The future shape of m-banking is unpredictable even as it gains the status of a new industry.

So far so good

There is a very simple reason why mobile banking is gaining ground in Africa: people have cellphones, not bank accounts. So when money needs to be transferred or bills paid, the ability to use a cellphone instead of travelling with wads of cash or trusting the post is appealing. That indisputable fact is encouraging operators to escalate their mobile banking facilities, fuelling the growth of m-banking across Africa. Some of the figures are already impressive. MTN Uganda registered 890,000 users for its MobileMoney service within a year, with 16% of its subscribers signing up. In its inaugural year to March 2010 it moved $195 million in 11.8 million transactions. More recent figures show it now has 1.5-million users and the system has been extended to pay bills for TV and water services. More than 2,500 service outlets in Uganda have moved a total of US$753 million, and 60% of those transfers were to recipients in unbanked rural areas. One size can’t fit all Yet m-banking can involve far more than someone simply sending money to a recipient who can collect the cash from a local agent. The technologies are also flourishing in developed nations as people pay bills and transfer cash between accounts via a cellphone instead of visiting a physical branch or logging onto the internet. That ability to satisfy both high-end and low-end customers means operators and banking institutions realise mobile money is far too valuable to ignore. The operators gain loyalty and extra revenue as their customers transact, while the banks reach more people with fewer branches, enjoy cheaper running costs as customers switch to ‘self service’ channels, and potentially win new users. Prepaid airtime top-up services have already introduced cellphone users to a basic form of electronic transaction, which has helped to make more sophisticated banking services seem less daunting. Yet the differing needs of different customers and the varying level of user and handset sophistication means one size can’t fit all. So a variety of initiatives and solutions are appearing in diverse countries. Dare Okoudjou, the CEO of MFS Africa, warns against thinking that m-banking is an easy win. Operating a money transfer service is very tricky, he says. Although vast amounts of cash are now being moved across the airwaves, putting a good proposition together is difficult because there are so many players involved. “A lot of people overlook the complexity of actually putting all these services together and making it simple so people want to use it,” he says. “There’s the sender and an agent, the money transfer company and an agent to dispense the cash, so you have to align many people.”

Wow … but why?

The first five years of mobile money have been disappointing for many players, Okoudjou believes, partly because regulations are too restrictive in some countries and partly because the market conditions and structures are not ready. “You have to be in a market where money transfers resonate with people,” he says. “There is also a lack of compelling propositions. There’s the wow factor that I can do this – but why should I want to?” MFS Africa enables m-banking services including bill payments, insurance services and international remittances. “We always start with what people actually want,” Okoudjou says. “Don’t think a client or a mobile user wakes up in the morning and says ‘I feel I need a bank account’ or ‘I feel the need to pay someone.’ But they might want shoes and have to pay for them. So you have to give them a compelling reason to sign up. And having a mobile payment service or a mobile wallet is a bit of a weak proposition,” Okoudjou argues. He predicts that bill payment companies will fuel the growth of m-money, because having a mobile wallet is only attractive if there are services you want to use it for. “You can use m-money to collect insurance premiums, but that won’t grow the market. It just makes it more efficient. Or you can look at ways to create new products that leverage the different attributes of a mobile wallet and reach millions rather than thousands of people.” MFS Africa is shooting for millions of customers, not merely thousands, with its latest project to supply credit facilities to customers in Cameroon and Ghana. “I’d prefer not to talk about it too much at this stage but it will dramatically expand the market,” Okoudjou says. The service should be launched in July, tapping into the potentially enormous pool of people needing ready cash.

Market in its infancy

One of the major players in m-money is Fundamo, which develops mobile banking and mobile wallet technologies. CEO Hannes van Rensburg believes the market is in its infancy and still at an exploratory stage. “There are a lot of challenges that not everyone understands, and as an industry we have to get better at it,” he says. Van Rensburg doesn’t believe any one “killer application” will become the most successful model. The key is just to get more people banked, because the bigger the market the more viable it will be. “If you sell a product to five people it’s not viable, but if you sell it to five million people it’s viable,” he says. Latest estimates are that between 50 and 60 million people already use m-banking in one form or another. The GSMA predicts that mobile financial services will reach a massive 1.7 billion unbanked people in developing countries by 2012. Growth is also expected in more developed nations as young and mobilesavvy subscribers demand greater convenience from their financial services providers. Transformational banking M-money falls into two basic categories. One is additive banking, where a bank adds a mobile channel through which existing customers can access their accounts. The second and more exciting type is transformational banking, which uses cellphones to reach people who are unbanked or underbanked. Kenya is the leading country in Africa for transformational banking, Van Rensburg says, thanks to the hugely successful M-PESA service launched by Safaricom. In February, M-PESA won the Global Mobile Awards for the category of Mobile Money for the Unbanked. The partners in the operation are Safaricom, Vodacom, Vodafone Group, Vodafone Essar Limited and Roshan Ltd. The judges said M-PESA was “winning ground in a way seldom seen in the mobile industry and is a true and sustained success story”. The solution had been enhanced in 2010 with the addition of new features and territories, and customer numbers had doubled to 20 million. It is now available in South Africa, Fiji and Qatar, and its customers transfer more than half a billion US$ per month. The partners have also added a savings account linked to M-PESA, which saw 600,000 new bank accounts opened within four months. M-PESA’s money transfer service is a fast, safe and easy way to transfer money from one cellphone to another. Users can register for free and create a personal PIN for security. It was rolled out to South Africa by Vodacom and Nedbank last August, and costs the user just R2.45 to send money to another registered user. Already 2,500 outlets offer M-PESA in South Africa, including Vodashops, PEP Stores and community phone shops, with the companies determined to establish many more. The growth of M-PESA supports Van Rensburg’s belief that the big revolution is around transformational banking in emerging economies. “In South Africa that market is more than one million, which isn’t trivial, although we have a relatively small banked community. It’s not like that in other parts of the world, where this silent revolution is seeing more and more people getting banked.” Users are not getting a traditional bank account but a more useful ‘utility value store’, he says.

