Mobile phones offer the best chance for much of africa to gain access to financial services according to a recent study by Research ICT Africa.

Across Africa many more people possess mobile phones than bank accounts. Mobile banking services are already offered as an addition to existing bank accounts. Instead of adding a mobile phone as a complementary channel to a bank account, why not add a bank account to an existing mobile phone number? This would narrow the access gap to financial services considerably, allowing mobiles to be used to provide services to those without bank accounts.

There are two ways in which this could be done: first, airtime cash convertibility, already a de facto practice in many parts of Africa; and second, the mobile wallet, which would allow full banking services to be performed on the basis of a virtual wallet linked to a SIM card. While the role of the informal sector in promoting economic growth in Africa is increasingly acknowledged, access to capital remains one of the biggest obstacles hindering the development and growth of the sector. Africa is struggling with access to formal financial services for its citizens and the informal sector. In addition to the underlying structural limitations of poverty; risk-averse bankers, unsuitable financial products and high bank charges have also been blamed for this state of affairs. Poor people with irregular income and informal businesses often have no choice but to make use of informal financial services, which are many times more expensive than formal ones. Formal financial services are usually only extended to those with regular income or collateral. Yet informal businesses often lack the required accounting skills and systems to generate necessary data to convince a bank to extend loans to them. A critical issue to overcome is that of asymmetrical information. Someone without a bank account approaching a bank for a loan is likely to be rejected unless collateral is at hand. The bank has no transaction history for this person or informal business and hence does not know anything about the applicant’s creditworthiness. Transaction patterns can be used to predict whether or not a customer will be able to repay a loan. Absence of a transaction history means that the ability to repay loans is unknown to banks, making it risky for banks to serve such a person unless the loan is fully collateralised. This is where m-banking could step in and move beyond simple payments and transactions to possibly provide an alternative banking system that provides access to formal financial services to the unbanked, such as credit, which may be easier to extend to the unbanked once they have built up a transaction history, through the use of m-banking and m-transfers: transactions over mobiles that go beyond the usual voice communications.

Access gap in Africa

Within the informal sector in Africa, mobile phones play a prominent role in creating and exchanging information. The RIA 2005/6 e-Access & Usage SME Survey revealed that 83.3% of the surveyed business operators owned a mobile phone, while 95.6% of all business operators rated mobile phones as either important or very important for their business operations. The results from the RIA 2007/8 e-Access & Usage Household Survey show that mobile telephony is the most used ICT in Africa and also that there are more people with mobile phones than there are with bank accounts (with the exception of Ethiopia and Rwanda where mobile penetration is minimal). Sometimes the differences are very pronounced – for example, less than every fifth mobile phone user has a bank account in Benin, Cameroon, and Senegal. Results from Research ICT Africa’s 2007/8 e-Access & Usage Household Survey indicate that significant reasons for not having a bank account are a lack of regular income and the perception that a bank account is either not needed or too expensive. In Africa, people usually only get a bank account once an employer requires it. Another main obstacle is the distance to banking facilities or ATMs. Particularly in rural areas, it is not only transaction costs and service fees, but also the cost of transport to reach banking facilities that made people not want a bank account. Conversely, in Africa banks charge high transaction fees often even for depositing money. High deposit and transaction fees ensure that banking remains the preserve of the relatively wealthy (i.e. the existing customer base) and high profit margins for banks. This is mainly possible because the banking sector is not as competitive as in the developed world.

Money transfer in Africa

Significant amounts of households receive remittances from another household, either in a different city or a different country. The cost of remittances however is a concern for those sending money home. International airtime transfer is therefore an efficient and cost-saving solution. Several multinational mobile operators, such as Zain, already allow cross-country airtime transactions. The role of international remittances in developing economies is gaining increasing global recognition and economic significance to national economies. Estimated at about US$221 billion worldwide in 2006, sub-Saharan Africa accounted for only US$9 billion or 4% of the total (World Bank, 2006). As a whole, developing countries received more than twice as much inward-bound remittance than official development assistance (ODA), excluding debt. In sub-Saharan Africa as a whole, inward-bound remittances were over three times larger than ODA. On a country-by-country basis, however, it is by no means the norm for developing countries to receive more remittances than ODA. This is the situation in Benin, Burkina Faso, Cameroon, Côte d’Ivoire, Ethiopia, Mozambique, Namibia, Rwanda, Senegal, Tanzania, Uganda and Zambia. Nonetheless, international remittances are becoming increasingly significant to national economies. However, the actual size of remittances would be much higher if informal remittances were taken into account. The large amounts of money that are remitted home by economic migrants each year are not sent home without cost and concerns. According to the UK Department for International Development (DFI D) the largest concern for those sending money is whether it will arrive home safely, followed by concerns over excessive charges and delays in receiving the money. Money transfer agencies in the UK have signed up to a new Customer Charter that commits them to provide transparent information on these issues. Charges for sending money internationally are dependent on whether sender and recipient have bank accounts, the speed of transfer, destination country, amount sent, exchange rates, and so on. The smaller the amount of money sent, the higher the charges (expressed as a proportion of money sent). The cost of sending £100 can vary from four to 40%. Results of Research ICT Africa’s household survey reveal many households receiving money from, or sending money to another household. In all countries in the survey, between 8.5% and 39% of households have received money from other households. Although it is more common to receive money from a household in another village or city, significant amounts are received from abroad (except in Burkina Faso and Ethiopia, where more households receive money from abroad than they do from another village or city). In most of the countries surveyed, remittances were more often received through a money transfer agency like MoneyGram or Western Union than through banks. In Mozambique, Namibia, Nigeria, Tanzania, South Africa, Uganda and Zambia, remittances were more often received from a bank account, reflecting either the better-developed banking systems and higher bank penetration in these countries or else the absence of Western Union and MoneyGram services. Notably however, banks and agents such as Western Union and MoneyGram together make up only a small fraction of the transaction channels used. Sending money in person, through a friend or family member, or through other informal channels is more popular. Similar trends can be observed for households sending money to another household. There seems to be substantial demand for a service that meets the concerns of people regarding security and costs. In addition, institutions that reduce the costs of remittances can expect a higher-thanproportional increase in the value of remittances – in other words, remittances display negative cost-elasticity.

Airtime transfers in Africa

In all 17 countries surveyed, 7.4% to 53.9% of respondents indicated that they had transferred airtime to someone else’s mobile phone. The majority of the transfers conducted were as a favour to family and friends – however there is also significant usage of airtime to pay for goods and services in a few countries. In Ghana, Nigeria, Tanzania and Zambia, 4.2% to 14% respondents indicated that the transfer was to pay for goods and services. On the other hand, 4.8% to 68% of respondents across all countries surveyed indicated that they had received airtime from someone else before. The most prevalent type of transfers were those received from family or friends or airtime received as part of a financial transaction with someone else. In all countries except Burkina Faso and Rwanda, 0.3% to 9.9% of respondents indicated that they had received airtime before as payment for goods or services. The survey indicates widespread use of airtime transfer, but not such a widespread use of airtime to pay for goods or services. For example, 88.3% of people in Kenya that had received airtime received it as a favour from a friend or family member, compared to only 1.2% who received airtime as payment for the provision of goods or services. 24.8% had bought airtime from an independent source (i.e. from someone that was not a family member or a friend, most likely an electronic re-fill or top-up).

Mobile payment systems for Africa

In order to use the mobile phone as a strategy for the integration of the unbanked into the world of formal banking, instead of adding a mobile phone as an additional channel to an existing bank account, a more transformational option would be to add a bank account to an existing mobile phone. This should be feasible since each mobile phone number is unique and would push the access frontier considerably by turning each mobile phone number on an operator’s network into a bank account number. Currently mobile operators already maintain some kind of bank account for each of their subscribers in order to track their airtime usage. When airtime is purchased these accounts are credited and when calls are made or SMSs sent they are debited. These airtime systems could be extended to cater for add-on financial services, which extend to the unbanked and the informal economy. Such a strategy would help leapfrog some of the existing obstacles to getting a bank account and other financial services (depending of course on the national regulatory environments). It would mean establishing an alternative transaction mechanism to the expensive formal banking system, one that makes transacting electronically as convenient and cheap as dealing in cash. Alternatively, using the conception of such an account, an individual can easily have multiple accounts associated to their mobile phone, one for airtime, one for money value and another one for savings, for example. The saving sub-account would be money value as well, but not immediately accessible depending on the savings account conditions. In the case of only one account, airtime and cash would need to be convertible. This raises a couple of issues that will be discussed in the next section. Using several sub-accounts may help avoid many conceptual and regulatory issues. In the subsequent sections, we’ll look at the implications of these two models. Firstly, airtime-cash convertibility – using only one account on the mobile network servers, and secondly, Mobile Wallets – sub-accounts on the mobile network servers. In both models transactions would need to cost very little or nothing, and banks or operators would make their money from extending financial services and in other novel ways.

