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The Impact of Mobile Money in Africa

Posted: Mon, February 04, 2013 | By: Lee-Roy Chetty



The success of Mobile Money Services (MMS) has led many Mobile Network Operators (MNOs) around the world to venture into offering similar products, thus making revenue streams within the mobile environment incredibly competitive.

In Africa, the dwindling revenues in the mobile telephone voice business as well as the proliferation of mobile phone handsets further enticed the operators to undertake the provision of mobile money.

The increasing importance of mobile money services, associated regulation of the sector and the actions needed to create an enabling environment for these services to continue growing in Africa as mechanisms for social inclusion and poverty reduction.

So what exactly is mobile money?Mobile money is used to loosely refer to money stored using the Subscriber Identity Module (SIM) as an identifier as opposed to an account number in the conventional banking business. It can also be defined based on its functionality by observing that it includes all the various initiatives (long distance remittance, micro-payments, and informal air-time) aimed at bringing financial services to the unbanked, as well as convenience for the banked, using mobile telephony technology.

The term has also various synonyms such as ‘mobile wallet’, ‘mobile financial service’ and ‘mobile payment’ and can be defined as a term that describes the services that support/enable electronic money transaction such as account access, money transfer, and mobile commerce over a mobile phone. The various definitions underscore the diversity of the usage of the term across the industry and in the literature.

Mobile payments is however different from mobile banking services.

The latter are based on the bank’s own legacy systems and offered for the bank’s own customers. Mobile banking services utilize the mobile phone as a delivery channel between the conventional banking account and the final beneficiary of the financial transaction such as a merchant. It is an evolution of the bank’s legacy from (i) ‘traditional brick and mortar’ (physical branches where most interactions are face to face), to (ii) ‘click and mortar’ (multichannel delivery approach involving use of physical branches and ICT/electronic commerce), and finally to (iii) ‘click’ (most transactions are driven by ICT/electronic commerce).

A number of scholars, business leaders, economic development experts, and opinion leaders have hypothesized that the mobile phone with its antecedent accessories such as mobile money has the potential to transform the developing world, and most especially Africa, in ways that the green and industrial revolutions failed.

Their conviction stems from the fact that the mobile phone has been able to short-cut the infrastructural limitations that have for many years hindered the developing world’s transformational agenda.

There are two main African mobile financial service models: (1) Bank-led model with additional services to existing customers through a mobile banking application; and (2) Nonbank-led model with transformational outreach to the unbanked population.

Since the year 2000, Africa has had an annual average growth of 30% in mobile telephone usage. With an increasing mobile coverage on the continent, reported at more than 620 million mobile phone subscribers in Africa; the number is forecasted to reach 735 million by the end of 2012.Under the pressure from a narrowing profit margin due to fierce competition, most MNOs plan to diversify operations and add values to existing mobile services. Mobile financial innovations have, therefore, been on a rapid increase in Africa.Given the underdeveloped financial market and limited competition between financial institutions in Africa, many small low-income African countries consider it important to try alternative financial service providers.

The success of the MNO-led model is dependent on a large reliable network of agents and low risk management of electronic value for a cheaper but secured solution to financial exclusion in low-income African countries.

By the end of 2011, there were over 50,000 active agents for MNOs engaging mobile payment systems in Kenya alone.

As a tangible example of the impact that Mobile money is having on the African continent, a case study in Kenya provides the best example.

Kenyan citizens, especially those in remote rural areas, have limited access not only to basic economic and social infrastructure, but also to affordable financial services, such as payment facilities or savings. At the time there were only 1.5 bank branches per 100,000 people and only one Automated Teller Machine (ATM) per 100,000 people.

Most Kenyan citizens were reported to be unhappy with bank services. This explains the easy switch to mobile money.

Taking bank accounts as an indicator, access to formal finance in Kenya seems limited (with bank account penetration rate being still 21% in 2010).

However, if mobile money accounts had been used, access to financial services in Kenya would have been more spectacular with an increase from an estimated 19 percent in 2007 to more than 40 percent in 2011. According to a survey, “usage of non-bank financial institutions more than doubled from 7.5 percent in 2006 to 17.9 percent in 2009.The success of the MNO-led model in Kenya is dependent on the risk-based regulation of mobile money. Under the guidance, a large reliable network of agents has been set up, and a low risk solution to financial exclusion found for rural areas. By the end of 2011, there were over 50,000 active agents for MNOs engaged in mobile payment systems in Kenya.

 

 

 

 

 

 

 

 

 

 

 



Comments:

Does it mean that Mobile money services like MPESA has an effect to banking systems?

In other ways, does the invasion of MMS greatly affect banking services?

By Bryan Ronald on Feb 05, 2013 at 5:30am

awesome article, this is an intelligent look at the future of money and how leapfrogging in a less developed country is a great case study for what is money and what it is becoming. thank you.

By zeev on Feb 05, 2013 at 7:27pm

This has really helped my research on the effects of Mobile Money Transactions. I hope it brings more positive transformations to my developing country Nigeria.

By Oshin Busola on Feb 19, 2013 at 3:42am


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