Mobile banking
Mobile money goes mainstream
By Lanre Akinola and Ese Erheriene | Published: 28 July, 2010
When Vodafone launched the M-Pesa mobile money transfer service through its subsidiary Safaricom in Kenya in February 2007, few could have predicted its success. Originally developed with funding by the UK’s Department for International Development, it has quickly outgrown its development roots. By April of this year the service had 9.5m active users and accounted for approximately $330m worth of person-to-person transactions.
This success has caught the attention of other major operators on the continent, most of which are actively rolling out mobile money services. As such services become a mainstream offering, the potential application of mobile technology in addressing one of Africa’s most pressing development challenges – financial inclusion – is becoming clearer.
M-Pesa is the continent’s most well known mobile money service, and while it has been rolled out in Tanzania, and there are plans to launch it in South Africa, it is still predominantly a Kenyan sensation. However, both MTN and Zain – the continent’s two largest mobile operators – are investing heavily in deploying their own mobile money services across their African operations.
Zain, which has a presence in 15 sub-Saharan African countries, launched its mobile money service, called Zap, in February 2009. The product is currently available in Kenya, Tanzania, Sierra Leone, Ghana, Niger, Malawi and Uganda. Just a month later South Africa’s MTN, the continent’s biggest mobile operator, launched its own service, called simply MobileMoney.
Phenomenal growth
Richard Mwami, the head of MobileMoney in Uganda – where the service was first rolled out – says that “phenomenal growth has been witnessed in Uganda on the MobileMoney platform in the last 15 months”. Actual subscriber numbers stand at 890,000 users, or 16 percent of MTN’s subscriber base in the country, carrying out 11.8m transactions at a value of $195m since launch.
Considering that MTN has in excess of 100m subscribers on the continent such figures might seem negligible, but the company has ambitious growth plans for the product. Already available in five countries – Uganda, Rwanda, Côte d’Ivoire, Guinea Bissau, Ghana – Mr Mwami explains that “the intention is to deliver the service across all 22 MTN operating countries in the next 12 months”. With subscriber figures in Uganda alone forecasted to reach 3.5m by 2012, MTN may be poised to make mobile money services a mass market phenomenon in Africa.
Seema Desai, head of Mobile Money at the GSM Association believes this is reflective of a wider trend of strong growth in mobile money services globally. “We have seen a lot of operators venturing into mobile money and we consider it to already be mainstream,” she says.
GSMA tracks mobile money deployments across emerging markets. According to its figures, there have been more than 150 deployments of mobile money systems around the world to date, of which around 70 are live.
Despite operators enthusiasm for mobile money, however, the actual revenue contribution from the service is relatively limited. MTN’s service contributes less than 1 percent of its total revenue in Uganda, but Mr Mwani explains that the commercial impact of mobile money is indirect.
“The real effect of MobileMoney is much more than revenues,” he says. “It helps to reduce churn [customer turnover].”
Mr Mwani estimates that operators offering mobile money services are considerably more effective than other offerings, and has been shown to reduce customer churn by as much as 5 percent. In addition, he observes that average revenue per user or Arpu – a common yardstick to measure performance amongst operators – is significantly higher amongst subscribers using mobile money services.
Mr Mwani concludes that “reduction in churn is critical to our business and MobileMoney is a service which helps us retain customers…it has certainly become a core offering for MTN.”
The significance of this is not to be underestimated in a region such as sub-Saharan Africa, where an estimated 98 percent of mobile subscriptions use top up cards rather than fixed contracts. While growth remains strong in the region, bigger markets such as Nigeria and Kenya are becoming increasingly competitive, and operators are turning to value added services in a bid to remain competitive and maintain customer loyalty. Of these, mobile money is fast establishing itself as a critical differentiator.
While this dynamic may offer the required commercial incentive for mobile operators to invest in such services, the potential for large scale, multi country deployment of mobile money services also opens up possibilities to address one of Africa’s most pressing development challenges – financial inclusion.
