Mobile Money: A New Payments Infrastructure for Africa

In terms of financial services, Africa presents a challenging situation because of poor physical, organisational and financial infrastructure. Paradoxically, the continent has seen mobile phone usage grow exponentially – despite only about 20% of the population in Africa being banked, more than 40% use mobile phones. This opens up the possibility of a new channel to deliver financial services.

With the introduction of mobile money initiatives, suddenly a large proportion of unbanked people have a tool to access financial services. The success story of M-PESA (M for mobile; pesa is Swahili for money) in Kenya, for example, shows the potential of the mobile channel. Launched by Safaricom in March 2007, the initiative attracted over two million customers and created a network of more than 2,329 agent outlets in its first financial year. As of March 2010, those numbers have risen to almost 9.5 million customers and 17,652 agent outlets. The monthly Kenya shillings (KShs) value of transfers has risen from KShs3.12bn to KShs28.59bn over the same period.

Therefore, the ubiquity of the mobile phone has given the banking sector an impetus to reassess how banks conduct their business. Banks should view the mobile channel as a public utility and evolving payment channel, and explore how they can leverage it to their advantage. Although to date the market has focused on person-to-person (P2P) transactions, banks can provide services to corporates and the public sector to help them pay and collect money more efficiently. The mobile channel is an efficient payment tool that has the potential to replace cash.

How Corporates Can Benefit from the Mobile Channel

The mobile channel creates a legitimate payment channel for when a large corporate pays a key but basic supplier. A corporate doesn’t need to provide cash – instead it can pay its suppliers or distributors through the mobile phone.


There are many examples of business-to-consumer (B2C) payments where mobile money can be of significant benefit. For example, produce farmers who live in the countryside face great difficulty in accessing banking services. If they sign up as a subscriber for a mobile commerce service, then a corporate can instruct the payment through a mobile commerce platform to the subscriber’s e-wallet. This can also help a corporate treasurer optimise their commercial flows.

On the flip side, companies such as utility firms or insurance companies can use a consumer-to-business (C2B) payment to collect monthly payments from subscribers. For example, a utility company might sell electricity in a similar way to mobile phone airtime, where the customer purchases it from merchants. Normally, consumers would go to a small shop to buy a prepaid card, then return home and key in the number. In this scenario, the utility company has to share a commission with merchants and it takes longer to receive collections, which may impact the utility’s working capital needs.

With a mobile commerce solution, the utility company can receive a direct payment from a client and immediately send the client a PIN code by SMS. In this scenario, the utility company can instantly reconcile the collection information with the electronic banking (e-banking) platform.

In Kenya today, mobile phone subscribers have the option of paying bills and premiums to a network of nearly 100 utilities companies, insurance brokers, corporates, non-governmental organisations (NGOs), microfinance institutions (MFIs) and other entities.


In Tanzania, for example, a fast-moving consumer goods (FMCG) company, which receives payment on delivery, is an example of a mobile money business-to-business (B2B) scenario. For example, beverage companies will deliver to multiple merchants and the lorry driver will be paid at that point – this creates a significant risk for drivers carrying cash around the country.

In a B2B mobile solution scenario, the driver’s subscriber number – or phone number – would have a higher limit for the e-wallet because their collection transactions are much larger than C2B transactions. Once the payment is made, a SMS notification will be sent to the driver and merchant’s mobile phones before the driver is allowed to unload the goods. At the same time, the corporate treasurer will receive a SMS so that they know that the driver with this number has received a certain amount of money.

It is not only about managing cash but also information. The treasurer can reconcile this information immediately, which is difficult to achieve in African markets because usually companies pay cash with a slew of accompanying paperwork. By using a B2B mobile solution, companies can improve cash management as well as the reconciliation process.


It is estimated that in most African countries the split between the formal and informal economies is 40% and 60%, respectively. The informal sector is basically unbanked and politically disenfranchised. Mobile money transfers provides an opportunity for governments to tap into the informal sector of the economy in a way that was not possible before. For example, pension payments can be conveniently made to government ex-employees spread all over the country, instead of pensioners travelling to urban centres to collect their money physically. In addition, it reduces the possibility of theft. Mobile money transfers also represent an efficient means for receiving and repaying microfinance loans.

Regulatory Environment Impacts Mobile Channel Uptake

Banks have been involved in mobile money in an aggregated sense as settlement banks, but their specific role depends on the regulatory environment in different jurisdictions. Regulators are using either an operator-led or bank-led model to regulate mobile money, and the model chosen has a direct effect on the success of the mobile commerce channel.

All regulators want banks to intervene in one way or another. Fundamentally, they want a bank to be an aggregator of the funds, to ensure the mobile network operator (MNO) doesn’t start usurping the role of the banks and creating money in the system. Therefore, regulators will position a bank between the MNO and the public to ensure that they can see the funds aggregated and that those funds are equal to the electronic money (e-money) that is being created.

In East Africa, the regulators have approved an operator-led model. Kenya, Tanzania, Uganda and Zambia allow the MNOs to lead the initiative and provide financial services to all their subscribers. For example, the regulators have specifically given Safaricom permission to partner with banks.

But some regulators are nervous about MNOs operating in what they perceive to be a banking space and have mitigated the risk by insisting that the bank overlays the MNO. For example, if someone has a mobile phone but not a bank account and wants to start using mobile financial services, there are some regulators that insist the person becomes a bank’s customer. Therefore, in order to be able to transfer money or make a payment, a person has to open a bank account and its bank does the normal regulatory checks, puts limits on transactions, monitors what the customer does, etc.

The bank-led model has proved to be the least successful because the key to mobile financial services is turning the mobile phone into a banking tool. If a regulator requires people who are unbanked to go into a bank branch before they can be enabled on the mobile phone, then there is a high probability of losing them.

Figure 1. Bank Versus Non-bank Led Model

Source: Citi


Therefore, the regulatory environment determines whether or not this becomes a viable channel. If it’s an enabling environment, it increases the number of people who use it and the number of agent outlets where people can use mobile financial services. Following on, high consumer uptake also makes it easier to sell a mobile money solution to a corporate or a public sector as a means of making payments.

For example, Kenya has a population of 40 million and a quarter of them are using M-PESA. It is very attractive for a bank to pay beneficiaries using that channel because it knows that many beneficiaries would like to receive money through this channel. But in Nigeria or South Africa, where fewer people are using the channel and not many locations take mobile as ameans of payment, the business case is not there.

It is important that the mobile commerce operator, whether that is a MNO or a bank, creates a growing ecosystem to ensure different stakeholders within the system accept mobile money and this effectively requires economies of scale. If everyone can receive it, the usage will grow dramatically.

Know Your Customer

An operator-led model means that the operator is the legal entity that owns these customers. The MNO must to do Know Your Customer (KYC) and anti-money laundering (AML) checks for mobile transactions.

Because the transaction value is normally low, regulators can act proportionate to the risk involved. In low-value, high-volume transactions, the risk per transaction is quite low. Therefore there is no need to put stringent regulations in place.

Most regulators focus attention on high-value, low-volume transactions. If a company wants to make a high value transaction, normally it would prefer to go through a bank because all e-wallets have an upper limit.

For the corporate or the public sector, it is no different from normal KYC because they are already bank clients.



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