Demand for mobile banking & payments

In Kenya, which has one of the most successful m-banking applications in Africa, banks are complaining to the financial services regulator that mobile operators are unfairly competing against them. John Wanyela, an executive director of the Kenya Bankers Association argued in The Sunday Nation that ‘you do not allow innovation to outsmart regulation’. This is precisely the point: innovation often outsmarts regulation. It is up to policy-makers to create an environment that supports innovative applications and to adjust regulation to evolving innovations. Results from RIA ’s e-Access & Usage Household Survey indicate that there would be significant interest in some of the above-mentioned options being offered as m-banking services. It is individuals’ attitudes to mobile banking in Botswana particularly that point to the opportunity for mobile operators and banks to cooperate. Between 19.7% and 26.3% trust mobile operators and banks respectively, but together 44.4% state that they would consider depositing their salary into a mobile bank account. A similar picture emerges in Ghana and South Africa.

Regulatory aspects

The challenge to policy-makers and regulators is two-fold: firstly, to encourage banks and mobile operators to develop solutions that are not proprietary, and secondly, to allow access to potential new entrants that can disrupt the lucrative business models of the banks and mobile operators. The key challenge is to do this while at the same time ensuring high levels of security and trust. Just like convergence forced the integration of broadcasting and telecommunications, so mobile banking is forcing the convergence of the financial and telecommunications sectors. Unfortunately, the convergence of two such heavily regulated industries means that this potential is unlikely to be met unless policy-makers lay the ground rules for innovation. Recommendations could include encouraging the development of industry standards for mobile banking security based upon open access principles and changing regulatory systems to allow mobile operators to become banks, or banks to operate Mobile Virtual Network Operators (MVNOs). Banks need to get back to basics and focus on making money through financial intermediation rather than through transaction fees. Policymakers and regulators need to ensure that evolving systems serve the broader objectives of economic growth and development as well as protect consumer interests, while creating an environment that encourages and rewards innovation. The unbanked are unbanked for a reason. They will only transact electronically if there are limited or no transaction costs involved, and if doing so is convenient and secure. Serving the currently unbanked profitably and sustainably requires a radically different approach. A complete paradigm shift needs to occur in order to determine how the poor can be profitably brought into the banking sector.

Sidebar: Model 1 - Airtime cash convertibility

Airtime is already being used in several African countries as a form of currency. In most cases it does not substitute for cash but rather complements it. Initially developed to enable friends to share airtime across multiple prepaid SI M cards, the absence of convenient alternatives to transferring money over long distances has led to this airtime exchange becoming a cash remittance substitute. In fact, remittances from family members living abroad, transferred as airtime, are fast becoming an easy and popular means of sending money. The way it works is that the person abroad purchases airtime online or at dedicated agents and this airtime is then immediately transferred to the receiver’s phone. The receiver can then either use the airtime for calls and SMSs or sell it on or purchase goods with it. This points to the crucial success factor for airtime being accepted as an alternative to cash – either airtime needs to be widely accepted as an alternative currency, in that transactions can be made, and goods and services can bought with airtime – or airtime needs to be convertible backwards to cash. If airtime could be used to pay for any product, there would be no need to convert airtime back into cash. If people could pay for day-to-day shopping with airtime they would build up a transaction history. If salaries could be paid in airtime, the loop would be complete. Airtime would move in this closed loop and liquidity would be increased by new airtime being bought by mobile users and reduced by airtime being used to make calls or send SMS. The key success factor for airtime to be accepted as a means of payment is that it must resemble cash, i.e. there should be no transaction costs for the end-user and it must be widely accepted. All other forms of credit (such as credit cards and cheques) have substantial charges associated with their use. Currently, there are no formal avenues to change airtime back into cash, though a vendor might convert airtime to cash by selling it to someone else that needs airtime. Transaction histories however could be built up through airtime transfers, regardless of whether it is backwards compatible to cash or not. Cash convertibility would be much more attractive however, but there are three obstacles that need to be overcome to allow for backwards convertibility:

• If airtime is convertible to cash, then selling airtime would be equivalent to accepting deposits and mobile operators would require banking licences. Alternatively banks could cooperate more closely with mobile operators or become virtual network operators themselves (like Virgin Mobile in South Africa – and in many other countries worldwide – where it does not own any mobile infrastructure).

• Value added tax is charged on airtime. Some countries, like Uganda, also charge customs and excise duties. The value-added tax obstacle could be overcome by negotiating with the receiver of revenues to treat the VAT part of bought back airtime as input VAT. This would usually not be possible since private individuals are not registered for VAT and hence cannot issue VAT invoices. However, it should be possible to get to a special agreement for airtime given its potential for poverty alleviation.

• Value is currently lost in the distribution channels for airtime. Mobile operators pay resellers a commission for selling it. The value lost in the distribution channel can be 20%. That is, for every 10 US $ airtime sold the operator receives only 8 US $. If the operator would buy the airtime back it would make a 2 US $ loss.

Currently retailers sell airtime because they get a commission. It is clear to see that if retailers are to become the cash-out points and banks the cash-in points then everyone will benefit. Retailers benefit because the cash they take in is instantaneously transferred into their bank accounts. Banks benefit since they can raise capital cheaply and get an additional tool to evaluate the creditworthiness of informal businesses and the unbanked (a critical future customer base). The informal sector and the unbanked benefit from gaining access to formal financial services and being able to transfer money nationwide and beyond to family members and business partners. The RI A household survey asked respondents what factors would make them prefer to receive airtime rather than cash. In all countries except Botswana, the transaction costs were more of a source of concern for the respondents than its acceptance as a means of payment, reflecting both the widespread acceptance of airtime as a means of payment, as well as fear of the charges involved – charges associated with formal banking.

Model 2 - Mobile Wallets

The second model is based on the concept of several sub-accounts or wallets being associated with a particular SI M card. From a software and hardware perspective, it would be straightforward to give the user a second or third wallet that stores money electronically. Administered on a secure server, money can be transferred using the same channel and technology as for airtime transfers. Airtime purchase could then be a transfer between the two wallets. At that point of transfer, VAT would be applicable and a reverse transfer would not be possible. This resolves the VAT problem of Model 1 and also addresses the loss of value in the distribution channel. VAT would only be charged at the transfer from the money wallet to the airtime wallet. Mobile operators benefit from this system since they can cut out the distribution channel as users can now charge their phones with airtime anytime without the involvement of third parties. In this model, airtime and cash are not the same thing, even though they use the same technology. Banks and users still benefit in the same way as they do for Model 1. The GS M platform is already being used in Africa as a transfer mechanism for virtual currency which is convertible to cash, against transactions fees. Kenya’s MPES A, for example, is a mobilebased alternative for non-bankaccount transfer mechanisms such as Western Union and MoneyGram. It is clearly cheaper, but not yet cheap enough to function as an alternative currency. The charges are too high for micropayment (i.e. to pay for small items such as bread or milk). As the amount of money transferred increases, the transaction costs become more reasonable. Mobile wallets could be operator or bank specific or they could be completely independent, operating on servers that communicate with banks, individuals and companies across operator networks.

An Indian VAS has adopted Africa as its second home. "Africa is not an export market. It is considered more of a home market for us," says Comviva CEO Manoranjan Mohapatra, speaking exclusively to Africa Telecoms shortly after the GSMA Mobile World Congress 2010 in Barcelona, Spain.

What's in a name?

Comviva may appear to be unknown to the uninitiated, but less so once it is pointed out that the company underwent a name change in April 2009 from Bharti Telesoft. The Bharti name is inextricably linked to the Indian telecommunications industry as a leading telecommunications operator and service provider. While Comviva still offers VAS services to Bharti Airtel on a managed services basis, the name change was effected to avoid confusion with the parent company, especially as Comviva spreads its wings into other areas of the globe.

“We were active in Africa before people even considered it a viable market, with our first sale being a billing system to Rel-Tel in Nigeria in 2003," says Manoranjan Mohapatra, "And we have seen strong growth since.” The India-headquartered integrated VAS provider has gained a growing reputation globally for its innovative solutions and services that have transformed the mobile landscape and helped network operators lower their management costs, improve customer retention and raise ARPU. The company’s ability to develop and deliver solutions aimed at emerging economies with traditionally lower ARPUs is one of its strengths and has contributed to its presence in more than 80 countries. It provides services to more than 100 mobile network operators, touching the lives of some 500 million subscribers, positioning it as one of the top three global providers of integrated VAS solutions. 

Know the game

Considering its birth in a country where monthly ARPU has fallen to less than US$4, its ability to match customer needs with subscriber demand for lower-cost but equally comprehensive services is being brought to bear. “The backbone of the organisation is based on innovation and taking risks in the markets we are in,” says Mohapatra. “We see if we can evolve services for the markets we are serving rather than force-feeding western products. “We aim to add value to the end user and take into consideration factors such as the demographic and socioeconomic situation. In the end, it’s about contributing to their quality of life, and business success too.” He says that the African and Indian markets are fairly similar, although the former currently lags behind the latter by a factor of three to five years in terms of the adoption of mobile services. “In emerging markets there are common challenges we face, such as low literacy in some areas, and our products have to be more intuitive to end users to address this.”

