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.

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 past 12 months can be written off as a dull kind of year for the telecoms industry, with economic turbulence making many players happy to survive rather than thrive. The chief development for Africa was undoubtedly the belated entry of the Indians, as Bharti Airtel took over the bulk of Zain’s African activities. Other than that there were a few price skirmishes, the axing of the telecoms minister in South Africa and the surprisingly low-key landing of the Eassy cable. Here’s a brief reminder of a few or the more interesting moments in a year that most of us have probably forgotten already. Let’s hope the industry regains its usual energy and joie de vivre in 2011.

January

The year began badly for Vodacom’s subsidiary in the Democratic Republic of Congo (DRC). A bitter clash with its 49% shareholder Congolese Wireless Network (CWN) saw CWN file papers in a Kinshasa court accusing Vodacom of “plundering” the company. CWN claims Vodacom illegally took up to US$180 million out of the DRC and repatriated the profits instead of reinvesting in the operations. Vodacom denied the allegations and initiated arbitration through the International Chamber of Commerce, which could take years to be resolved. Both parties agreed to keep discussions open to keep Vodacom DRC running, although Vodacom may decide to pull out of the country if arbitration looks likely to take too long, or if the relationship deteriorates further. South Africa’s third cellular operator Cell C had a better start to the year and awarded a US$378m contract to China’s ZTE Corporation to supply equipment and managed services to roll out a national 3G network. While ZTE was welcoming more open communications with the west, the Chinese government was less keen to embrace decadent western ways. Cyber attacks on Google and other companies led to escalated tensions between the US and China, although the government claimed it wasn’t to blame. US secretary of state Hillary Clinton called on the communist country to end online censorship, but Chinese officials said they would not tone down the way they censor the internet. The internet also went down for parts of Africa, although by error rather than design. A planned interruption on the Sat-3 cable connecting South Africa to Europe caused chaos with users unable to access international websites. Traffic was routed over a different cable to Asia, emphasising the need for multiple cables.

February

Nigeria’s government made yet another attempt to sell off its ailing incumbent operator Nitel. MTN Nigeria and Globacom were among six shortlisted bidders for a 75% stake, or to bid for stakes in some of its subsidiaries, including mobile arm M-Tel and its international gateway. The government went on to approve a US$2.5bn bid for Nitel, which was five times the US$500m that industry experts considered its maximum value. The deal went to the New Generation Telecommunications, a consortium of local and foreign investors including a Dubai investment house, Minerva Group. But by November, sources were saying some of the backers were getting cold feet and wanted an extension on the payment deadline. GiCell, a Nigerian company in the consortium, blamed the government for taking almost eight months to give final approval, making the foreign investors jittery about what exactly they were getting into. Further afield, the first images were transmitted back to Earth from South Africa’s Sumbandila satellite, a project that cost more than ZAR20 million to build and ZAR12 million to launch. The satellite is designed to strengthen the country’s technological capabilities, space resources and satellite engineering skills. Sumbandila can also collect imaging data during a national emergency such as floods. While the government can organise a presence in space, it’s struggling with the more mundane concept of TV. Plans to migrate from analogue to digital transmissions were delayed until April 2013 at the earliest, at least 18 months later than originally envisaged. The regulatory authority partly blamed anticipated delays in the availability of the set-top boxes needed to receive the new digital signals. It forgot to say that the delays were being caused by the government prevaricating over which technology standard to adopt.

March

After two aborted efforts to merge with MTN, the Indian operator Bharti Airtel finally began its African adventure by acquiring Zain’s African activities. The US$10.7 billion deals saw Bharti take over operations in 15 countries, and excluded Zain’s operations in Morocco and Sudan. Bharti is handing over a tidy sum of US$9 billion in cash and discounting US$1.7 billion of debt. Hopefully it still likes what it got, because the remaining US$700 million is due this March. Zain had been trying to sell its African networks for more than a year, despite initially denying that any such plans were afoot. Bharti now has 163 million subscribers, with Zain Africa’s 41.9 million looking rather paltry compared to Bharti’s home-grown user base of 121 million. So at least the feisty Indians should teach Zain a thing or two about economies of scale and serving low-income consumers. Bharti is expected to be a more formidable operator than Zain was, and is now a rival to MTN instead of the potential partner it tried to be. Yet MTN CEO Phuthuma Nhleko described suggestions that Bharti posed a serious threat and could trigger potential price wars as “exaggeration and oversimplification.” His comments were based on the opinion that a business model that works in India may not transport easily to a totally different environment. How well Bharti will manage to replicate its operations is still playing out, with a business model designed to serve millions of people in densely crowded areas now having to adapt to sparsely populated regions lacking basic facilities. Zain has rebranded as Airtel and has already slashed prices in Kenya to steal market share from Safaricom, Kenya’s dominant player.

