from the sector.

Currently, the evolving regulatory system for mobile money still favour banks in most parts of the region. However, the decoupling of mobile money wallets from mainstream telco business currently happening in Kenya will change this game.

However, there are risks to this potential growth and the most prominent is the recent introduction of taxes on fees charged by MNOs (as has been the case in Kenya, Tanzania, Ghana and Nigeria), which could slow down the pace of growth.

BUSINESSDAILY / By GEORGE BODO  The writer is an investment analyst. @GeorgeBodo