Two-way traffic

It is not only a one-way street, though, as Mohapatra points out – its revolutionary Virtual SIM product that exponentially increases an operator's ability to connect subscribers who cannot afford a handset, was initiated following demand for such a service in Cameroon. Working with MTN, which launched the service last year in the west African country, this service has since been rolled out to other emerging markets and has received numerous awards and wide recognition for extending and growing market penetration. Part of Comviva’s success is based on this principle of understanding market conditions and needs by assimilating the culture. It does this primarily through its philosophy of ‘local touch’ by which it endeavours to hire locally. “What it does is that it gets people on board who understand the local culture and business environment,” he says. “We train them and have many programmes that stimulate continual interaction to groom them in our culture, products and technology. We believe that helps and as we get more into managed services, we will be depending a lot more on local staff.” Comviva’s physical presence on the African continent is still quite limited, numbering around 20 people in southern, east and west Africa and another 10 or so in the Middle East. Mohapatra says market conditions and needs are very different in each of these regions – which is understandable considering the differing levels of subscriber numbers, access, usage and maturity of the networks. The key, though, is to position products correctly that not only match the ARPU for that region, but that help the operators enhance revenue and subscriber growth. One of the key considerations in low ARPU markets is to keep the cost of operations, support and maintenance down so that it is still commercially viable for even the smaller networks to roll out services. In west Africa, where the ARPU is around US$40 per month, a subscriber could easily dedicate 1% of that spend on VAS services, says Mohapatra, but in south Asia where the monthly spend is a tenth of that, the solution has to be able to deliver the same services, but at a substantially lower cost to the network operator. Comviva is able to achieve this, he says, to some extent by not continuously reinventing the wheel and taking existing platforms and services and adapting them to market needs. “Mobile commerce is an example of this, where we took the intellectual property in an early-stage mobile recharge product, and built mobile commerce over that,” he explains. “This product has been very well recognised and we believe that people will be willing to deploy mobile banking due to the success of the platform.”

Where the money is

In fact, Comviva’s award-winning mobile banking offering, mobiquity™, has been a singular success given the rollout by Barclays Global Retail & Commercial Banking of its ‘Hello Money’ service, which is based on the Comviva solution.“We expect to have deployed our mobile banking platform to at least 14 countries across Africa by the end of this year,” says Mohapatra. “The opportunity for mobile commerce is fairly large and we believe that all stakeholders – banks, network operators and regulators – should join hands to expand the adoption of mobile banking.” He adds that while regulatory hurdles have had to be overcome, regulators are becoming more supportive of the demand for such services by the unbanked. “Like anything else, this has evolved over time and I believe we are living in an era when most regulators are becoming more elastic to the changing needs of the market and the consumer. I think it will continue to be a challenge, but when you are a pioneer you often have to clear up roles so that the rest of the market can participate.” Participation in Western Union's Mobile Vendor Program is further recognition of Comviva’s position in this segment of the market, which was given another boost following an announcement by Western Union Money Transfer. “This alliance exemplifies our commitment to continuous innovation in the mobile money space,” Mohapatra said at the announcement in February. “Selection by Western Union … is further recognition of Comviva’s leadership in extending mobile money services to underserved segments globally. International remittance via the mobile is the next logical step, and this partnership expands mobiquity’s capabilities in this regard considerably.”

Keep innovating

Research and development is given high priority at Comviva considering the comparatively short lifecycle of VAS services. Mohapatra says as much 40% of revenue is dedicated to this function. “We realised that, unlike network infrastructure and product licences, the VAS lifecycle is extremely short. We therefore rely on our ability to innovate and bring products to the market and fill some gaps,” he says. And the company has certainly stamped its authority on the market in this respect, gathering a plethora of awards for its innovations. [See Awards and Accolades sidebar opposite for five years of highlights.] One of the latest innovations Mohapatra is counting on to become hugely popular is the company’s ‘one-click’ Online Gaming Solution that was launched at the GSMA Mobile World Congress 2010. “We believe that gaming is going to become a dominant contributor to mobile usage and penetration,” he says. “The problem has been that most solutions assume that you have the bandwidth and a smart device to play the games. But, we realised that in the market we serve, you can’t take for granted that it will be a smart device or that the bandwidth is there. “So we developed a patented technology that is able to deliver more rich games, irrespective of the handset. It is played on the network and the way it is managed, only a small amount of data is sent to the handset, so it is not dependent on the availability of a high quality broadband network.” The benefit to operators is that they will now be able to target a sector of the market that has not participated in the tremendous growth seen and expected of the mobile gaming market. According to a 2009 research report, Global Mobile Broadband – Statistics and Trends, released by Research and Markets, worldwide mobile games’ revenues are expected to grow from US$4.9 billion in 2009 to US$7 billion by 2013. So, demand is definitely there and while these statistics bear out the picture in developed markets, Comviva should have little trouble finding willing participants in emerging markets.

No phone? No problem

Another innovation for which the company has been widely lauded is its Virtual SIM service that brings mobile telephony to those who are unable to afford a handset, and is a perfect example of how its services are focused on growing operators’ revenue opportunities. “We have seen this service contribute to growing operators’ penetration by up to 5%,” says Mohapatra. “This will also help them take mobile penetration to even low-density areas.” The solution enables users to make and receive calls, send and receive SMSs and make remittances virtually, using another subscriber’s phone. It requires no special handsets, SIM cards or additional software. The flexibility of the service and Comviva’s ability to identify and fill a gap are demonstrated by the extension of this service to users who want to differentiate between business and personal numbers, for example, without needing to own multiple handsets and SIMs. Similarly, parents are able to control their offspring’s use of their mobile phone by limiting the amount of time and money spent on mobile calls, including restricting use to certain times of the day. Given the latent potential that Africa represents to service providers and network operators, it is this kind of out-of-the-box thinking that is going to separate the innovative leaders from the me-toos. And with Comviva having demonstrated its ability to take up this mantle on a Continent fraught with challenges, it will be a company to watch closely – and emulate if possible.

Sidebar: Right product , right market

Comviva used the GSMA Mobile World Congress in Barcelona to introduce the commercial availability of its Usage and Retention solution that extends the lifetime value of mobile customers. This is core to its focus in emerging markets, and provides network operators with a suite of analytics and customer segmentation tools they can use to design innovative, real-time promotional offers that stimulate usage and drive revenues. The suite comprises: Revenue Plus that uses advanced micro-segmentation techniques to present a 360° view of the customer that enables effective up-sell and cross-sell campaigns to help retain ARPU; Reconnect aims to arrest churn by analysing churn data at a highly granular level to identify ‘at-risk’ customers and target them with relevant promotions; and Dynamic Discounting that helps define an optimal discount to shift service usage patterns from peak to non-peak hours. “In the current mobile landscape, which is characterised by high competition and high churn, the ability to segment and enhance the value of customers over their lifetime represents a significant opportunity for growth. Comviva’s Usage and Retention platform enables operators to improve the overall profitability of hard-won customers by implementing highly targeted and highly effective value-enhancement techniques throughout the customer’s lifecycle. As markets mature, we see Usage and Retention forming an essential component of operators’ competitive strategies,” Mohapatra said at the launch of the services.

Leading a mobile money revolution

In South Africa, the mobile communications industry, perhaps more so than any other, has the ability to drive real social and economic change. Yet, we are only just starting to realise the potential of mobile technology in this country and the rich opportunities it offers if harnessed effectively. Enter M-PESA; a shining example of mobile innovation. Simple in its design but totally revolutionary in its application and in making cellphone technology work to solve a basic need common to millions of South Africans; that of being able to transfer money from one person to another in a manner that is fast, safe and easy. In South Africa, it is estimated that more than 13 million adults do not have bank accounts – 13 million people who have to rely on alternative ways of moving their money around. For these individuals, M-PESA is the answer. It provides a new way for those previously outside existing systems and without access to banking infrastructure to gain access to a simple account from which they can make payments, buy airtime and store their cash safely, whilst slowly ushering them into the economic mainstream. The South African mobile money sector has seen the introduction of a number of new players in the past few years and whilst there are other cellphone banking products and money transfer services out there, there quite simply is nothing like this. In Kenya, where M-PESA was introduced in 2007, by 2009 it had become the most popular method of sending money with 46% of all Kenyan money transfers being done using M-PESA. Fast forward three years and there are 10 million people using the service having moved a staggering near R50 billion since launch. The key to M-PESA’s success is twofold. Firstly, it is the only service that combines the convenience of being accessible via mobile phone without the need of requiring a bank account. Secondly, and very importantly, it is the depth and breadth of the distribution network that sets it apart from other mobile money solutions out there. In addition to all Vodashops, Nedbank branches (Nedbank is Vodacom’s banking partner in M-PESA) and ATMs, retail partners Pep Stores, Pick n Pay, Massmart, Edcon, GloCell, and Altech Autopage have all indicated their interest to get involved in M-PESA. Bolstered by this partner commitment, and because anyone can receive M-PESA without having to be an M-PESA customer or even a Vodacom subscriber, M-PESA has the power to reach cellphone users anywhere in South Africa. However, this is just the start. Once M-PESA finds its feet and has established itself it will be extended to offer all manner of financial services from bill payments and receiving salaries and social grants to buying groceries in local shops and paying taxi fares. The application opportunities of M-PESA are massive. It is this mix of proven technology (M-PESA is backed by Vodafone) and a trusted distribution network that has created a powerful and compelling money transfer suitor in M-PESA for millions of people. Its introduction to this market is set to alter the way in which money is transferred across the country and to driving a new mobile money revolution in South Africa.