April

After two aborted efforts to merge with MTN, the Indian operator Bharti Airtel finally began its African adventure by acquiring Zain’s African activities. The US$10.7 billion deals saw Bharti take over operations in 15 countries, and excluded Zain’s operations in Morocco and Sudan. Bharti is handing over a tidy sum of US$9 billion in cash and discounting US$1.7 billion of debt. Hopefully it still likes what it got, because the remaining US$700 million is due this March. Plans for Egypt’s Orascom Telecom to sell all or some of its African assets suffered a setback when the Algerian government said it would block the sale of Orascom’s subsidiary in that country. Orascom is the majority owner of Algeria’s Djezzy network, which is a key part of its operations and contributes 47% of its revenue. Algeria’s government would rather buy Djezzy using its pre-emptive rights as a minority shareholder than see it sold to a foreign entity. Analysts warned that the inability to sell Djezzy could scupper the sale of Orascom’s assets to potential buyers including MTN. That proved true, with MTN walking away from the deal. By November Russia’s Vimpelcom had agreed to buy a controlling stake in Orascom for US$6.6 billion. But as the year drew to a close those plans began to look increasingly shaky as Algeria remained a hurdle and regulatory issues also emerged in other countries. Orascom operates GSM networks in Algeria, Tunisia, North Korea, Canada, Pakistan, Bangladesh, the Central African Republic, Zimbabwe, Burundi and Namibia. As usual, Africa’s elite got looked after a whole lot better than its poor, when wellheeled consumers welcomed Apple’s new iPad device. The first models arrived via the grey market without the official support of Apple. The tablet computer is a multifunctional device with a 9.7-inch high-resolution screen, making it perfect for watching podcasts, videos, browsing the web, checking e-mail, reading magazines, watching movies and listening to music. It also runs close to 200,000 applications.

May

Network operator MTN said it had invested nearly ZAR450 million specifically for the 2010 Soccer World Cup in South Africa. It rolled out infrastructure to all the stadiums so fans could make calls and connect to the internet without sucking up all the bandwidth from businesses and consumers in the neighbourhood. At Soccer City in Soweto alone it erected 22 base stations. May also saw two of those occasions where something we already know is finally admitted in public. Firstly, the outgoing chairman of the Independent Communications Authority of South Africa (Icasa) admitted that the regulatory authority had failed the sector. “I concede we have failed you,” Paris Mashile told his stakeholders. In reply to complaints about how long Icasa took to deal with industry issues, Mashile said its performance had been “inexcusable and unacceptable” and had affected the telecoms companies in very serious ways. Mashile complained that the industry poached Icasa’s best staff and that it was beholden to the government for its budget. “We are not serving the sector well and it requires a turnaround strategy,” he said. The mea culpa was welcome, but there was little clue as to when or how a turnaround strategy may begin. The second “yes, we already knew that” came when a study by Ookla confirmed that Africa is poorly served for broadband. Ookla’s Net Index, based on millions of tests, ranks South Africa 93rd in the world for broadband download speeds. Uganda fares just a fraction better in 92nd place. The index found the average global consumer download speed is 7.7MB per second. The average in South Africa is 2.2Mbps. The worst countries in which to attempt a data download include Mali and Sudan.

June 

June was a month in which plans went awry for several companies. MTN formally ended negotiations to buy the African assets of Orascom Telecom. The deal probably fell through because the Algerian government blocked the sale of the Djezzy network, which was perhaps the asset MTN most wanted to get its hands on. MTN instantly bounced back by declaring that growth in Nigeria is far from over, and announcing that it had raised another ZAR16 billion to expand its network there. The new infrastructure investment follows heavy investments in 2008 and 2009, which now lets MTN cover 83% of Nigeria’s land and 84% of its people. While MTN was raising money, Neotel was losing it in vast amounts. The operator licensed to rival Telkom in South Africa suffered a net loss of nearly ZAR1.6 billion in the 2010 financial year. It was the first time its majority stakeholder, India’s Tata Communications, had revealed the extent of the losses being clocked up by its subsidiary. Neotel was initially seen as a much-needed, much-delayed alternative to Telkom, so businesses and consumers had high hopes of enjoying decent competition at last. But Neotel has failed to set the market alight. Plans at Telkom also went wonky when the company announced that CEO Reuben September was resigning – in other words, his contract wasn’t renewed. Politics turned out to be the chief reason, with September and his chairman:

– government appointed Jeff Molobela

– repeatedly clashing.

He was replaced by Jeffrey Hedberg as acting CEO, with no news yet of who will become the permanent head.

