Africa has led the mobile money revolution, with products such as M-Pesa – Safaricom’s money transfer and micro-financing service in Kenya – dominating the market.
However, banks are much better matched to direct the industry in the long term, says Paul Clark, portfolio manager and equity specialist at Ashburton Investments – part of South Africa’s FirstRand Group.
|Paul Clark, Ashburton|
“Telcos will charge individuals every time they make a transfer or a withdrawal,” he says. "Banks don’t have to do this. Unlike telcos, banks can make money through myriad other ways including deposits and insurance products.
"This drives fees for mobile money services down and makes it cheaper for the customer.”
When Equity Bank’s mobile money offering came to the market in Kenya last year, Safaricom was forced to slash its M-Pesa person-to-person transactions, ranging between KSh10 to KSh1,500, by 67% to compete with Kenya’s banking giant.
“As a side-effect, this increases financial inclusion as banking services become more accessible to individuals on the continent," says Clark. "Because banks don’t rely on transaction revenue, this is actually a much more sustainable model [for end-users] of mobile money services in the long run [given low fees for transactions].
"Moreover, it is also a much cheaper option for banks, because building branches, kiosks and ATMs can be expensive business.”
Banks are beginning to edge their way into the sector by building partnerships with telecoms companies. This allows banks to capitalize on their existing client bases and communications towers, while telcos are able to offer banking products currently out of their reach to their existing customers.
In March, Kenya Commercial Bank (KCB) and M-Pesa introduced loans to mobile money users between KSh50 and KSh1 million repayable between one and six months. KCB M-Pesa borrowers are able to repay the loans at interest rates of 4%, 9% and 12% over periods of one, three and six months, respectively. The new product builds on Safaricom and KCB’s relationship, which began in 2013.
“Credit limits are calculated based on their M-Pesa transaction activity and their savings with KCB, if the customer has any,” says Clark. "Through the partnership, potential customers have a credit history associated with their telephone number allowing them access to more formal channels of banking services, increasing financial inclusion."
In November, Airtel Rwanda launched a mobile money transfer service throughout East Africa allowing Airtel customers to transfer money via mobile phones across borders, and in September, Western Union and telecoms company MTN joined forces to allow customers using MTN mobile money services to receive money via Western Union directly to their phone in the Côte d’Ivoire, building on a deal the companies have in Uganda.
Limiting the development
In April 2014, Diamond Bank in Nigeria signed a deal with MTN in Nigeria to roll out money mobile services. Since the partnership, MTN customers have been able to open up bank accounts by sending a text message to the network supplier.
Traditionally, Nigeria has lagged behind Kenya and other countries in relation to Africa’s mobile money revolution, despite being the second-largest economy in the region. Some onlookers have blamed a difficult regulatory environment and opposition from strong banking lobbies as limiting the development of mobile money.
Although 90% of Nigeria’s 174 million people own mobile phones, 57% of Nigerian adults do not have access to formal financial services, according to research carried out by the Grameen Foundation, a US based non-governmental organization which provides financial services and information to low-income households.
Deals such as the one in Nigeria between MTN and Diamond Bank are hoped to grow the mobile money market in the country.
However, in some instances, competition for a greater share of mobile money customers on the continent has led to battles between banks and telcos. In Uganda, a local MP has filed a petition to have mobile money regulated under the Financial Institutions Act, declaring that the services provided are operating outside of their licences.
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In Kenya, Safaricom attempted to block Equity Bank’s mobile banking offering to the country – a 'thin Sim' that attaches to a customers’ current Sim card, allowing them to access mobile money services through the bank while maintaining their current service provider. Safaricom’s concerns were deemed unfounded by Kenya’s regulators in September.
“Banks and telcos may be worried about losing market share to the other, but in my opinion banks have much more of a right to question whether telcos are legally permitted to deal with deposits under current regulation and pick up the business," says Clark.
"Banks are much better regulated than telcos and so will be much better at monitoring the sector more generally.”
He adds: “But in somewhere such as Nigeria, trust comes in to play. I do wonder whether individuals will take to mobile money services through the banking sector over telcos precisely because of the banking crisis in 2009.”
Triggered by the global financial crisis, Nigeria’s stock market collapsed by 70% and many banks in Nigeria were bailed out by the central bank. To stabilize the system, and return confidence to the markets and investors, the central bank injected N620 billion of liquidity into the banking sector and replaced the leadership at eight Nigerian banks.
“The memory of Nigeria’s banking collapse is still fresh,” says Clark. "Individuals are much more likely to trust telcos over banks. Along with strong bank lobbies, this could be another reason why mobile money in Nigeria is yet to reach higher levels."