A Decade of Dominance

FUNDAMO HAS OVER THE PAST TEN YEARS BECOME A HOUSEHOLD NAME IN THE M-BANKING WORLD. WE TAKE A CLOSER LOOK AT WHAT MAKES THE COMPANY AND ITS FOUNDER, HANNES VAN RENSBURG TICK.

Founded in September 2000 with the aspirations of bringing financial transactions to the mobile phone market, Fundamo has in ten short years become one of the most recognized names in the mobile banking arena. Within two years of opening its doors, it had notched up one of the most impressive implementations ever – a new m-banking solution for Cellpay in Zambia – and within a further five years, had become the MTN group’s m-banking supplier of choice. And the hits just kept on coming. In 2008, the company opened its first international office – in Singapore – and today services clients in over 35 countries. It’s been an interesting ride to say the least.

RIGHT IDEA, RIGHT TIME

They say that the best companies start with one, perfectly timed reason for existence. And if you use Fundamo as an example, that’s definitely true. A decade ago, the term ‘m-banking’ hadn’t been coined yet and electronic or Internet banking was in its infancy. Instead of targeting those with access to banking services however, Hannes van Rensburg, Fundamo’s CEO says that his company realized that the majority of the world’s population is disenfranchised – and one of the key reasons was that they didn’t have access to suitable financial services. “If you think about it, these people find it difficult to save funds, can’t remit funds to others, but have access to a mobile phone,” he says. It’s the marriage made in heaven. And with research showing that somewhere near 1.7bn people fall squarely into this demographic, the potential is massive. That’s not to say that the company could rely on the opportunity in the market to carry it through. Van Rensburg says, just like any other company, Fundamo had to do something unique.

SOUND DIFFERENTIATION

“And in this regard, I think our three strongest differentiators are our understanding of how important our customers are, our determination with regards to getting the impossible done and the constant innovation we employ in that process,” he says. While van Rensburg admits that Fundamo’s timing was good, he counters that many m-banking solutions tend to flounder and never reach a stage of completion, since there’s never any real deadlines to contend with. “Because there’s no imperative for getting a solution like this finished, like a tax deadline or qualified audit report – many of the solutions being developed get some way towards completion and then hit a snag – and tend to wander around aimlessly from that point on. “Unless the partner chosen by the bank or telco has the determination to push forward regardless of the obstacles, in our experience m-banking solutions don’t finish, rather fading into obscurity,” he says. Van Rensburg says a great deal of the determination and innovation that goes into keeping a project on track and moving forward comes from the fact that Fundamo has become the oldest, largest and most accomplished player in the m-banking space over the past years, both in terms of the awards its received, the deals its concluded and the customers its won. And these are all important metrics to bear in mind.

DIFFERENT TO OTHER STARTUPS

Where Internet startups need to be young, new, innovative and maverick players in order for them to be noticed and trusted, Van Rensburg says m-banking players have to be the trusted, experienced players with a sound track record for them to achieve the same limelight status. “Since we’re working with money that belongs to the poor, it’s important that we’re not the clown or the maverick player in our market. We need to be a known quantity,” he says. “We’re reliable, robust, predictable and at all times, operate with a high level of integrity. And that matters a great deal,” he adds. The GSM Association’s Mobile Money Tracker – a list of live deployments that are delivering tangible benefits to the unbanked – echoes this sentiment. Out of the 61 deployments listed in the latest installment of this report, Fundamo has the lion’s share and is well ahead of all competitors. Another interesting fact is that 51% of the projects we centred on the African market, while close behind that, 38% focused on Asia.

AFRICA – A SEEDBED FOR INNOVATION

Looking at how the mobile money market will shape up over the coming years, van Rensburg says there are a number of reasons Africa has been a top-ranker in the m-banking space and will continue to be a strong contender over the coming years. “Africa is well-positioned as an innovator,” he says. “For starters, there’s very little infrastructure in Africa and one of the biggest challenge banks face when they embark on projects such as m-banking in developed markets is the need to integrate with existing, rigid infrastructure,” he continues. “Africa doesn’t face that problem,” he says, “and to a great degree it’s able to lay the right foundations from the word go.” “There’s also a greater need for these kinds of solutions by comparison to a region such as, for example the U.S. where every person has a credit card. In Africa, people don’t have bank accounts, let alone a credit rating, so the need is greater,” he says. Because there’s no precedent however it’s also a clean slate environment, so more innovative products that are more cost effective and flexible can become a reality. “Africa is also well positioned to be innovative with regards to next-generation financial services,” he says. Looking at innovation, van Rensburg points to MTN Ghana’s m-banking solution that launched with integration with the seven major banks in the country.

DEALING WITH REGULATIONS

“Over the years, Fundamo has learnt how to deal with differing regulations in the markets it operates and because our platform is open enough to adapt to these changes, it’s far easier for us to comply with regulations than what it is for a number of our peers,” he adds. Van Rensburg says there’s a great deal of work being done in this space and things are likely to change over the coming years, as the regulators in Africa, Asia and other growing markets realise that current regulations don’t suit the mass market and were set up to benefit those that have access to vital amenities. “In fact,” he says, “we’re participating in a study with the Stellenbosch University into how regulations would be set up in order to benefit people in low income brackets. “We also do our part in think tanks and workgroups around the world to develop the concepts and regulations that underpin practices such as branchless banking and mobile money for the unbanked,” he says. Van Rensburg says that the market should also not forget the role that technology plays in all of this.

FUTURE PROSPECTS

Van Rensburg says that over the coming years, the market is likely to see activity around two main areas, namely the expansion of current m-banking solutions into the realm of international remittances (cross currency/border payment capabilities) and the use of these platforms – which are essentially geared up for facilitating payments - to provide risk, savings and loan products tailored to the low income, unbanked market segment. This leaves an interesting road ahead. Not only are there markets in Africa, Asia and the Latin America regions that desperately need the basic payment capabilities provided by m-banking solutions, those markets that are showing the first signs of maturation have a lot to look forward to. And the next ten years are shaping up to provide us with as dramatic a paradigm shift as what the first ten years have.

Sidebar 1: NEXT GENERATION INNOVATION

A project Fundamo is currently involved with in the Maldives, where experts are touting the stakeholders work as the way financial services should work in the future. Called the Maldives Monetary Authority Project and sponsored by the World Bank, van Rensburg says the consortium to which Fundamo belongs is in the process of rewiring the Maldives’ financial services infrastructure – from the consumer all the way to the central bank including how each transaction is switched, how every settlement is made etc. Think about the fact that there are over 2000 islands in the Maldives and that each needs to be connected to a banking network. “Delivering this using wireless infrastructure means the costs can be dramatically reduced. In fact, mobile payment is critical and a large part of the innovation that makes the rewiring of the Maldivian banking system plausible,” he says. While van Rensburg says that in this instance, Fundamo and its consortium has the backing and the support of the government in changing the status quo in banking, often it is a challenge working within the regulatory environments of different countries. “We make a point of working within those boundaries however and unlike the tendency in our market towards bending and shaping the rules to one’s interest, we prefer to toe the line,” he says.

Sidebar 2: DON'T FORGET THE TECH

“We’re quick to focus on the challenges the regulatory environment presents and often forget how critical a role technology plays in the mobile money for the unbanked space,” he says. “It’s quite remarkable, really. We’re talking about processing a far higher volume of transactions than any other traditional banking solution in real-time,” van Rensburg says. “And the most interesting part is that we’re able to deliver a high level of reliability and data integrity on infrastructure that wasn’t originally designed for this job. “There are a number of challenges to overcome, but they’re ones that we as an industry are doing a great job of conquering,” he says. Looking at what lies ahead, the regulations and technology that will be required to deliver the banking services of the future will undoubtedly be interesting.

Mobile technologies pioneered in Africa and other emerging economies are finally getting the rest of the world talking.

