Sub-Saharan Africa is rated as having the lowest deposit institution penetration in the world according to a paper by the African Development Bank, Mobile Banking in Africa: Taking the Bank to the People.
Over the years, mobile money has connected millions of people with banking services especially in East Africa, where mobile money is leading other regions of the world and which initially had among the lowest financial inclusion rates globally.
In the early days of mobile money in 2007, only 30% of Kenyans had access to banking services. In other East African countries such as Ethiopia, Uganda and Tanzania AfDB showed that one branch served more than 100,000 people. In Namibia, Zimbabwe and Botswana a branch served 25,000, 33,000 and 25,000 customers respectively. During the same period in the West African nation of Gabon, only 35 branches were in place countrywide.
With the introduction of mobile money, the populace in these regions embraced this innovation much faster in comparison to areas where the mainstream or traditional financial and banking insitutions were evident.
"Sub-Saharan Africa transfers more money domestically via mobile money than any other region in the world"
More recently, the Global Findex 2015 edition estimates that the number of unbanked individuals globally dropped by 20% in the period 2011 to 2014. In Sub-Saharan Africa to be precise, where 17% remains unbanked, 13 countries have more than 10% of their adult population using mobile money and more people are using mobile accounts than bank accounts in Cote d’Ivoire, Somalia, Tanzania, Uganda, and Zimbabwe. In other countries mobile subscribers can now open bank accounts using the mobile money platform.
According to the report, Sub-Saharan Africa transfers more money domestically via mobile money than any other region in the world, with up to 28% of the population receiving a domestic remittance in 2014.
The Ericsson Regional Sub-Saharan Africa Report noted that mobile money has allowed the 70% of the unbanked and marginalized segments to start to see the promise of financial inclusion across Africa, with mobile operators becoming beneficiaries of this revolution.
The report sites that the leading operators in the region are deriving up to 20% of their revenue from mobile commerce services, improving business prospects even as voice revenue growth slows.
"63% of the total population in Sub-Saharan Africa is unbanked"
Nigeria has the largest share of unbanked currently (53%) followed by Ghana, Angola and Uganda, according to another report by Ericsson, Financial Services For Everyone . In these countries, the report identifies that the level of awareness remains low while only 33% of all respondents said they know how to use mobile money on their mobile phones.
Among consumers who were aware of the services yet chose not to use them, a large proportion commented that they didn’t think the service was necessary or that it seemed too complicated.
According to the report, mobile money services are bridging the gap between the unbanked and banked as more have access to mobile money compared to banking services. The report further shows that 63% of the total population in Sub-Saharan Africa is unbanked and 52% of the total population uses mobile money through an agent.
Connecting the financially excluded through new mobile solutionsSome of the reasons why the majority of the population of Sub-Saharan Africa has been financially excluded or that have led led to low financial inclusion include deficient infrastructure, inaccessibility or physical-geographical isolation and financial illiteracy that ultimately led to high cost of financial services, which out of reach for many potential customers. These problems can be solved by using mobile money as devices are now more than ever affordable and do not necessarily require smart devices to deliver these products.This said there, other challenges still exist that will require more of education than technology as the reasons for individuals lacking banking accounts include: lack of documentation, lack of trust, family member has an account, religious reasons among others.
Building an interconnected and transparent financial ecosystem
There is a consensus that building an interconnected and transparent financial ecosystem involves telecommunication providers and banks ensuring their mobile payment services are: secure, stable, scalable, flexible and above all trustworthy.
A secure, stable, scalable, flexible and trustworthy ecosystem entices quick uptake by customers and ensures business innovation.
In this case, telcos should look to develop systems that allow mobile subscribers to access their bank accounts securely, in a timely manner in a platform that's scalable to include other services financial institutions offer, other than merely cash deposits and withdrawals.
"M-PESA, the largest mobile money platform globally, has connected more than 20 million Kenyans"
Telcos and banks also need to enable the customer to understand fully all the charges that result from mobile money transactions between the two institutions, as well as challenges or deficiencies that the platform has that could lead to delays, fraud, hacking among other vulnerabilities.
A case in point is M-PESA, the largest mobile money platform globally, which has connected more than 20 million Kenyans and there are more than 100,000 agents and over 44,0000 merchants who accept M-PESA payments. There are more than 40 financial institutions that interconnect with M-PESA and other partners such as government payments, M-KOPA in energy and mTiba in Health.
