Economic and political commentators are saying that the 21st century will be Africa’s century, and that the continent is finally about to realise its potential. There are many favourable conditions at work for this to happen: economic growth, global demand for Africa’s commodities, greater political stability, and investment in infrastructure, education and social services.
The mobile phone is a major catalyst for Africa’s transformation. It is not just a means of communication for the continent’s citizens, businesses and governments, it is also a major medium of economic, social and political development. One of the mobile phone’s most important and exciting uses is to deliver banking and payments services to Africans, particularly those from the lowest income strata who have had little or no access to formal financial services.
A conference in Nairobi, Kenya last December, organised by Citi and the GSM Association (GSMA), the trade body for the worldwide mobile telecommunications industry, discussed trends in mobile banking and payments in Africa. The two-day event, ‘Mobile Money Policy Forum: Partnerships for Financial Inclusion in Africa’, focused on the successes of governments, financial regulators, development entities and other business bodies in the region, and assessed how further progress could be made in delivering mobile financial services to the continent’s poor.
Maria Otero, US Under Secretary of State for Democracy and Global Affairs, and James Wolfensohn, chairman of Citi International and a former president of the World Bank, gave keynote addresses. Professor Njuguna Ndung’u, governor of the Central Bank of Kenya (CBK), also gave a presentation, as did government representatives from Tanzania, Uganda, Congo, Cameroon and Gabon.
Other speakers included executives from mobile network operators (MNOs) as well as officials from non-governmental organisations (NGOs) active in promoting financial inclusion, such as the Consultative Group to Assist the Poor (CGAP) and the Bill and Melinda Gates Foundation.
The audience consisted of senior officials from public sector entities in Africa, such as ministries of telecommunications, finance and economic development, whose role is to promote economic development and financial inclusion, as well as to regulate the telecommunications and finance sectors. Also among the delegates were executives from utility companies, mobile network operators and providers of telecommunications and payments hardware and software.
Reaching the Unbanked
Ade Ayeyemi, head of Africa, global transaction services (GTS), the division of Citi that co-hosted the forum, told delegates that the development of mobile commerce in Africa was not only dependent on what mobile operators and banks were doing, but on what governments were doing to create the right regulatory environment. “The mobile phone’s ubiquity provides an existing and cost-efficient channel for the unbanked to reach the market and the market to reach the unbanked,” he said.
Gabriel Solomon, senior vice president (SVP) for public policy at the GSMA, told the forum that mobile telecommunications is accelerating economic and social development across the globe. “With more than five billion connections, mobile is the only platform that can be leveraged to achieve broad financial inclusion,” he said. “As the GSMA and Citi partnership demonstrates, mobile money is a win-win for banks and mobile operators; working collectively, we can all capitalise on the significant opportunity before us.”
Investment in Mobile Communications
Africa is the fastest growing region in the world for mobile network penetration. Of the five billion mobile subscribers worldwide, 500 million are in Africa, representing 50% of the population, according to research published by AfricaCom Daily News in November 2010. Between 2002 and 2007, the number of mobile phone users in six African nations – including South Africa, Libya and Gabon – grew at a compound annual growth rate in excess of 100%.
This growth has required massive investment. Cumulative capital expenditure in fixed and mobile telecommunications in Africa between 2000 and 2008 stood at US$76bn, and is expected almost to double to US$141bn by 2013, of which 69% will be attributed to the mobile sector, according to a BMI-Techknowledge Report of September 2010 (see Figure 1).
Nigeria is one country that is leading the way. By the end of last year, Nigeria had overtaken South Africa in fixed-line and mobile cumulative investments. Mobile phone penetration was estimated at 41% of Nigeria’s 153 million population at the end of 2008, and US$3.7bn was invested in the telecommunications sector that year.
Mobile Payments: A New Revenue Driver for MNOs
As mobile telephony permeates society and consumer use grows, lower income groups, which have traditionally been under-served by banks, have gained access to mobile financial services. This is providing MNOs with opportunities to counter their declining average revenues per user (ARPUs) by offering new services to their customers – a welcome diversification as consumers in these markets have had limited access to conventional bank accounts. It is an obvious benefit for consumers and MNOs, but an even greater benefit for financial managers, as they are not only seeing low-value transactions being brought into the documented economy but also a significant enhancement to domestic payments system.
Mobile payment providers are expected to capture 2.5% to 4.5% of all transaction values in Africa by next year. The total value of m-payment transactions in Africa is expected to grow from US$3.5bn in 2008 to US$18.5bn in 2012. The two main types of payment are remittances to other individuals (84% of total expected transaction value in Africa by 2012) and purchases, which include shop purchases and utility bill payments.
Revolutionising Payments: Roles and Business Models
Essentially there are two types of organisation involved in mobile payments: MNOs and banks. Between them they share the roles of:
- Issuer, providing electronic money (e-money) to customers on their mobile phones and managing their mobile wallets.
- Acquirer, providing point-of-sale (POS) services enabling acceptance of e-money at merchants.
- Payment network, facilitating transactions between the issuers and acquirers.