Third World mobile banking systems are piquing the attention of international operators and international banking organisations. The result – if all goes well – could be a fresh influx of investment and technological know-how poured into an arena where third world countries are the innovators. Hopefully, the interest being shown by regulators will also create legislation that encourages innovation and allows more players to enter the fray. The fear, of course, is that new legislation may stifle these developments if banking organisations regard them as unwelcome incursions into their hallowed territory. Europe and the US have made little progress with mobile banking because there simply isn’t much need for it. At best, it’s an add-on service for people who already have plenty of physical branches and good internet access if they choose to bank online. Yet, in the emerging nations, massive populations have no access to banks and so little money to spend that the cost and hassle of opening a bank account has never been worth it. Yet everyone needs to give money to someone else, whether it’s to pay for a bus ticket, a grocery bill, or to send money to their relatives.

BANK ACCOUNT, WHAT BANK ACCOUNT?

Being able to use a cellphone to make purchases or transfer money has rapidly won an enormous customer base. Ease-of-use, speed, price and accessibility may have overshadowed the concerns about security that would be raised in countries where this is far from an essential service. So as the user base grows and money starts crossing borders, the authorities as well as the banks and global operators are paying attention. Gartner estimates the number of mobile payment users worldwide will top 108 million in 2010, up 54.5% from 70.2 million in 2009. It expects Europe, the Middle East and Africa to account for 27.1 million of those, representing just 2.1% of all mobile users in the region. Yet Nigeria alone has 25 million people with a cellphone but no bank account, says Rosemarie Pringle-Smith, a Senior Vice-President for m-banking applications developer Fundamo. And the operators are keen to capitalise on that. “African mobile operators have identified a gap in the market to provide customers with an affordable service they need, leveraging on their brand, large subscriber base and distribution capabilities,” she says. “The minute people are able to do financial services on their mobile handset, a mobile operator’s subscriber churn reduces immensely.” Nigeria’s banking regulator is giving more freedom to mobile operators, while the local governments have started paying social grants to the unbanked via mobile services. The global awakening of interest is highlighted by the numerous conferences being held to debate mobile banking and thrash out strategies for its regulation. In August, financial regulators attended a seminar in South Africa to improve their understanding of these new technologies and business models. The event staged by the Centre for Financial Regulation and Inclusion (Cenfri) welcomed delegates from 12 African nations, and further afield including Mexico, Malaysia, Russia, the Philippines, Pakistan and Ecuador. “During the last few years there has been a growing interest globally and specifically here in Africa to provide financial services to people that have traditionally not been served by banks,” said Doubell Chamberlain, Executive Director of Cenfri. “Recent developments in mobile phone-enabled financial services suggest we are on the cusp of a revolution in the way we deliver financial services. Any individual with access to a mobile phone - no matter how poor or how far away from a bank they may be - will soon have a safe place to store their money. Regulators now have to deal with the challenges of regulating unconventional, innovative financial services that are being created in response to this need.” Delegates debated ways to enable innovation without creating undue risk to operators or their customers, while adhering to national and international security standards including preventing money laundering and the financing of terrorism. Their worry is that operators introducing financial services to millions of unserved people may expose the financial sector and payment systems to new risks that existing regulations do not address. Or perhaps they are just worried that the banks they regulate are under threat from new rivals they are too slow and staid to retaliate against. The seminar culminated by establishing a Working Group on Mobile Financial Services, to allow policymakers to continue sharing their experiences in this rapidly evolving area. Harnessing the power of technology could dramatically increase access to financial services for poor people, says the Consultative Group to Assist the Poor (CGAP), a microfinance group within the World Bank. But it can only happen if regulators and private firms strike the right balance between protecting customers and allowing innovation to flourish. “Poor people need a safe way to save and send money, and African innovations like M-Pesa and M-Kesho are showing us how to reach the billion people worldwide who have a cellphone but no bank account,” says Alexia Latortue, acting CEO of CGAP. “Millions of people could be given access to safe, low-cost financial services using mobile phones and other technologies, giving them opportunities to manage their financial lives.” Some of the most innovative solutions for financial inclusion have come from Africa and people need to learn from these experiences and examples, says Alfred Hannig, executive director of the Alliance for Financial Inclusion (AFI). The experiences in Africa will accelerate the exchange of knowledge and best practices and help identify key opportunities to drive more financial inclusion initiatives.

POWER TO THE PEOPLE

The mobile phone is a pervasive device that has penetrated the poorest economies due to the overwhelming demand for communications. That makes it a useful tool for banking as well. Africa’s abundance of people untouched by traditional financial services is usually viewed as a challenge, when it is actually an opportunity to explore new ways to bring people into the financial environment though mobile banking, says Hannes van Rensburg, CEO at Fundamo. Financial institutions in Africa recognise that to achieve greater penetration and greater profits they need to explore new methods of banking. “Africa is a cash-based society, and companies are proving it can be used as a tool to facilitate virtually any form of payment, directly from a mobile phone,” says Van Rensburg. As an example, FNB-owned Celpay in Zambia and the Democratic Republic of the Congo offers virtual bank accounts via a cellphone with features that compare to many normal accounts. Account transfers, bill payments, cash deposits, withdrawals and prepaid airtime vending are all supported. Celpay has also developed an m-banking cash-on-delivery payment that BP, MultiChoice, supermarkets and O’Hagan’s in Zambia are using. A thriving network of agents is vital to the success of mobile banking, but building and sustaining that network is challenging. In a survey of Safaricom’s M-Pesa service in Kenya, CGAP found it had successfully established large agent networks, but they were not all profitable. M-Pesa has more than 5 million users and handles about 160,000 transactions per day worth US$4 million. Agents earn a commission on each transaction, and a typical agent generates more than twice as much revenue through M-Pesa than by selling airtime. But some rural agents lost money because they used up their cash float and had to travel to the nearest bank, which swallowed up their commission, CGAP found. CGAP also looked at why M-Pesa, which lets people safely send money to family and friends, was nowhere near as successful for Vodacom in neighbouring Tanzania. People assumed that what happened in Kenya would be replicated in Tanzania, yet there are important differences in demographics and cultures, market structures, business models, and strategic implementations that make them quite distinct. Tanzania is almost twice the size of Kenya and is less densely populated, with only three main urban centres, so Kenya’s geography lends itself much more readily to establishing agents. Moreover, when M-Pesa launched in Kenya it had no rivals. Players in Tanzania had time to defend themselves, so Zantel and Zain launched their own m-banking offerings while two of the largest banks, NMB Bank and CRDB, also launched m-banking. Safaricom has a better distribution network and charges a flat fee. In Tanzania, it is more affordable for customers to move small amounts of money but it gets more expensive for larger amounts. While Kenya’s experiences may serve as a useful guide for other countries introducing m-banking, a carbon copy replication is impossible even next door, CGAP warns. Several developing countries have issued regulations, yet there are challenges in ensuring adequate consumer protection. The services have been available for only a short while, so there are no “off-the-shelf” regulatory frameworks to mitigate risks and address problems in complex branchless banking systems.

BUT IS IT SAFE?

Regulators can also expect new security issues to arise, as an increasingly complex financial system triggers more sophisticated frauds. CGAP says the first step is to define the activities subject to licensing, regulation and supervision by the financial authorities. Service providers must also clearly disclosure their prices and offerings, and abide by data privacy and security rules. All players agree that policymakers must ensure the needs of the poor remain central as they develop regulations for this innovative sector. “Mobile banking holds great potential, and CGAP is encouraged to see that governments everywhere are being deliberate and thoughtful as they merge the domains of finance, payments and telecoms to create a framework that balances customer needs with concerns around security and prudential regulation,” says CGAP. Special challenges will include allowing local merchants to conduct transactions directly with customers, ensuring effective consumer protection, and making sure payment systems are open to all players and adequately supervised. Prof Louis-Francois Pau from the Rotterdam School of Management recently presented some European findings to students at Johannesburg’s Gordon Institute of Business Management. The Euro-centric research highlighted major differences between developed and developing nations. It also probed whether banks or operators are in the best position to offer mobile banking, but didn’t reach a solid conclusion. There are pros and cons no matter which side tackles the challenge. Operators are keen to explore mobile banking to increase traffic, boost customer loyalty and improve their service offerings, and obviously because their portion of the relatively cheap transaction fees mount up.

IN CONCLUSION

The greatest beneficiaries are undoubtedly customers in underdeveloped countries, who can now make or receive instant payments easily. M-banking services and technologies can be complicated as there are numerous players in the ecosystem, including network operators, banks and financial institutes, payment and credit card providers, payment processing systems, merchants that collect payments via mobile terminals, terminal vendors, chip vendors, SIM card manufacturers and security companies. Pau believes mobile operators should automatically get limited banking licences to offer short-term loans, overdrafts and handle payments for their customers, while banks should be given communications licences to run secure hotspots to increase the range of services they can offer at ATMs. The Group of 20 (G20) Leaders has developed a set of principles to support innovative efforts to accelerate the delivery of financial services to the poor. The principles emphasise the need for strong leadership, product diversity, proper incentives for financial institutions to get involved, and sound consumer protection. The principles urge policymakers to harness new approaches to reach more than 2.7 billion people who are unable to open a bank account, get insurance, or receive loans to invest in their homes or businesses. The next step is to formulate concrete actions so policy makers and the private sector in every country can move towards delivering financial services to the unbanked.

