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Mobile’s sleeping giant

With no costly infrastructure to overhaul, Africa has leapt ahead in mobile communications and m-banking.

Third World mobile banking systems are piquing the attention of international operators and international banking organizations. The result – if all goes well – could be a fresh influx of investment and technological know-how poured into an arena where Third World countries are the innovators.

Hopefully, the interest being shown by regulators will also create legislation that encourages innovation and allows more players to enter the fray. The fear, of course, is that new legislation may stifle these developments if banking organizations regard them as unwelcome incursions into their hallowed territory. Europe and the U.S. have made slow progress with mobile banking because there simply isn’t much need for it. At best, it’s an add-on service for people who already have plenty of physical branches and good Internet access if they choose to bank online.

A recent study concluded that 1.7 billion people do not have a bank account, but do have a mobile phone, making mobile phones a direct conduit to nearly half of the world’s unbanked.

Yet, in the emerging nations, massive populations have no access to banks and so little money to spend that the cost and hassle of opening a bank account has never been worth it. Yet everyone needs to give money to someone else, whether it’s to pay for a bus ticket, a grocery bill, or to send money to relatives. Global technology research company Gartner estimates the number of mobile payment users worldwide at 212 million, yet Nigeria alone has 25 million people with a cellphone but no bank account and mobile operators are keen to capitalise on this.

African mobile operators have identified a gap in the market to provide customers with an affordable service they need, leveraging on their brand, large subscriber base and distribution capabilities. The minute people are able to do financial services on their mobile handset, a mobile operator’s subscriber churn reduces immensely. Nigeria’s banking regulator is giving more freedom to mobile operators, while the local governments have started paying social grants to the unbanked via mobile services.

The global awakening of interest is highlighted by the numerous conferences being held to debate mobile banking and thrash out strategies for its regulation. Recent developments in mobile phone-enabled financial services suggest we are on the cusp of a revolution in the way financial services are delivered. Debates are under way on how to enable innovation without creating undue risk to operators or their customers, while adhering to national and international security standards including the prevention of money laundering and the financing of terrorism.

Their worry is that operators introducing financial services to millions of unserved people may expose the financial sector and payment systems to new risks that existing regulations do not address. Or perhaps governments are just worried that the banks they regulate are under threat from new rivals, and are too slow and staid to retaliate. Harnessing the power of technology could dramatically increase access to financial services for poor people, says the Consultative Group to Assist the Poor (CGAP), a microfinance group within the World Bank.

But it can only happen if regulators and private firms strike the right balance between protecting customers and allowing innovation to flourish. Poor people need a safe way to save and send money, and African innovations like M-Pesa and M-Kesho are showing us how to reach the billion people worldwide who have a cellphone but no bank account. Millions of people could be given access to safe, low-cost financial services using mobile phones and other technologies, giving them opportunities to manage their lives. Some of the most innovative solutions for financial inclusion have come from Africa.

The mobile phone is a pervasive device that has penetrated the poorest economies due to an overwhelming demand for communications. That makes it a useful tool for banking as well. Africa’s abundance of people, untouched by traditional financial services, is usually viewed as a challenge, when it’s actually an opportunity to explore new ways to bring people into the financial environment.

Africa is a cash-based society, and companies are proving mobile banking can be used as a tool to facilitate virtually any form of payment, directly from a mobile phone. As an example, Celpay in Zambia and the Democratic Republic of the Congo offers virtual bank accounts via a cellphone with features that compare to many normal accounts. Account transfers, bill payments, cash deposits, withdrawals and prepaid airtime vending are all supported.

Celpay has also developed an m-banking cash-on-delivery payment that many national chain stores are using. A thriving network of agents is vital to the success of mobile banking, but building and sustaining that network is challenging. In a survey of Safaricom’s M-Pesa service in Kenya, it was found that it had successfully established large agent networks, but that not all were profitable. M-Pesa has more than 5 million users and handles about 160,000 transactions per day worth US$4 million.

Agents earn a commission on each transaction, and a typical agent generates more than twice as much revenue through M-Pesa than by selling mobile phone airtime. Some believe mobile operators should automatically get limited banking licences to offer shortterm loans, overdrafts and handle payments for their customers, while banks should be given communications licences to run secure hotspots to increase the range of services they offer at ATMs. A recent study concluded that 1.7 billion people do not have a bank account, but do have a mobile phone, making mobile phones a direct conduit to nearly half of the world’s unbanked.

As many as 364 million low-income, unbanked people currently use mobile money, generating US$7.8 billion in new revenue via transaction fees, improved loyalty, and more cost-efficient airtime distribution. To successfully capture this opportunity, operators must understand the financial lives of unbanked and low-income consumers.

Most of the target market receive their incomes in cash, and keep their money at home, in a hiding place or join a saving club. Africa’s advantage to many banks in the developed world is that many old and established financial institutions use old systems that are not as scalable or adaptable as the new technology architecture that mobile networks offer.

Being able to use a cellphone to make purchases or transfer money has rapidly won an enormous customer base in Africa. Ease-of-use, speed, price and accessibility may have overshadowed the concerns about security that would be raised in countries where this is far from an essential service, but as the user base grows and money starts crossing borders, the authorities, as well as banks and global operators, are starting to pay attention.


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