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.”
The Colour of Innovation is Orange
How Orange is winning in West and Central Africa
Managing one's business dealings across a massive geographical area like Africa from a single, regional head office is no mean feat. It takes solid insight into each country's cultural nuances, a good understanding of how mature that country's market forces are and someone heavily focused on the legislative landscape. But, as different as some of the countries on the African continent are (think South Africa and Nigeria), certain constants exist. A case in point, says Claire Paponneau, Director of West and Central African Operations at Orange, is the booming demand for mobile communications and the strong appetite for data services, which make product development a far more predictable process for large, multinational operators. "That said," she continues, "each country has different economic and regulatory environments. "Our aim in all of the African markets we do business in is to get the coverage that is expected by the population and the government, while at the same time remaining profitable." It's a goal that sounds far easier to attain than what it is in reality. All about local relevance Orange's presence in Africa is not exactly something that's recent. And Paponneau says that her company hasn't seen Africa as a territory to conquer, like so many of its peers. "Orange has been active in a number of countries on the African continent since the eighties and nineties. And in every case, it's been a distinct opportunity that's lured us there as opposed to a need to conquer the continent," she explains. Paponneau says Orange's past policy preferred a 'greenfields' environment where it could shape and mould the goto- market strategy and infrastructure before taking any steps into the market. Today, however, some of Orange's most successful ventures have been into markets where they've taken over or merged with existing players. "There's also a misconception around Orange being more successful and comfortable with operations in Frenchspeaking countries, because of the company's clearly French roots," she adds. "The reality is that we have successful operations regardless of the language spoken within the markets we operate. This is because we go to great lengths to understand the market and are committed to the long-term." Strong evidence of this is provided by its investments in entities such as its Africa technology centre, which staffed by a research and product development team from the Ivory Coast and a manager from Senegal. "This centre has worked on and developed a multitude of services and solutions that have been successful on the African continent," Paponneau says. A great example of such a service is Facebook for mobile, which Orange developed and launched in multiple African countries six months ago. "In six short months, the service has already garnered one million customers and is continuing that growth. It's important for us that these services weren't exported from other parts of the world. "They were designed in Africa with local relevance in mind," she says. says that although Orange has a name that's synonymous with mobile telephony throughout the world, it has a convergence strategy at heart that sees it committed to driving new services on the voice and data fronts. Paponneau says Orange is driving voice, data and new services such as mobile banking for the African markets
The growth of broadband
Still speaking to the topic of local relevance, Paponneausays that although Orange has a name that's synonymous with mobile telephony throughout the world, it has a convergence strategy at heart that sees it committed to driving new services on the voice and data fronts. Paponneau says Orange is driving voice, data and new services such as mobile banking for the African markets it operates in. "We see broadband as a key lever for growth in the next years," she adds, "and that's the reason we launch a 3G network wherever possible." "And where we can't have a 3G service, for whatever reason, we do our best to roll out a WiMAX service to ensure that the high-value business segment is addressed with speedy, reliable communications infrastructure." Less visible but nonetheless critical, Paponneau believes, is Orange's involvement with the submarine cables providing backhaul to Africa; and the numerous terrestrial cable projects focused on assisting countries without direct access to the submarine cables to still be provided with cheap international capacity. "We feel it's key for us to assist in developing this connectivity – terrestrial or submarine – since broadband is a key driver and enabler for our customers," she says.