Sidebar 1: Is there demand?

A study by CGAP and the GSMA in 2009 concluded that a billion people do not have a bank account but do have a mobile phone, and by 2012 that will grow to 1.7 billion, making mobile phones a direct conduit to nearly half of the world’s unbanked. As many as 364 million low-income, unbanked people will use mobile money by 2012, generating $7.8 billion in new revenue via transaction fees, improved loyalty, and more cost-efficient airtime distribution, the report predicts. Those projections are based on relatively conservative assumptions about the number of operators that will launch such services and the percentage of customers who will use them. To successfully capture this opportunity, operators must understand the financial lives of unbanked, lowincome consumers. Most of the target market receive their incomes in cash, and keep their money at home in a hiding place, or join a saving club. When asked what additional services they may use, low-income users asked for a saving facility so they could safely store their money and access it via a handset.

Sidebar 2: Europe vs Africa

“In under-developed countries they are just going ahead with what’s available, like SMS, not caring much about the technology hurdles,” Pau said. In comparison, operators in developed countries see it as a technology project demanding security and additional capacity. “The progress isn’t in Europe, its elsewhere, including Africa and South Africa,” Pau said. Among the banks, the most visionary recognise it as a way to win more customers and lower their operating costs by reducing their dependency on branch infrastructures. But most banks – in Europe at least – are reluctant at best and obstructive at worst. “They don’t see it as a way to increase customer acquisition and few of them have back-end systems geared up to deal with the security issues. The only people pushing it are some operators in the developing world,” Pau said. Many banks are also using old systems that are not as scalable or adaptable as the technology architectures of the mobile networks. Not surprisingly, only 20% to 25% of banking customers in European countries use mobile banking, although that is up dramatically from less than 6% three years ago. Yet Pau expects mobile banking to become as important as internet banking in Europe within five years. He predicts that it will overtake internet banking in Italy quite soon, “because it’s a society where mobility and agility are key behaviours.”

The mobile financial services space is one of the most exciting sectors of the technology sector to be involved in, mainly because there’s massive demand for these services and what matters to users in different regions and cultures, differs substantially. We take a closer look at where this market is and where it’s heading in the coming years.

While as a general rule, Africa lags behind the rest of the world as far as technical innovation, access to vital amenities and potential customer base are concerned, m-banking and m-payments are the one area where Africa is the worldwide pioneer. This sentiment is well borne out by the GSM Association’s most recent edition of the Mobile Money for the Unbanked (MMU) Tracker, which shows Africa as the owner of 51% of the m-banking and m-payment solutions in the world that are worth mentioning. It goes without saying that the African condition as described by so many publications, tertiary professors and academic journals is the primary reason for the ready adoption of m-banking and m-payment solutions in Africa.

Where need exists

One of the largest portions of the world’s population lives in Africa and it’s no coincidence that the vast majority of those people are poor and disenfranchised, and one of the reasons for this is that there’s a shortage of financial services capable of meeting their needs. The majority of these people live in rural parts of Africa and because it’s virtually impossible for a bank to have branches in each rural village of the country in which it operates, those people have in the past simply fallen by the way side. Adding to this difficult situation, most of these people aren’t employable, since the majority of employers require their staff to have bank accounts. And it’s probably worth mentioning at the same time that the vast majority of Africa’s population is precluded from renting property, buying a vehicle or any of the purchasing activities you expect a successful individual to engage in, since most of these require access to a bank account. 

Electronic Solutions

The first step to solving this problem is to allow for these people to make payments to each other, without having ready access to one of their banking institution’s branches. And to a great degree this is where the majority of success has been achieved in Africa. But mobile payments can only take the market so far. True mobile banking is required if the world is to make any dent in extending financial services to the masses. “It’s important to draw the distinction between m-payments and m-banking,” says Arthur Goldstuck, managing director of World Wide Worx. “Mobile banking is where customers are able to access their bank accounts from a mobile device, from looking at their balance through to making transactions. “And South Africa is one of the leaders here,” he says. M-payments on the other hand are mobile money transfers between individuals that don’t necessarily need to have access to a bank account. “And this is where Africa is a dominant player,” he adds.

Horses for courses

“Because South Africa has access to more advanced services in m-banking, it doesn’t have as great a need for m-payment solutions as its African counterparts do,” he says. But then again, Goldstuck says, South Africa has a much higher proportion of banked individuals per capita than most of its African counterparts – and a bank account is a prerequisite for m-banking. Goldstuck says that it goes without saying that solutions need to be appropriate for the market they’re targeted at. “Part of the Kenyan success story with M-PESA stems from the pervasive need across the population – and the fact that there was an overall shortage of banking/payment solutions, even in urban areas,” he says. In fact, Goldstuck says, the captive market in the urban parts of Kenya was the original reason M-PESA took off to the extent it did. “The need for a certain type of solution is the primary reason I think that over the coming years, the Asian market will leapfrog the African market when it comes to the uptake of m-banking solutions, but that the solutions rolled out in the Asian market will be far more comprehensive than the m-payment solutions being used so pervasively in Africa,” he says. “Another reason M-PESA took off in Kenya to the extent it did,” Goldstuck continues, “is cultural.

Cultural fit

“Kenya has a remittance-based economy, meaning that a high portion of the economy works away from home and sends funds home on a monthly basis,” he says. “Western Union has built a strong presence throughout Africa by facilitating this exact process,” he says. “The fact that M-PESA allowed this to take place from the convenience of a cellphone and the experience was furthermore reliable and convenient, made it successful,” Goldstuck says. Goldstuck says that those same drivers don’t necessarily exist to the same extent in South Africa, where the M-PESA service was recently launched and because the population is far better banked in South African than what it is in Kenya, the service might not be as successful here. “Similarly, the Asian market is far better banked than Africa,” he says, “and there’s no remittance economy in Asia. That means, m-payment solutions will not have the same impact in Asia as they have had in Africa.” While there are similarities in need from one African country to the next, the point is that each solution needs to be unique in that it appeals to the needs in a specific country. “The M-PESA model can’t simply be superimposed into the South African market – or any other African market for that matter – and be expected to succeed. “There are different factors at play and I question how much the solution has been adapted to suit the South African market,” he says. For starters, Goldstuck says that there are two partners involved in the South African implementation, namely Vodacom and Nedbank, where only one party, the operator in Kenya, namely Safaricom was involved in the original rollout. Adding to this difficult situation, most of these people aren’t employable, since the majority of employers require their staff to have bank accounts. And it’s probably worth mentioning at the same time that the vast majority of Africa’s population is precluded from renting property, buying a vehicle or any of the purchasing activities you expect a successful individual to engage in, since most of these require access to a bank account. worth mentioning. It goes without saying that the African condition as described by so many publications, tertiary professors and academic journals is the primary reason for the ready adoption of m-banking and m-payment solutions in Africa. “Another worry for me is Nedbank CEO, Mike Brown’s prediction that because M-PESA quickly garnered a user-baser of 13m in Kenya it should achieve the same success in South Africa relatively speedily too. “I think the factors are quite different and that’s a leap of logic Mr. Brown needs to explain more thoroughly,” he says.

