More than a billion people worldwide do not have bank accounts but do have cellphones, providing a remarkable opportunity to achieve greater financial inclusion.
A recent study by the Consultative Group to Assist the Poor (CGAP) has highlighted the opportunities of using mobile technology to bring the previously unbanked into the financial fold. CGAP is an independent policy and research centre dedicated to advancing financial access for the world’s poor.
Housed in the World Bank, it is supported by more than 30 development agencies and private foundations. The Mobile Money Market Sizing Study, conducted in 147 countries, shows growth is there for the making and CGAP projects that 364-million low-income, unbanked people could be using mobile financial services by 2012.
The organisation’s projections are based on relatively conservative assumptions about the number of cellphone operators that will launch such services and the number of customers who will use them. By 2012, the number of people without a bank account but with a cellphone is estimated to grow from one billion to 1.7-billion.
More importantly, the study predicts that cellphone network operators stand to earn $7.8-billion in direct and indirect revenues from servicing the mobile financial services industry by 2010. This is good news for Africa as the continent needs to present a compelling business case for foreign investment by companies, some of which remain frustrated by the lack of regulatory certainty. And it seems there is certainly profit to be made.
Kenya’s biggest cellphone operator, Safaricom, said full-year profit to March 2010 jumped by 44% as revenue from data services, including M-Pesa, its mobile money transfer service, increased. The number of M-Pesa users rose from 6.48-million to 9.48-million, with person-to-person transactions during the year to March totalling Sh28.59-billion (about R2.7-billion).
New products like M-Kesho also bode well for Safaricom shareholders. Introduced in May this year, MKesho, which means ‘mobile tomorrow” in Swahili, is a cellphone-based bank account service that will enable the Kenyan bank, Equity Bank, to use Safaricom’s more than 17 500 M-Pesa agents to help deliver services.
Customers will now be able to apply for insurance policies and get cover without having to see an insurance agent. Ever mindful of compliance issues, M-Kesho says customers will be protected by simple terms and conditions, and the premiums will be tiered to appeal to the biggest possible market segments and those most in need of the services.
The application is built with the ability to score a customer’s credit rating using a sixmonth history of his or her M-Pesa balances. Competition in the African mobile payment business continues to grow with the entry of a new Kenyan money transfer system, which allows transactions across the Safaricom, Yu, Orange and Zain networks.
The newly launched Tangaza brand joins Safaricom’s M-Pesa, Zain’s Zap and Essar Telecom’s yuCash. Tangaza will be focusing on cross-border mobile money remittance, and with no surprise. World Bank figures show Kenyans abroad sent home over Sh52-billion (R4.85-billion), placing it only second to Nigeria on the continent.
In March this year, Vodacom and its banking partner, Nedbank, announced M-Pesa would also be available in South Africa. M-Pesa currently operates through Vodacom in Tanzania and the Vodacom parent, Vodafone, in Afghanistan. Despite the fact that there is a blurring of lines between services offered by banks and cellphone operators, Vodacom remains adamant that it does not intend to shift its focus.
‘Vodacom has no intention of becoming a bank. We’d rather work with the banks to enable the development of mobile money transfer services. M-Pesa is already firmly established in several markets and we are leveraging this experience and technological know-how to provide the best possible product and experience in South Africa,” says Richard Boorman, executive head: corporate communications at Vodacom. But Boorman admits that the complexities of offering financial services in South Africa have been tricky.
‘There is a challenge in the sense that this innovation crosses both the ICT [information and communication technologies] and banking spheres. The current South African Reserve Bank position, in terms of which only South African-registered [licensed] banks can issue mobile money and operate mobile money transfer services, compels mobile operators to partner with banks. This adds a level of complexity to the process of setting up and rolling out a service.”
One of the key reasons why Kenya has experienced such phenomenal growth in mobile payment uptake has been a progressive and forward-thinking regulator. Stephen Mwaura, the head of payments at the Central Bank of Kenya, has been adamant that the institution intends to continue driving a competitive landscape.
The bank has also just released guidelines on agent banking. This will facilitate the ability of non-banking staff to assist with mobile-payment operations. CGAP has on many occasions said that regulation was the key obstacle to increased mobile payment roll-out throughout Africa.
Hannes van Rensburg, chief executive officer of Fundamo, the world’s largest specialist provider of enterprise mobile financial services software, says the Kenyan regulatory environment is the one to watch. ‘Kenya, Ghana and Zambia are all countries that have grasped the concept of creating a facilitating environment. There is certainly more awareness of what needs to be done to enable delivery,” he says.
Starting with a small Cape Town operation 10 years ago, Fundamo now has offices in Africa, the Middle East, Europe and Asia as well as partner organisations across North America, South America and Southern Asia. The company has launched projects in more than 20 countries, but Van Rensburg says it is Africa that holds the most potential.
‘Africa is leading the way. The opportunity to deliver is phenomenal. Obviously the region faces some challenges like skills shortages but the overriding feeling in the industry is that Africa is on the cusp of a mobile payments boom.”
Despite his optimism, Van Rensburg notes that business delivery can sometimes be held up by waiting for licences and also says the policy and regulatory landscape could do with some work. His thoughts are echoed by Luci Abrahams, director of the Link Centre Graduate School of Public and Development Management at Wits University.
‘Mobile banking and mobile commerce are peculiar to the 21st century, a world of rapid change. ICT regulation, on the other hand, seems stuck in the 20th century, in the sense that regulators seem to make the assumption that they are in charge of technology and its impacts. Nothing could be further from reality.
‘Regulators will, for the next 100 years, play catch-up with technology and people, who are collaborators in increasing the value of technology in business and daily life,” Abrahams says. The Link Centre is doing extensive research on e-development, looking at the evolutionary and revolutionary changes taking place. Abrahams says regulators need a fundamental shift in how they view their role.
‘African policy-makers and regulators should become immersed in the worlds of government, business and community activity, which are shaping how traditional forms of social and economic interaction are being reinvented on the continent.
‘While doing this in practice could simply mean attending lots of meetings or flying around the world aimlessly ‘to look at best practice’, a crucial form of immersion is through continual research into the current questions for regulation, including questions such as whether banks should be awarded electronic communications licences, whether m-commerce providers should be awarded banking licences, or whether greater collaboration between the mobile communications system and the banking system should be encouraged with effective regulation to address the associated risks.”
How soon the regulatory environment will change is anyone’s guess, but one thing remains clear — the world of simple supply and demand is now driving a new and flourishing sector in Africa. Lawmakers will have their jobs cut out staying apace with technical change but, if they don’t, they risk stalling what may well be an African banking panacea.