Mobile money is one of the great success stories in Africa – or at least, this is the popular narrative around the technology. In this two-part series of Features, we will examine mobile money’s impact in Africa, and the extent to which it really has revolutionised financial inclusion in the continent.
With services becoming available in African markets in the late 00s, mobile money was touted as a revolution that would use widespread yet simple technology to boost financial inclusion and transform economies. In particular, Safaricom’s M-Pesa launched in 2007 and was booming by 2012, with rapid adoption and growth.
However, it’s arguable that mobile money’s impact in reality doesn’t quite match up to the popular rhetoric. While it was perhaps unrealistic to expect a full-scale switchover from Africa’s longstanding cash economies, it’s also worth examining the successes and failures of mobile money services, and how much the technology has truly altered the financial landscape within Africa.
Ericsson’s Global Head of Financial Services Michael Wallis-Brown underlines that 90% of financial transactions in Africa today are still made in cash, with communities still living on the poverty line. He notes that M-Pesa was a revolution in Kenya due to its simplicity – it used 30-year old technology based on USSD, and this widespread availability allowed a sudden increase in the velocity of money in their economy.
However, ABI’s Dimitris Mavrakis notes that while the service saw fantastic success in Kenya as well as Afghanistan and Tanzania, it failed in South Africa and other markets. There was even an attempt by Vodafone Group to launch M-Pesa in European markets as a remittance services, but this also failed to take off.
“You have to also consider that there are many pieces of the puzzle that were right for Safaricom in Kenya”, says Mavrakis. “First of all, there was a very bad penetration of banking services in Kenya at the time… people didn’t have access to banking. And then there was very little regulation in the field. So you didn’t need an ID card to get a mobile number – in contrast to South Africa, [where] you need a an ID, proof of identification to get an M-PESA account, it was a hurdle to get an account. Safaricom was very dominant in Kenya, which means that they had coverage almost everywhere. It was considered a good brand, it just had the customer trust, and it was at the time when Kenya was developing.”
Safaricom was able to build a critical mass of subscribers in Kenya, then it exploded in popularity – now, most people in the country use M-Pesa. However, in other markets – particularly South Africa, which is perhaps more developed in terms of banking – there is regulation and additional competition which have prevented a similar service from gaining the same traction. “You could say that Kenya is the exception to the rule. With Safaricom, it was an amazing success story but not replicable”, says Mavrakis.
“What M-Pesa did was establish a completely new network for banking; it didn’t use the existing one. I find it unlikely that any operator in Africa or in any country could [do this] today…they will cooperate with the existing banking network and be a facilitator. Perhaps you have a payment service that uses either smartphones or contact free payments to help subscribers and offer them incentives. In that sense, mobile banking was a disruptive, innovative, service when it first launched. But traditional banks have caught up to it now.”
When M-Pesa launched, Kenya – and indeed most of Africa, and much of the world – was largely using 2G phones with a text interface. Banks could not interface with this system and their systems were not as advanced. 3G is now very well deployed across most of Africa, and low-cost smartphones are widespread, so banks can reach subscribers much more easily than previously. The operator now facilitates the connection only – not the full experience.
Russell Southwood, CEO of Balancing Act and author of Africa 2.0: Inside a Continent’s Communications Revolution, agrees that M-Pesa’s success – and indeed entire model – is unlikely to be replicated. “The window is closed for that kind of success again; we’re not likely to ever see another service catch on in the same way, the traditional banks have moved into it.”
Southwood argues that M-Pesa’s success was down to several factors combined – the fact that it was established during Africa’s 2G era, when there was less interconnection, enabled operators to corner a market and gain massive dominance, as Safaricom did. “Nowadays, the leading operator’s market share will be around 40% at the absolute most, and that’s not enough critical mass to then have an exclusive mobile money service that doesn’t offer interconnection. There’s no point operating a white label one on your own network that doesn’t interconnect with any others, because nobody wants to use it as you need that traditional banking infrastructure now.”
A huge element of the narrative behind mobile money in Africa is the idea of financial inclusion, and it is indeed a major factor in the popularity of these services. While in developed markets, most people have a bank account from a young age, in many emerging markets a lot of adults still do not have an account with a traditional bank – and where this addressable market was previously met by mobile operators, banks have stepped in to reclaim their territory. Part of the appeal of having a mobile money service operating on a 2G device was that it was the first time that many people were able to be financially included via buying airtime and having digital money on their device, and while there is a future for these services, it is now increasingly intertwined with more traditional banks, argues Mavrakis.
“MTN and Orange both offer mobile money, and I think they have been reasonably successful for unconnected areas or the unbanked population… but now, it’s a much more competitive environment. These schemes…when they integrate with the existing banking system, or perhaps they resell services from existing banks, I think that will be more relevant and successful, rather than establishing a completely new network from scratch. I think we’re past the point where there’s really a market opportunity for a completely new sort of financial network that that’s not aligned with traditional banking infrastructure.”
Mavrakis notes that the idea of connecting the unbanked has been in discussion since around 2010 – and speculates that the addressable market will now be substantially smaller. Banks are going to be unwilling to relinquish control again, and allow other companies to move in and start expanding financial inclusion initiatives outside of traditional banking infrastructure. There are going to be rural and unbanked populations – there is a lot of poverty – but it’s fairly rare now that populations are in places so remote that there’s no access to any form of connectivity. In that situation, there are questions about the degree to which people would need banking services purely for participating in their local economy.
Next week, the second part of this feature will explore the realities of how mobile money is used in Africa and the issues of trust that surround this – as well as how the technology will continue to be used in the future.
