Africa is a global
leader in mobile money, with telecom operators embracing innovative practices that allow customers to not only pay bills but
also access services including loans, insurance, and savings.
Yet increasingly, fintech startups with access
to greater funding and banks are trying
to permeate the mobile financial services (MFS) sector and pull some of these customers their way. This strategy is dependent on the recognition that the future is digital, and that mobile money
presents a lucrative opportunity to grow revenue and deposits.
Banking institutions across Africa currently face numerous challenges, including high-cost models and fees that make it unaffordable for
low-income segments, a high preference for cash
over digital transactions, and a predisposition towards cooperatives. As such, Africa’s retail-banking penetration stands
at half the global average for emerging markets at 38% of the gross domestic product, according to management consulting firm McKinsey.
In contrast, McKinsey estimates
there are 100 million active MFS customers in Africa dealing in transactions worth $2.1 billion. Telecom operators have more customers (Africa’s largest operator MTN has
over 170 million users), better distribution networks (Kenya’s Safaricom has over 130,000
mobile money agents), can easily spread products given mobile phone diffusion (74% continental penetration as
of 2016), not to mention the ease and safety of use in contrast to the paper-heavy processes of banks.
As the epicenter of mobile money growth, there are also diverse services operating in sub-Saharan Africa including Safaricom’s M-Pesa, MTN
Mobile Money, Orange Money, Tigo Cash or Tigo Pesa, Vodafone Cash, and Airtel Money.
As such, adopting a mobile-first approach will only help banks, says Vahid Monadjem, the founder of the South African-based payments platform
Nomanini. Given African banks’ ranking as second
in the world in growth and profitability “mobile money presents the opportunity to increase payments income as well as earn interest on increased deposits—an income stream which is usually not accessible
to telcos,” Monadjem says. “Ultimately, every dollar of cash that is moved to a digital store of value will land on the balance sheet of a financial institution which can then be lent out multiple times over.”
Monadjem says that in the short run, banks and telcos should engage in “coopetition” with the aim of achieving mutually beneficial results.
These include lobbying for better regulations, increasing shared agent networks, improving their distribution capabilities, besides enhancing
interoperability between wallets.
This mutual cooperation is already evident in Equitel,
which allows Kenya’s Equity Bank customers to ride on Airtel’s infrastructure to send and receive money. Safaricom’s M-Shwari loan product was also
developed with two banks in Kenya. Telcos, increasingly aware of these market-specific needs are also innovating around their approaches: last week, French telecommunications company Orange announced
it would apply for a banking license
to operate through its mobile money platform in eight West African nations.
In many African countries, lower
smartphone prices are driving the digitization of cash and transactions. And if banks gradually build smart solutions for these customers, Monadjem says they could accelerate their own revenue and
increase financial inclusion. “Without a doubt, armed with financing and vast experience around the logistics of handling cash, banks can play a massive role in enabling mobile money while boosting their own bottom line.”