As much as 80 percent of the continent’s population does not currently have access to formal financial services, and financial penetration is as low as 10 percent in some countries. Banking services are predominantly the reserve of multinational companies and wealthy individuals, with very few banks offering consumer retail services. Branch networks rarely extend beyond major urban centres, severely limiting physical access to banking services to sub-Saharan Africa’s predominantly rural, low income, population.
GSMA’s Ms Desai believes that the ability to overcome physical infrastructure constraints by sending information directly to an individual user’s mobile phone puts operators in a position to bridge the gap between consumers and banks.
“We are keen to get more providers doing this kind of thing, because you see huge benefits to people who live at the base of the pyramid,” she says.
“Even if they may not have huge sums of money, they certainly still have financial needs…we believe that mobile operators are really well-placed to be able to provide these services.”
The majority of MTN’s money transfers, 60 percent, are to recipients in rural areas, highlighting both the need for such services in remote regions and the ability of mobile operators to succeed where conventional banking struggles to keep up.
The convergence of mobile technology and financial services has the potential to run much deeper than simply acting as a physical bridge between a bank and a consumer, as it invariably includes some type or partnership with a bank.
In June MTN announced that it had partnered with United Bank of Africa to become its first financial institution to become an MTN MobileMoney agent. Zain’s accredited agents include UBA, Standard Chartered Bank and Ecobank.
Depending on the nature of such relationships, “there are a lot of shades in-between in terms of the extent to which the operator and the bank are partnered, and who takes on which role and responsibilities,” says Helen Karapandžic, an analyst at Analysys Mason.
This can blur the lines between role of operators and banks, and highlights the importance of appropriate regulation. All mobile money transfer initiatives must adhere to certain fundamental regulatory principles, but individual country regulation can have a defining impact on the level of innovation within a given market.
Individual markets
Kenya is a striking example of what can be done with mobile money services under the right set of circumstances. “Kenya has benefited from being a very lightly regulated environment, which has meant that Safaricom were able to do a lot for themselves,” observes Ms Karapandžic.
In June 2010, Kenya’s Equity Bank launched the “M-Kesho” service, formalising an existing relationship with M-Pesa into a comprehensive financial services product. The service allows Safaricom subscribers direct access to their bank accounts, effectively turning the user’s cell phone into a mobile bank branch.
Equity Bank has become synonymous with innovation in Africa’s banking industry in recent years. It focuses almost exclusively on so called “bottom of the pyramid” consumers, mostly low income individuals in the informal sector, and has established itself as one of the biggest banks by market capitalisation in East Africa. With 4.9m opened accounts, it is currently home to over 50 percent of all bank accounts in Kenya.
“We recognized that bricks and mortar is not the solution [for Africa],” says James Mwangi, Equity Bank’s chief executive. “The biggest costs that we have been confronting in our business model is not even the banking costs, it’s the cost of access.”
Within its first month of launching, Mr Mwangi estimated that 150,000 people signed up to the service, with over $1.2m in savings.
“This is a runaway success,” he says. “We are now convinced that it will be the solution for Africa. It addresses the question of sparse population, addresses the question of affordability and the inability to use bricks and mortar because of a lack of economies of scale.”
For now, this runaway success is exclusive to Kenya, and Equity is the only bank to offer such a service on a commercial scale in Africa, but the potential impact of replicating such solutions elsewhere is easy to see.
Kenya has benefited from a regulatory environment that has allowed it to push the boundaries of what mobile money services can do, and GSMA’s Ms Desai believes that governments have a critical role to play if products such as M-Kesho are to spread across the region.
“We’re looking to promote the key message to financial regulators so that they better understand the opportunities that mobile presents for financial inclusion,” she says.
“Financial services need to be properly regulated, and it often requires financial regulators to not put the barriers up too much, but to come looking to understand how best to create the right framework to allow for innovation within the marketplace.”
