Over the last decade, global mobile money adoption has been driven by growth in Sub-Saharan Africa, according to a recently published GSMA report (the global association for mobile operators).
It says that mobile money account adoption in Sub-Saharan Africa has outpaced growth in the rest of the world. With more mobile money accounts than traditional bank accounts, financial inclusion has significantly improved in Sub-Saharan Africa. Transactions have diversified from airtime top-ups and P2P transfers, to more sophisticated use cases, including bill payments and merchant payments.
Mobile money use has generated positive externalities for other industries, especially in providing services for rural communities – such as in water and sanitation, education, energy, and agriculture.
McKinsey & Company says that mobile money had become an important component of Africa’s financial services landscape. Its partners Mutsa Chironga, Hilary De Grandis and Yassir Zouaoui say, “Mobile network operators (MNOs) have dominated mobile money services in Africa for the past decade. More recently, fintechs have established a solid footing in the market, and a number of banks are beginning to compete aggressively for the mobile banking customer. While some banks have chosen to ‘go it alone’, others are forming partnerships in hopes of reaching the market faster.”
Mobile financial services on the continent span the full spectrum of financial services, from payments and current accounts, to savings, loans, investments, and insurance. Mobile money, which enables customers to send, receive, and store money using their mobile phone, is a subset that is provided mainly by telco companies. The underlying funds are typically held by a bank in a dedicated stored value account or a linked current account.
Just over half of the 282 mobile money services operating worldwide are located in Sub-Saharan Africa. In Africa today, there are 100 million active mobile money accounts (used by one in ten African adults). This far exceeds customer adoption in South Asia, the second-biggest region for mobile money in terms of market share, with 40 million active mobile money accounts (used by 2.6 percent of adults).
McKinsey’s partners say mobile money now extends far beyond Safaricom’s initial M-Pesa offering, which enabled consumers and small businesses—many of which had little or no access to a bank—to send and receive money quickly and securely across great distances. Today, mobile financial services have expanded to include a broad array of financial services, including credit, insurance, and cross-border remittances, and M-Pesa now accounts for less than a quarter of mobile financial services users in Africa.
The types of deployment are:
- MNO-dominant. Here, the MNO is responsible for most steps of the value chain, including the virtual telco network and the physical agent network and payments issuing and processing; a bank is the deposit holder. Beyond M-Pesa (26 million registered users in Kenya, of which approximately 73 percent are active), there are several other providers that have been highly successful in this category in Africa, including MTN Mobile Money, with 41 million registered customers (approximately 38 percent active) across 15 countries; Orange Money, with 16 million registered customers across 14 countries; and Tigo Money, with 8 million registered customers across 5 African countries.
- MNO-led partnerships. In this model, a banking partner supports the MNO in providing products beyond payments such as small consumer loans and deposits. The leading example is M-Shwari in Kenya, a partnership between Safaricom (Kenya’s leading telco, with a customer market share of nearly 70 percent) and CBA (a mid-sized bank in Kenya). This partnership reached 10 million customers within 18 months of launch, in part because it managed to cross-sell to users of Safaricom’s M-Pesa.
- Bank-led partnerships with MNOs. The best example of this model is Equitel, a partnership between Equity Bank and Airtel with over two million customers in Kenya. This service allows customers to send money from their accounts to any bank account in Kenya, take out loans, and maintain deposits. Equitel also offers services beyond banking, including airline ticket purchases and information on consumer-interest topics (for example, healthcare, education). In this case, the bank provides access to its agent network, as well as payments issuing and processing capability.
- Bank models including banking apps for smartphones and text-based money transfer services using basic handsets. These services typically require the sender to be a customer of the bank providing the service, while the recipient does not need to be a bank customer. FNB’s banking app is an example, with approximately two million active customers in South Africa.
- Fintech solutions. A successful example is Paga, in Nigeria, which has grown its customer base 81 percent annually, expanding from one million registered customers in 2013 to more than six million today. Paga, which processed $500 million in payments in 2016, is now a fully-fledged payments company allowing customers to send money via their phones and pay for online purchases on merchant websites.
How should the banks respond in this age of mobile?
MNOs currently have 100 million active mobile financial services customers across Africa, and McKinsey estimates that the total mobile financial services opportunity approaches $2.1 billion or approximately two percent of total African banking revenue pools. While banks are doing a reasonable job of defending their share of banking revenues, the battle for the mobile financial services customer is on. To strengthen their position, banks should weigh their options and devise a plan that fits with their multichannel strategy for delivering consumer and commercial services. Banks can choose one of five approaches.
- Go it alone. McKinsey’s Finalta benchmark indicates that banks in a number of emerging markets are building strong momentum in digital financial services (including mobile). For example, banks in India achieve 25 percent of core product sales through digital channels, and banks in Turkey achieve 18 percent. A leading Indian bank captured 30 percent of sales through digital channels, which sets a high bar for banks in Africa.
- Build a digital bank. A digital bank is defined here as a bank that predominantly uses mobile devices and the internet to offer banking services and has relatively limited branch distribution. Examples of digital banks have emerged around the world, including in China, Eastern Europe, Turkey, and Africa. For example, Airbank captured four percent of transactional market share within three years of opening in the Czech Republic. mBank in Poland has four million clients. McKinsey research shows that digital banks can have cost/income ratios that are 10 to 30 percent lower than that of their peer banks in a given market. This is an attractive option for banks looking to counter mobile money disruption.
- Partner with a fintech. Fintechs in Africa have launched a number of mobile-first solutions that are building momentum. For example, BIMA offers mobile-based insurance services in four African countries and has approximately two million active clients. Paga’s mobile payments offering has six million registered clients in Nigeria. Jumo is using telco data to underwrite credit for clients across Africa.
- Partner with a non-telco, for example, e-commerce business or tech company. In China, a number of ecosystems provide mobile financial services to hundreds of millions of customers. For example, Alipay has more than 800 million registered accounts for merchants using the Alibaba e-commerce platform. Alibaba is now a significant provider of SME financing in China thanks to the data on merchant transactions available on the platform.
- Partner with a telco. This has been a common path in Africa, including, as noted above, Equity Bank’s partnership with Airtel and Standard Bank’s partnership with MTN.
Each of these five options is a viable path for a bank. The choice depends on a variety of factors, including the bank’s starting position (for example, can the bank’s current systems be retooled or must they be replaced?), the available partnership options, and the bank’s track record in partnerships. The one path that is not viable is ‘business as usual’.
For the full article from McKinsey, click here.
[Main image, top: Dusupay, an online payment solution which enables businesses in Africa to accept payments from other African countries and the rest of the world.]