According to Head of Strategy at Safaricom, Ken Okwero, by linking into M-PESA, each of these partners can tap into the more than 23 million M-PESA customers.
“The larger benefit is however on the customer’s side, where customers benefit from the convenience of different use cases, from person-to-person transfers, cashless payment of bills, or even access to new services that they did not have before, such as: instant loans, micro savings products, affordable health and crop insurance,” Ken Okwero adds.
Achieving interoperability among mobile network operators, banks, merchants and government
Pundits say the benefit of an inter-operable financial services to operators is that it can lead to a mobile money service without limits. According to Ericsson, a leading provider of mobile money solutions software, the key success of mobile money lies in a partnership between telcos and banks, as well as the right infrastructure and financial services portfolios.
“We are driving this change to make money more open by orchestrating collaboration between banks and operators and developing secure, flexible mobile commerce platforms, that help build an interconnected and transparent financial ecosystem,” says Peter Heuman, VP Deputy Head of Business Unit Support Solutions at Ericsson.
"The key success of mobile money lies in a partnership between telcos and banks, as well as the right infrastructure and financial services portfolios"
Telcos and banks must also adjoin their services and products to the needs of government and merchants to support payments, with the public and private sector reliant on each other either for supply of liquidity, goods and services, or even in the line of licensing and regulation.
Some of the ways telcos and banks could enable better and streamlined interaction between government and the private sector, as well as members of the public, is by enabling payments to various agencies by mobile money eliminating the need for cash transactions in government offices.
According to the Global Findex 2015 edition, 1.3 billion adults with an account in developing countries pay their waste removal, water, and electricity bills in cash, and over half a billion adults with an account in developing countries pay school fees in cash, thus access to digital payments through a mobile phone could create opportunities to provide more convenient and affordable payment options.
In a few other countries, the government has already teamed up with various telecommunication service providers to enable payments of licenses and other documents such as birth and death certificates, eliminating the physical need for citizens to physically go to offices.
“The benefit here has been in sealing the revenue leakage, convenience for taxpayers in the form of alternate channels and the ability to pay for services anytime. The capacity to accept electronic payments also enables the government to offer services through digital channels, as we have seen with the roll-out of the eCitizen platform in Kenya,” says Okwero.
How OTT players can collaborate with operators to refine business models
“A balanced co-operation between mobile network operators and Over-the-Top (OTT) players is required to develop a win-win ecosystem as operators cannot be in complete control of the internet ecosystem, while a broadband pipeline that lacks appealing content and applications means little to end users,” said Ahmad Farroukh, Chief Executive Officer at MTN South Africa, while addressing delegates at AfricaCom 2014.
This shows that while telco operators may have control of the mobile money platforms through their huge customer base and financial position, the broad scope of services they provide inhibits them from coming up with new innovative products, a part that can be played by OTT players. Telco operators can then provide the platform at a cost while allowing OTT app providers to own the customer and make money.
For this collaboration to work, mobile network operators and OTT players need to define access and structure a fair deal for both parties. This however does not mean exposing their customer base or revenue streams for OTT players. Such deals can be refined through forums that clearly define rules of engagement.
To this end, a number of telcos in Sub-Saharan Africa have partnered with a number of Value Added Services players that offer content around games, video and music to enable them to tap into operator billing, which facilitates service delivery in a convenient and seamless way to customers.
Above all, Farroukh thinks there can be immense benefits for both OTT players and telcos where the latter continues to invest in technology to provide best customer experience for OTT users.
By Com Series staff writer Kamau Mbote, @First Communications
Mobile Finance and Commerce at AfricaCom 2016:
This year's AfricaCom, taking place between the 14-18 November 2016, will be showcasing all the latest innovations in African mobile finance and digital commerce. The Mobile Finance and Commerce stream taking place over the 15 - 16 November will comprise of Key Note Panels and discussions around the latest FinTech solutions and connecting the financially excluded..
Some of the key speakers include Safaricom's Ken Okwero, Telkom's Floris Buys, African Development Bank's Maimouna Gueye, MTN's Hanlie Smuts and Equity Bank's John Staley.
To find out more about the largest tech and telco event in Africa and book you tickets, click here.