When mobile network operator (MNO) Safaricom launched its M-Pesa mobile payments system in Kenya seven years ago, few business models were as ripe to explode. With extremely high mobile penetration rates, a high proportion of unbanked households, a regulatory system that allowed telecoms companies rather than banks to lead the way, and a migrant population suffering from expensive domestic remittances, it is little wonder that more than two-thirds of Kenyan adults use the service today.
In fact, M-Pesa has become the largest driver behind financial inclusion in Kenya. Today, 66.7% of the country’s residents have access to formal financial services, compared to just 41.3% in 2009. In addition, 43% of Kenya’s GDP passes through M-Pesa.
But the service, which has also been quite successful in Tanzania, is not just the continental leader in mobile payments. It can additionally boast of operations in non-African countries where its parent company, Vodafone, operates, including Afghanistan, India, and even EU-member Romania.
Yet, it is important to note that mobile money, through which customers can transfer cash between each other, pay for goods and services without the need for cash, open digital savings accounts, and increasingly, obtain credit, has had mixed adoption rates on the continent.
M-Pesa’s initial venture into South Africa was fraught with a vastly inadequate number of agents and a lack of partnerships with rural banks. It had to be suspended before its August 2014 relaunch.
SnapScan, FlickPay, and similar South African startups have enjoyed some success in building nationwide mobile money systems that allow merchants without access to point-of-sale machines to accept customer payments. This is not entirely comparable, though, as they require a smart phone and a linked credit card.
Nigerian regulators have taken a different approach. In 2009, Abuja awarded 18 licenses to mobile payment service providers, the most of any country so far. However, in spite of some modest growth by Tim Draper-funded Pagatech, mobile money has yet to make major inroads in Africa’s largest economy.
Much of this is surely due to the fact that Nigerian MNOs have been legally sidelined. In a move emulated by Indian financial regulators, the Nigerian Central Bank has limited rollout of mobile money to banks or other non-telecom firms, resigning MNOs to simply providing the mobile infrastructure for other players to use.
Thus, Nigerian telecoms, the likes of which include big names like MTN, Etisalat, and Globacom, are forced to partner with banks to commence mobile payments schemes. This has not stopped them from participating, shown by the latter’s plans to create half a million mobile money outlets in collaboration with four of the country’s largest banks.
But not having MNOs in the driver’s seat of the mobile payments space necessarily hampers the industry’s ability to grow. Large telecoms in developing countries have 100 to 500 times more airtime reseller agents than all the bank branches put together, and these agents constitute a massive group which thus far have not been adequately converted into mobile money intermediaries. This helps explain why 59% of Nigerians are not even aware of the existence of mobile money services.
Like much of East Africa, this telecom-led rollout of mobile money is more of the norm in West Africa. Still, compared to East Africa, usage has lagged behind. Such telecoms giants as MTN, Orange, Airtel, and Millicom (under the “Tigo” brand) operate across the region. However, only 8 million West African customers utilize mobile payments, proving that other hurdles remain.
For one, the telecoms sector in West Africa is more fragmented, which contrasts with Kenya, where Safaricom has a hold of 73% of the mobile market. Moreover, the fairly large prevalence of rural-urban migration in Kenya means that there is a large market for domestic remittances via mobile payments (46% of Kenyans send one monthly), which is how M-Pesa began. This figure is nearly twice that of many West African nations.
Nevertheless, when it comes to cross-border migration, West African MNOs have recently discovered a sizable market.
Cote d’Ivoire, long a hub for Francophone African immigrants, has lately seen a major mobile money tie upbetween Western Union, the largest money transfer provider in the world, and MTN, modeled on a 2012 partnership between the two companies in Uganda.
The South African telco has further eased international remittances through the roll-out of low-cost Cote d’Ivoire-Burkina Faso and Cote d’Ivoire-Benin mobile payment services earlier this year, which followed a similar offeringfrom its French rival, Orange.
Governments are also starting to realize that increasing mobile money adoption rates will be essential for moving towards a financially inclusive “cashless economy”. For instance, the Ghanaian government has begun to take steps to streamline mobile payment and settlement systems, an effort long called for by MNOs. Mobile money has previously struggled in the country due to a bank-led regulatory model that has distorted incentives between reluctant partner banks and eager-to-invest telcos.
M-Pesa has led the way on African mobile payments by far, yet in its Kenyan home, 94% of financial transactions are still done in cash. Furthermore, interoperability between the mobile systems in place within a single country is a work-in progress as well.
As a result, barring overzealous regulators and tax authorities, there remains enormous room for growth for numerous players in the sector: MNOs, banks, and third-party companies alike.
This Article was written by Kevin Amirehsani, a policy researcher at the Institute for Democratic Governance in Accra, as well as with the US Commercial Service in Cape Town. It first appeared on Global Risk Insight