Consolidation the key

The most critical service that has to be in place is a cash-in, cash-out mechanism where the sender’s cash turns electronic, then reverts back into cash for the recipient to collect from an agent. If that basic mechanism is absent or unreliable, then the complex eco-system that involves operators, technology developers, banks, governments and regulators will never work. Nor can value added services be developed if that fundamental core technology is not supremely reliable. “Mobile financial services need to work perfectly first time and every time. There is no room for error when consumer confidence is at risk,” Van Rensburg says. Despite the vast potential, however, the need for economies of scale is already kicking in, and consolidation is occurring as some smaller players are taken over by larger platform providers. Further and more rapid consolidation looks likely as competition to reach new markets heats up and older technologies are replaced in existing markets. Smaller players lack the resources to research and design services for specific markets, but can gain that support from larger companies. In return, larger companies often need the technical 

expertise and deep understanding of each individual market that smaller vendors have accrued. Consolidation will also be fuelled by a lack of skills, since there are not enough real experts to support all the entities currently trying to develop or operate m-money services, Van Rensburg believes. The greatest success will come through partnerships where banks provide the banking credibility and mobile operators distribute the service. This will create win-win business models that fuel more growth. “For example, 10 banks could collaborate with one operator for a single mobile financial solution on one platform, boosting economies of scale and market share for a minimal investment,” Van Rensburg suggests.

Just a matter of time

Innovation and expansion in the market have been depressed for the past couple of years due to the global financial crisis, he says. That has reduced the amount of capital being invested in new companies, or in upgrading networks. “This restraint on capital has made the establishment of mobile financial infrastructures extremely difficult as the funding needed to start new operations has been largely unavailable.” However, mobile banking in Africa will boom again as more retailers explore the opportunities to get in on the act, such as supermarkets offering cash-in and cash-out services on mobile wallets. As the market grows and matures, services are broadening beyond simply transferring money between two people, with offerings now including bill payments and insurance services. “The biggest thing I like about mobile money is putting something into the market that provides financial services to people who haven’t had it before,” says Pieter Verkade, MTN’s Mobile Money executive. “It’s like when we first introduced mobile telecommunications and brought basic telephony facilities to people who hadn’t had it before.” M-money is still far from essential for operators to provide, but as competition intensifies it will prove a very attractive additional service to win customer loyalty, he says. Oddly, perhaps, Verkade sees a big difference between consumer attitudes to m-money in East Africa compared to West Africa. “Some services in West Africa are not growing as quickly as they did in East Africa. It’s taking much longer,” he says. “People are more aware of it in Kenya and there is communication with Uganda and Rwanda so it spills over. You need to trust the service before you start sending money through it, so maybe it’s more a question of time than whether it will work or not.”

Life insurance world first

MTN thinks bill payments and insurance services may prove more successful than money transfers in West Africa. So in March this year, MTN and Hollard Insurance began offering subscribers in Ghana the option of paying for life insurance through their phone. The two companies say their mi-Life scheme is the world’s first mobile money insurance service. MTN has nine million subscribers in Ghana, of which two million have joined its mobile banking service since it launched in 2009. Users with a mobile money account can buy a mi-Life insurance policy using the menus on their phones. Then they can pay premiums of as little as one cedi ($0.65) a month via their handset, as well as initiate claims or queries. More Ghanaians already have m-money accounts than have bank accounts, said Jeremy Leach, a divisional director of Hollard. “The opportunity to partner with MTN to develop m-insurance is one of the most exciting initiatives Hollard has been involved in and will transform insurance in the emerging markets,” he says. MTN is equally bullish, even though the service is still in a trial phase. “Buying insurance through your phone is yet another example of the possibilities with MTN Mobile Money,” says Verkade. “Through our extensive distribution network, we are able to reach many customers with this important product.” MTN sees a healthy demand for such services in West Africa and is planning to expand its services to meet the need, he says.

Into the future

Okoudjou likens the m-money market of today to the internet in the late 90s. “We knew it was going to fundamentally change the way business is conducted and financial services in particular, but no one could tell which kind of model and which players would succeed,” he says. “We have come a long way in the last five years and can now talk about mobile money as an industry, but there are still a lot of unknowns in how it will eventually play out, how the value will be generated and who can capture it.”