July

The East African Submarine System (Eassy) undersea cable started commercial operations on July 30, remarkably ahead of schedule and about 10% below its US$300- million budget. Not bad for a project that’s literally been in the pipeline for seven years. The 10,000km fibre optic cable on Africa’s east coast links South Africa, Mozambique, Madagascar, Tanzania, Kenya, Somalia, Djibouti and Sudan with other submarine cables from Europe, Asia, the Middle East and the US. One change of plan was unexpectedly caused by pirates, as the consortium has chosen not to build a landing point in Mogadishu in Somalia yet because of pirate activities. About 25 telecoms operators are buying its bandwidth so far, and its investors include international bandwidth prices, as Eassy, Seacom and Sat-3 cables all charge roughly the same. Hay said Eassy simply wasn’t big enough to make a large impact, but it was a valuable redundancy option for telecoms operators and internet service providers, which still have vivid memories of the lengthy breakdown of Seacom. South Africa’s MTN, Vodacom, Telkom and Neotel, as well as Dalkom Somalia, Comoros Telecom and Mauritius Telecom. Chairman Trevor Martins said the cable had been launched with an initial 60Gb per second of capacity, which would be increased as demand grew. He expects to see a broadband capacity explosion in Africa between 2012 and 2014. Although Martins said the cable would provoke another sharp reduction in wholesale international bandwidth prices and cheaper broadband for consumers, that hasn’t been particularly noticeable. South African internet service providers say the cable has had little impact on the price of bandwidth so far. Neotel’s Angus Hay agreed that Eassy’s arrival hadn’t had a big impact on international bandwidth prices, as Eassy, Seacom and Sat-3 cables all charge roughly the same. Hay said Eassy simply wasn’t big enough to make a large impact, but it was a valuable redundancy option for telecoms operators and internet service providers, which still have vivid memories of the lengthy breakdown of Seacom.

August

South Africa’s largest cellular network Vodacom teamed up with Nedbank to launch the M-Pesa money transfer service. M-Pesa is already enormously popular in Kenya, where it’s operated by Safaricom and used by 10 million people. It’s also available from Vodacom in Tanzania. The technology was developed by the Vodafone Group to let cellphone users transfer money quickly, easily and securely from person to person. Vodacom CEO Pieter Uys said: “The beauty of this service is the ease and speed with which people can send money to each other anywhere in the country. As anyone can receive M-Pesa without having to be an M-Pesa customer or even a Vodacom subscriber, it has the power to reach all cellphone users.” Only Vodacom customers can send M-Pesa, but anyone on any cellphone network can receive it. Nedbank chief executive Mike Brown said cellphone penetration was extremely high in South Africa, but banking was far less widespread, with more than 13 million economically active South Africans not having a bank account. M-Pesa would make basic financial services accessible to all and help bring marginalised individuals into the economic mainstream, he said. Customers can register for the service and deposit money into their M-Pesa account at outlets including shops, spazas and all Nedbank branches. Once they have money in their account, they can send it to any other cellphone user in South Africa, and the receiver can collect the cash at any M-Pesa outlet or a Nedbank ATM. Customers access their accounts using a four-digit PIN code and as long as that PIN remains secret their transactions are secure.

September

Price war skirmishes have become a regular feature in East Africa, and bubbled up again as Kenya made some drastic cuts in mobile call fees. Analysts said that posed a huge competitiveness challenge to its regional counterparts following the launch of the East African Common Market. High cross-network call rates force many subscribers to buy multiple Sim cards to call cheaply on one network then swap cards to call another network. Kenyans had been making crossnetwork calls at the equivalent of Ushs 300 a minute, with Uganda charging Ushs 340. But the price difference changed dramatically after the Communications "South Africa’s largest cellular network Vodacom teamed up with Nedbank to launch the M-Pesa money transfer service." Commission of Kenya halved the interconnection rate. Kenyans now call for an equivalent of Ushs 75 a minute across all networks. In Rwanda, the rate is about Ushs 270 a minute, while Tanzanians pay about Ushs 7.5 per second, and MTN Uganda charges Ushs 9 per second. When the Uganda Communications Commission tried to force down interconnection rates from USh180 to Ushs 131 last year it was immediately sued by MTN, which claimed that was well below the actual cost of the service and the fee should not drop below Ushs 151. Then Warid Telecom instigated a price war by slashing cross-network calls to Ushs 5 per second, making it the cheapest in the market. Warid said the new rate was half its previous fee, and was designed to make cellphone services affordable to more people. Next Bharti Airtel led a price war in Kenya by cutting call rates by up to 45%. Bharti said usage soared by 50% after the cuts, and within eight weeks its revenue was back to normal as higher usage offset the lower call fees.