Looking ahead

While mobile payments are in the spotlight in Africa today, it’s safe to assume that these services will in time move towards offering more banking centric functionality Looking forward, Goldstuck says there will undoubtedly be innovation in this space, since you can’t ignore the fact that every cellphone equipped adult in Africa has a potentially useful financial instrument in their hand. “The trick will be to find models that work in every territory,” he says. “For example, MTN mobile money is taking off like wildfire in Uganda and Ghana. What we need to do as an industry is research why certain things work in certain territories and be cognizant of factors such as choosing marketing and go-to-market-strategies that appeal to users in each of those territories,” he says. Hannes van Rensburg, CEO of Fundamo says the innovation will be focused on two specific areas, namely international or cross-border remittances and the provision of more advanced financial services. “Fundamo was the first vendor certified as a Western Union integrator and with Telinor in Pakistan, we’ve launched an inbound remittance service that supports 35 countries,” he says. “In the next decade this will become a more common practice and where we have node-driven solutions today – for example Pakistan supporting inbound remittances from 35 countries – these will be combined with other nodes – like Bahrain’s support of inbound remittances from 12 countries and Qatar’s support for inbound remittances from two countries – so that the ‘spokes’ interconnect and create a cloud-like effect. “Ultimately this will mean instead of the ‘remittance-hubs’ that so many players are predicting, all of these nodes will interconnect in a cloud-like environment and allow users to pay money in one currency and have it delivered in another, purely because of the number of different nodes involved,” he says. “After all,” he says, the Internet is a cloud, not a hub and it makes sense that the m-banking and m-payment markets evolve in the same way.” The second big area of innovation, says van Rensburg is more advanced forms of financial service, such as insurance, risk and loan-based products. “There’s a great deal of work going on in this space,” he says, “and obviously, they’re centred around how you as the provider perform the risk scoring of the individuals. “There’s also the difficulty around how you set-up repayments and physically do the payout of the loan,” he says. “When it comes to assessing the individual’s risk profile it’s not just the fact that you know very little about the individual, it’s that you don’t have a payment history to go on. “As you get people involved in the m-payment space however, this problem solves itself, since they start building up a payment history,” van Rensburg adds. “And let’s not forget that since they have an instrument in the field, they can contact you easily and are easily contactable too. More importantly, it’s a device that can be used as collateral and easily switched off remotely, thereby increasing the likelihood of loan being repaid,” he says. Goldstuck believes that although these are noble and interesting ideas, the risk is too high and the bad debts untenable. “Where efforts have been made to address poorly-vetted target markets, the consequences have been disastrous. And I don’t believe the technology will make it any easier. Adding to this difficult situation, most of these people aren’t employable, since the majority of employers require their staff to have bank accounts. And it’s probably worth mentioning at the same time that the vast majority of Africa’s population is precluded from renting property, buying a vehicle or any of the purchasing activities you expect a successful individual to engage in, since most of these require access to a bank account. worth mentioning. It goes without saying that the African condition as described by so many publications, tertiary professors and academic journals is the primary reason for the ready adoption of m-banking and m-payment solutions in Africa.

Having been with MTN developing the Group’s strategy for Mobile Money outside of South Africa after the MTN Banking experimentation in that country, could you give us some insight into this experience, and why you think mobile financial services has been so successful in Africa?

I think that there are two measures of success that need to be paid attention to here. The first one is getting the mobile industry to buy into the case of mobile financial services. From that point of view, it is a definite success as more operators are weighing the variable cost of investment with the cost of not rolling out services along with the social benefits it can bring to Africa. More and more operators feel the scales have been tipped and cannot afford to be left behind. So we continue to see new deployments and services. Expectations have been exceeded here, as the mobile industry receives strong support from governments, development organisations, NGOs and in many instances financial regulators across the continent. In short, we have come a long way in a short time and there is clear momentum behind mobile financial services. The second measure of success – the one that really matters in the long run – is utilising mobile financial services to benefit millions in Africa. I think that is still a work in progress. Successes are still too far between and isolated. But this is not cause for despair. Most innovations follow an even slower adoption curve. The uneasiness that some industry practioners and analysts are feeling comes mostly as a result of the high expectations placed on mobile financial services. It reminds me of the 3G rush in the late 90s. It developed more slowly than we all anticipated but now it’s a reality in markets globally.

Why do you think the M-PESA Model has been so successful in Kenya? And do you think the recent launch in South Africa of M-PESA by Vodacom and Nedbank will be as successful as the Safaricom deployment? And why?

I think the M-PESA story has been much commented and documented. The general consensus on why it’s been such a runaway success is as follows: a) It was launched in a favorable market with a void around simple and affordable ways of transferring money and paying basic bills b) It is a very simple service with a great educational campaign c) The support of The Central Bank of Kenya was key d) The commitment of Safaricom at the highest level of the organization to the service. In my opinion the last two are probably the most important ones and also the hardest to replicate. South Africa is a very different market and Vodacom knows that. So I expect the team will keep what needs to be kept and change what needs to be changed. One word I don’t believe in is “impossible”. It could just be hard. And I think South Africa will be harder than Kenya because bank penetration is higher with multiple options to send money and pay bills. In South Africa, an obvious target market is illegal migrant workers who cannot access banking services for transfers, and therefore would current regulations allow for M-PESA to enroll them? Again, the M-PESA team in South Africa certainly knows all of this and has factored it in.

Africa has been an innovator in the mobile financial services space. How do you feel that this is changing Africa and where do you see the future of M-Banking taking Africa?

The changes are currently more apparent in the East than anywhere else. Besides M-PESA, we now have MTN Mobile Money in Uganda and Rwanda. MTN Ghana, Cote d’Ivoire, Benin and Cameroon have also launched their service and are at various level of uptake. We have Zain Zap and not to forget the banks’ own initiatives to provide mobile access to their existing clients. One good thing that the mobile financial services has already done for Africa is to attract attention to the need for better financial services. I think financial institutions, from large banks to smaller microfinance institutions (MFIs), insurance companies and investement houses, are now looking at ways to leverage mobile technology to expand reach and lower cost. So give it few more years and more tangible results will start appearing.

Coming back to yourself, Mobile Financial Services (MFS) Africa, is a new venture that you started, which seems to have the vision of bridging the gap between current mobile financial services products and a full set of financial services? Is this an accurate summation and please give us a brief description of how you see this being possible?

MFS Africa has been set up indeed to bridge what we call the “mobile financial services gap”. The gap is in the disconnect between the expectations of mobile financial services operators (on what service they will be able to provide) and the reality of what they are actually providing. Many players underestimate what a huge undertaking it is to rollout a mobile financial services scheme that can simply do domestic transfers and airtime top-up. To put these basics in place, you still have to deal with matters of regulation, agent network setup and management, platform implementation, marketing aspects, and the day to day operation of the business. MFS Africa bridges that gap by providing a range of value added services on a turn-key basis. Take international remittance for instance; all mobile financial services operators have it high on their roadmap, but most are discovering that it is quite challenging to implement. What MFS Africa brings in this context, is a “ready to use” connection to a number of money transfer companies that can cover the target markets (where senders are based). All the mobile operator needs to do is to include the product in its offering and market it locally. We take care of the sending markets and the management of the money transfer companies. In this way, the operators’ clients could receive money from anywhere directly on their mobile wallet.

MFS Africa aims to accelerate the growth of mobile financial services. How can this be achievable in such a complex business environment working with the telecommunications and financial regulators and operators?

We thrive best when faced with complex issues. It is exactly because the mobile financial services ecosystem is complex that MFS Africa was established to deliver offerings that take away the complexity for the key players in the market and lets them focus on what they do best. For all the services that we provide we spend lot of time and energy analysing the specific value chain and rearranging the different pieces so that we can provide a simple and cost effective service through the mobile phone. For all of them we, consistently ask four questions: What can we eliminate? What can we introduce? What can reduce? and what can we augment? So what we offer today, is a package that is the result of asking again and again these questions across markets. Operators benefit from this refinement and can therefore accelerate the monetization of their investment in mobile financial services.

You have Plug & Play Integration with your Clients Information Systems. This must involve some fairly complex programming considering the number of different systems that are run across Africa. How has this been achieved?

It does. And again that’s our strength. The team has a very deep understanding of how mobile financial services are designed and deployed, and all of us have been part of deployment teams across Africa and beyond. The MM VAS-Box (Mobile Money Value Added Services Box) that we deploy has been designed to take away the complexity of mobile financial service platforms and connect them to the simple world of web services. But our proposition does not stop at the technical level. We see that as a hygiene factor really. We pride ourselves in also simplifying operational complexity (which is the main complexity in deploying these services) and design services that work with the networks. So when we work with an insurance company, for instance, to design and deploy m-insurance services, we do not only simplify the technical complexity of such service through our MM VAS-Box, but we ensure that the product we are designing can be consumed through the mobile device. As you can imagine payment is only one aspect of this. We have to re-engineer the entire client life cycle, from acquisition to the processing of claims. And we do this with two main things in mind: simplicity and cost effectiveness.

In which countries are you currently operating and how can a startup manage to operate across the continent?

We are currently operating in several countries: Ghana, Cote d’Ivoire Uganda and Congo (DRC). In each of the countries, we are in discussions with a number of mobile financial service operators to provide our services. In Ghana, Cote d’Ivoire and Congo, we are already at the pilot stage and will commence commercial operation soon. Nigeria, Cameroon, Benin, Malawi, Rwanda and Morocco are our next target markets. Nigeria (which is the biggest market of the four) is still waiting for the Central Bank of Nigeria to issue the required licenses. I learned quite a few things from my MTN experience about operating across Africa these included:

a) You need good people who are comfortable with traveling and operating across languages and cultures; so we are very picky and apply strict rules in our recruitment (for instance we all speak fluent French and English in addition to our native languages)

b) Mobile financial service models need to be standardized to enable economies of scale and part of it has to be localized to meet local demand; for this, we partner with local entrepreneurs that can support us in localizing the proposition.

c) You have to be driven by a purpose that is beyond immediate financial gain to cope with the adverse business environment that you encounter. Our purpose is to make life a bit better for millions across the continent by providing, simple, relevant and affordable financial services.

Currently, you have 4 service offerings, namely Bill Payments, International Money Transfer, Online Payments and Microfinance Transactions. Could you tell us more about these offerings also with specific reference to the differences between the Bill and Online Payments offering?