There are three operating models, namely:
- MNO-centric, where the mobile operator acts as the issuer, acquirer and payment network.
- Bank-centric, where the bank acts as the issuer, acquirer and payment network.
- Collaborative, where the mobile operator acts as the issuer, and bank takes on the role of acquirer, or vice versa; the bank also plays the role of payment network.
Mobile phones have had a profound impact on banking and are constantly altering perceptions of how financial services are accessed. People no longer need to use a traditional brick and mortar bank branch, plastic card, ATM, online banking – or even a bank. Payment services are all available at the click of a key, or touch of a screen, or on a mobile handset, and as these new payments ecosystems evolve, users can opt to access mobile money without ever needing a bank account. These developments are allowing more Africans to access financial services.
The Kenya Diaries: Adopt or Adapt?
The mobile money developments in Kenya have been spearheaded by MNOs in partnership with the banking sector. Banks play a two-pronged role: first, providing assurance to the financial regulator that consumers’ funds are safeguarded; and second, providing mobile banking to their own bank account holders.
Today, there are four MNO-led services operating in the country:
- Safaricom’s M-Pesa (with which Citi is linked).
- Essar Telecom’s yuCash.
- Bharti Airtel’s Zap.
- Orange/Telkom Africa’s Orange Money.
Mobile money transactions in Kenya doubled to 251 million in the 12 months to end-June 2010, up from 125 million in the previous 12 months, according to the CBK. The number of mobile money customers increased by 41% to 10.4 million, up from 7.4 million the previous year. And the number of agents acting for MNOs increased by 197% to 31,902, up from 10,735.
The agents – corner shops, petrol stations, chemists, mobile phone dealers and other retail outlets – are all an essential part of the MNO-led mobile payments system, as they are the prime customer touch-point for cash conversion. An agent has several roles. First, it will purchase e-money from a super agent or settlement bank to re-sell to subscribers. Second, it will accept cash from subscribers and transfer it as e-money to subscribers’ mobile wallets. Third, it will provide cash to subscribers once subscribers have transferred their e-money to the agent’s wallet. The agent charges a small fee for cash-out transactions but no fee for cash-in. Although subscribers do not have any dealings with banks, banks operate in the background to process funds and safeguard cash balances at all times.
Launched in 2007, M-Pesa was the prime mover of mobile payments in Kenya, and is by far the largest. Today, M-Pesa has more than 12 million users and processes £5bn worth of transfers annually. Its services include bill payments, domestic money transfers, ATM withdrawals, international money transfers, insurance, paying in salaries and savings accounts (minimum deposit of US$1.40, with interest paid). M-Pesa has nearly 20,000 agents (60% of all mobile money agents in Kenya), and its partner banks include the Commercial Bank of Africa and Equity Bank.
Sovereign Support: Facilitating Mobile Payments to Reach Full Potential
US Secretary of State Hillary Clinton, addressing the Mobile Money Policy Forum by video, underlined the opportunity for financial inclusion created by mobile phone penetration. “Today 4.6 billion people, nearly 70% of the world’s population, have access to cell phones,” said Clinton. “But the majority are still excluded from traditional banks. When you look at the promise of technology to change our world, extending financial and social exclusion to those who have been left on the margins is a cause that President Obama and I strongly believe in.”
Citi’s Wolfensohn said that mobile banking can become a legitimate part of a country’s financial structure. “This is a chance to short cut the whole issue of banking, to use the technology that exists already to create an educated force of people throughout a country to start thinking about transaction services, savings, insurance…and it’s as close as their mobile phone,” he said.
CBK’s Ndung’u remarked on how mobile phones have had a profound impact on Kenyan households in transferring money and providing the link to bank accounts. “We all agree that one of the primary impediments to providing financial services to the poor through commercial bank branches is the high cost inherent in these traditional banking methods, but critically also banks have been left behind, stuck with high entry barriers of minimum balances and ledger fees.
“But further developments in the emerging technologies such as mobile phones have further enabled financial services to be provided on a timely basis and at an affordable price so as to reach the financially excluded households; this has solved the cost problem as well as the physical distance constraints,” he added.
He outlined the steps taken by CBK to promote financial inclusion through mobile phones. For example, regulations have been written that allow for a diverse range of financial services providers, including MNOs, to compete with banks, and to facilitate mobile payments.
Africa’s MNOs are benefiting from the new revenue streams generated by mobile money. Banks are benefiting too, using their expertise and systems to safeguard funds without having to assume major risks, or manage micro accounts, or provide traditional settlement services. Banks have less to fear from MNOs moving into financial services than might be thought because a new category of consumer is being created that was previously not served by traditional financial services providers.
Regulators and governments benefit because mobile money is helping them meet their economic growth and financial empowerment goals. They also stand to benefit from the enhanced scope of their safety net and tax collection programmes.
The biggest winners of all, however, are the continent’s under-privileged, who now have a means of holding and transferring money efficiently and with little cost. They are gaining from these technological and regulatory advances to become more active participants in Africa’s economic development.
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