October

Few tears were shed when a shake-up in South Africa’s cabinet saw Communications Minister Siphiwe Nyanda unceremoniously axed. Nyanda was replaced by the former deputy communications minister Roy Padayachie, seeing the return of a man who once showed far greater promise than the late minister he served under, Ivy Matsepe-Casaburri. Nyanda had allowed the department to totter from crisis to crisis. First he bought two extravagant BMWs then racked up massive hotel bills at the taxpayer’s expense. He never shook off allegations that he benefited from dodgy tenders. Then a spectacular clash saw him fire director-general Mamodupi Mohlala, who wanted to change the tendering processes. As internal wrangling absorbed much of the minister’s time, the state-owned signal distributor Sentech and the SABC were allowed to keep spiralling downwards through mismanagement, corruption, boardroom spats and failure to deliver on business plans. Analysts agree that Padayachie is a great choice, but given the department’s appalling track record for more than a decade, anyone with a touch of common sense and motivation ought to be an improvement. October also saw South Africa’s fixed line monopoly Telkom launch its new mobile services. The mobile offerings, dubbed 8ta, include a full range of prepaid and contract packages for consumers and corporate customers. Its “ultra-competitive contract offers” starting at R90 a month were designed to encourage more usage of mobile voice and data services, said 8ta’s Managing Executive Amith Maharaj. “We will provide more minutes for your money than any other network.” Telkom has erected 800 base stations of its own and has a roaming agreement with MTN to cover areas it has not yet reached. The initiative has already cost ZAR205m in operating expenditure and a further 3,200 of its own base stations are planned.

November

The long-awaited switch from analogue to digital broadcasting in SADC countries by 2015 looked set to be delayed by another five years as countries argued over which technology to adopt. The prediction of long delays came from Mgqibelo Gasela, head of regulatory affairs for MultiChoice Africa. He advised SADC leaders not to bow to pressure from Japan and Brazil to adopt a technology that is cheaper but less robust than the one they initially supported. Engineers in the Southern African Digital Broadcasting Association strongly recommend the adoption of DVB-T over the Brazilian and Japanese ISDB system, but politicians were being swayed by political pressure from those countries. “SADC should choose a standard that is the best standard worldwide and the latest,” Gasela said. And that meant DVB-T. He urged ministers to vote in the best interests of the region and not for political expediency. In January 2011, everyone breathed a sign of relief when South Africa’s Communications Ministry announced that SA would adopt DVB-T2, the latest version of the European standard. The Southern African Digital Broadcasting Association called the decision “visionary. Meanwhile, research by Informa Telecom declared that Africa now has 506 million active cellphone subscribers. Africa accounts for 10% of the world’s mobile subscriptions as user numbers in the continent rose 18% from last year due to demand for new services such as mobile internet access. In Ghana, a change of ownership took place as Kasapa Network was sold to Dubaibased Expresso Telecom. Kasapa serves 400,000 customers as the fourth operator behind MTN, Tigo and Vodafone. Expresso operates the Intercellular network in Nigeria and holds new licences in Mauritania and Senegal. CEO Isham Ayub said his company would upgrade the network across Ghana to enhance coverage, attract more users and offer a more customer-oriented service.

December

As the year limped to a close, MTN finally declared that outgoing CEO Phuthuma Nhleko would be replaced by Sifiso Dabengwa on Apri 1. Nhleko will stay on as non-executive deputy chairman. Dabengwa is currently the chief operating officer (COO) and was seen as the obvious choice, since he worked closely with Nhleko in driving MTN’s growth strategy. The COO position will be scrapped and a new position, CEO of MTN International, will be created to focus intensely on opportunities abroad. No candidate has been name for that yet. Christmas was grim for employees at South Africa’s fixed and mobile operator Neotel with retrenchments looming. Neotel has more than 1,000 staff, which cynics would say almost outnumbers its customers. The company’s debt providers have apparently brought in independent management consultants to assess the situation. Neotel will consult staff in January and February, with retrenchments expected in April. Neotel says it is evaluating its business strategy, operational performance, efficiency and competitiveness with a view to achieving long-term sustainability. Staying in South Africa, the government pledged to build 18 information and communications technology centres in 2011 to take technology to the rural poor. The ZAR180 million scheme will provide broadband internet access and computing resources in underserviced areas to help raise the country’s appalling low broadband penetration rate of 4% to double digits. Bringing us full circle, we end back in the Democratic Republic of Congo (DRC), where Vodacom and its minority shareholder Congolese Wireless Network (CWN) have agreed to appoint investment bank NM Rothschild & Sons to explore options to settle their acrimonious dispute and keep their network viable.

And a quick look at what's brewing for 2011:

Bharti should make a big impact in the countries where it aquired the networks of Zain. Expect more price wars, more innovative offerings and a general slashing of any flabby bits in the operating expenses. In South Africa the mobile interconnection fees finally fell, but the Independent Communications Authority of SA (Icasa) didn’t really get its way against wily operators Vodacom and MTN. It will try again in 2011 with plans to cut call termination rates in March. Consumers are advised not to hold their breath.

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.”