Our International Money Transfer service allows existing money transfer companies to send money to mobile wallets across Africa. Mobile money transfer companies already offer different payout options such as cash (the main one) but also directly into a bank account, or as a check. We simply allow them to add onother option, the one that is likely to be the most relevant in Africa in the near future: the mobile wallet payout. Our Bill Payment Service complements the traditional bill payments that mobile money operators offer directly. It goes beyond simple payments to offer a complete shopping experience over the mobile phone. Many of our clients want their customers to change their options, and add new services, before they pay. Most mobile money operators do not have the ability to handle such complex demands. Online payment refers specifically to e-commerce where we enable websites to accept payment from mobile wallets. Our MFI transactions include services such as credit (apply for and receive loan through the phone), savings and insurance (buy and pay for basic coverage through the phone).

In the future, do you see the possibility for all current banking offerings such as investments through unit trusts and other such complex saving structures to be offered to mobile financial services clients?

Definitely. Although this may sound like a niche product, there is no reason why mobile technology cannot open up new opportunities like these offerings. The mistake will be to only see the payment component that makes mobile financial services possible. We take a holistic view. From how I acquire the clients to how I retain him, with the mobile as the key technology throughout. It is our ability to take a broader view and transform a service such as a unit trust investment and make it available to millions though the mobile phone. If you focus on just the payments you will miss out on the broader and bigger opportunities.

Having been a founding member of the GSMA Working Group for Mobile Money Transfer and Mobile Money for the Unbanked, how do you feel the African perspective is different from other parts of the world where Mobile financial services are taking off such as Latin America and the Asian Pacific regions?

In many ways the market conditions and challenges are similar. But the differences are probably around the much lower financial services penetration in Africa when compared to places like Asia where MFIs have been able to pull quite a large number of people in the financial system, or Latin America where banking penetration is relatively high. One of the root causes of this is obviously the smaller infrastructure base that we have in Africa which constrains the growth of many industries not just financial services. And it is precisely because of this lack of infrastructure that development has been held up. Mobile represents a fantastic opportunity to change this as it takes away time and distance. That is why we are also seeing more mobile financial services activity in Africa than anywhere else.

What do you think some of the major risks are in the mobile financial services in Africa? Do you offer solutions that overcome these risks which would be of benefit to operators and financial institutions wanting to role out M-Banking services in Africa?

The biggest risk I see might well be impatience. Impatience of players, analysts and investors to monetise this opportunity. What we offer (at MFS Africa) are ways to shorten the “time to money”. We are able to offer the appealing services that operators need to drive uptake and usage.

Is MFS Africa focusing its energies solely on Africa? And do you think that your expertise will be exported to other markets where similar challenges and opportunities lie? Where do you think this will be in the future?

Our roots are solidly in Africa, but our perspectives are global, as our clients and investors. Our plan is to perfect our model in Africa first and take it to other emerging markets as the next step. We have not identified a specific region yet, but we are watching closely the developments in key markets like Pakistan, Brazil, Indonesia and Mexico.

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.”

In this Issue of Africa Telecoms, we are looking at East Africa and mobile banking. Hollard recently announced a joint venture with MTN called mi-Life in Ghana. Can you tell us a little more about the product?

mi-Life is a life insurance product that has been specifically designed for the MTN mobile money platform. It is a holistic solution that allows the subscriber to buy the product from MTN merchants and service centres and also through one’s mobile menu; pay for the premium through Mobile Money; and manage the levels of cover subscribers want. Premiums vary from 1 cedis (US$ 0.65) for 500 cedis cover (US$ 331) to 5 cedis (US$ 3.31) for a cover of 2,000 cedis (US$ 1,327). Whilst there is a range of other m-insurance initiatives, this is the first of its kind in that it leverages off both the distribution and collection mechanisms of MTN Mobile Money. What is particularly exciting is that it addresses the unique challenges of Ghana. As only 34% of the population is banked and 22% insured (FinScope 2010), the combination of mobile money and insurance should dramatically push back the frontier of access.

The platform was created by MFS Africa, whose CEO Dare Okoudjou, we ran a Q&A with last year. Can you tell us about this partnership and the platform itself?

Hollard and MFS Africa have an international partnership focused around m-insurance for mobile money operators, where MFS provides the mobile money know-how and technology (in the form of their MFS-Box) to support the deployment of insurance. Hollard addresses all the insurance requirements in terms of product development, pricing and the regulatory issues. Hollard believes firmly in partnerships and backs specialists such as MFS Africa in pursuit of providing value to our consumers and partners.

How does this platform interact with that from Fundamo that runs their existing m-banking platform?

MFS-Box acts as a bridge between mobile wallet platforms (eg Fundamo) and the information system of financial institutions (eg insurance). It enables the policy to be populated automatically using data from the m-banking platform or the automatic renewal of a policy after a premium has been successfully collected from a client’s mobile wallet. This allowed us to have an almost seamless rollout of mi-Life as we were able to deploy the MFS Box with minimal distraction to MTN, which is a key comparative advantage.

Can you walk us through the decision to choose Ghana as a country in which to launch an m-banking insurance product?

The focus on Ghana came about for differing reasons and as a result of discussions with the MTN Group. At a high level, it is a country with high growth prospects, an enabling business environment and a supportive regulatory environment for insurers, which is extremely important. Furthermore, in discussion with MTN, we found that MTN was a well-respected brand and the largest mobile operator in the country with nine million subscribers, and that it had rolled out almost two million mobile money accounts. And lastly but not least, MTN has a dedicated country team who were keen to roll out mi-Life. We were also fortunate that our administration partners, MicroEnsure (a specialist international microinsurance administrator), and MFS Africa were also present in the country.

Is the partnership with MTN a group wide agreement or currently with MTN Ghana only?

If group wide, what is the expected rollout time frame for mi-Life to be offered to MTN’s other properties across Africa? Hollard and MTN have a group wide agreement so Ghana is the first of many. However, we will of course want to watch the pilot first before we make a decision about the next country, although we hope it is soon! But I would watch this space over the next six months.

Security is generally a question that is brought up fairly early on when looking at new m-banking products. Both from the perspective of activating a policy and then from claiming the benefits for the policy, can you give us some insight into the security procedures currently in place?

The MFS / Fundamo platform ensures very strong security features similar to a full banking experience. The old banking security adage of “what you have and what you know” resonates here – the client has a cell phone and a unique PIN number known only to themselves. So, in theory, it is safer than having a debit card as you don’t need to go to an ATM; and you can manage payments and buy the policy from the safety of your own home.

mi-Life is a life insurance product. Does Hollard foresee other insurance products being offered via mobile in the future? And if so, what type of products and when can the product portfolio expansion be expected?

mi-Life is the first of many products we plan to roll out with MTN Mobile Money. Whilst we would expect to offer more complex products, we are also planning a school fees product and a bill payment product which would cover the required instalments in the case of death. We would expect the next suite of products to start rolling out in the next six months.

With the fairly elaborate funeral habits of the general population in Ghana, is this a purely life insurance product or is it backing up as a funeral policy as well?

It is certainly a form of funeral policy, in that the funds may well be used to cover the costs of the funeral. As you pointed out, Ghanaian funerals are very elaborate with the most remarkable coffins shaped in the form of cell phones or birds, and so the funeral has a huge impact on the finances of a household. Further, should the main income generator die, the family can be devastated without life or funeral cover to meet the funeral expenses or provide some cash flow to tide them over till they can find an alternative income source.

Considering that life insurance is a recurring paymentbased product, how is this handled in the mobile banking arena?

Does the premium come off an existing bank account or a mobile banking wallet? The premium is deducted from the mobile wallet and MFS have actually recreated the recurring debit order on this platform so the premium collection is automated. This is unusual as mobile money initiatives often are based around push payments initiated by the user. The automatic deduction should make the experience for the consumer much more positive.

Regulation is a key area that needs to be supportive of m-banking initiatives. Has the environment been supportive in Ghana and have you had similar experiences in other markets where discussions have taken place to launch mi-Life?

We have certainly found Ghana an enabling environment for m-insurance with a regulator that has been encouraging of new initiatives. Other countries which we have operated in do tend to be far more restrictive in terms of using alternative distribution. For example, in some countries, it is a requirement for an agent of the insurer to distribute the insurance, whereas in this case MTN is appointed as a corporate agent so we can leverage off their footprint. We are fortunate that the international insurance regulatory body, the International Association of Insurance Supervisors, is also working to try and enable the market for microinsurance.

How does mi-Life differ from products currently on the market? For example, Econet Wireless’s product ‘EcoLife’ which is offered in partnership with Trustco?

We understand that EcoLife is more of a loyalty programme which is paid for by the mobile operator with the level of cover linked to your airtime spend. mi-Life is different in that it is a voluntary product that clients can select according to the cover they need and it also allows more predictability in terms of the level of cover.