Despite its commitment to providing locally relevant services, driving broadband penetration and the fact that it's the top operator in a number of the countries it operates in (Senegal, Mali, Ivory Coast and Madagascar, to name a few), Paponneau says that Africa is a competitive region. "It's difficult to say which countries have the most competitive landscape, since there are some factors that make markets with two to three players competitive and other factors that make markets with upwards of five players difficult to operate in," she says. "If I had to choose, however, I'd say that markets saturated with upwards of five players aren't a good landscape for competition, since there's just insufficient room for all of the players to be profitable while at the same time developing a quality of service that's of a high standard. "The risk is always there that a price war will develop and as we've seen in markets such as Kenya, where a price war happens there are lower costs but also a lower quality of service." "In the beginning," she says, "there's benefit for the consumer and it might seem as if the price war is a good thing. All it does is drive down innovation, which is counter intuitive to what an operator should be doing in any market." On the topic of a 'price floor', which has been suggested for the Kenyan market, Paponneau says it's an interesting suggestion, but not one she feels is achievable. "The price should be linked to the cost and when costs reduce, reductions in price should follow," she says. "It's a good suggestion and we're ready to contribute, but it's something that needs to be carefully worked through. "We already have interconnect costs that have been decided and defined by a regulatory body. If the retail market is also decided upon by a regulator, we will find ourselves in a situation that's not very stable for very long," she says. Paponneau says it's sad when you're part of a market where you can't build value. "For me it's not about where competition exists, but rather where we're stronger for the existence of competition. "Those markets, in my opinion, are the ones where we're able to and encouraged to differentiate on services innovation – like bringing new devices to market before our peers, and launching innovative broadband offerings and services that enrich our customers' lives," she says.
The customer is king
An area that's considered innovative to some and just plain smart business practice to others is the act ofoutsourcing certain elements of the business to effect reductions in operating expenditure. For Orange, Paponneau says this takes on the form of infrastructure sharing, site sharing and outsourcing non-core activities, as this can reduce costs while leaving quality of service unaffected. "We won't do more than that, however," she says, "as we want to remain masters of the customer relationship and quality of service. "Instead we've embarked on a project to outsource internally, forming a single entity that is dedicated to developing and managing all of the value added services platforms across our African operations. "This gives us the dual benefits of being able to reduce the costs of developing and managing value added services platforms in-country, while still being able to provide a guaranteed quality of service and local relevance," she says.
Innovation the way forward
While Paponneau admits that it's difficult to talk about what Orange has in the pipeline when it comes to upcoming services and differentiation, she says it's clear that innovative services are the best way to add value to customers' lives. "We will continue looking at services that are heavily linked to content, such as the 'football fan club' we've launched in more than 10 countries to date." Paponneau says that the service provides users with access to a number of news articles related to African and European football (since a large number of professional African players play the majority of their football in Europe), information on upcoming games, as well as a chat feature for community members. So far, Paponneau says, the service has been very successful and it provides a good blueprint for other contentdriven services. "Orange feels that even though technical innovation is important, innovation that centres on services customers can derive real value from is just as important," she says. And as such, it won't be surprising to see the company centring on services that reside above cost-effective, solid data services – as opposed to focusing on the data services themselves, as so many other telcos do today.
For the purposes of this article, West and Central Africa refers to Nigeria, Côte d'Ivoire and Cameroon. West and Central Africa is one of the richest regions in sub-Saharan Africa, with most of the countries being oil, mining and agricultural exporters.
• Nigeria, Côte d'Ivoire, and Cameroon are oil exporters and home to dozens of mining companies.
• Nigeria is the third largest African economy in terms of GDP after South Africa and Egypt.
The three countries had GDP per capita (PPP) of more than $1,500 in 2010, higher than the average of $1,000 in sub-Saharan Africa. Moreover, all three countries have outstanding literacy rates, more than 60 percent in 2010. This, coupled with high GDP per capita, is an indication that higher end-services, other than voice, can easily be adopted by the population. That said, these countries still face high levels of corruption and regulatory challenges that hamper market growth in terms of telecommunications services. Unlike Cameroon, Côte d'Ivoire and Nigeria are connected to three undersea cables: Main One, SAT-3 and Glo-1. These countries also expect the landings of other undersea cables such as the West Africa Cable System (WACS) and Africa Coast to Europe (ACE) in 2011 and 2012, respectively. The landings of these undersea cables have started to have a positive impact on the telecoms sector, with the reduction of wholesale bandwidth costs. This situation has led to the introduction of advanced applications such as unified communications and IPTV. Moreover, the landings of these cables have triggered the deployments of terrestrial fibre-optic backbones by mobile operators in Nigeria and Côte d'Ivoire. For example, MTN Nigeria and Globacom have rolled out nationwide fibre-optic cable backbone in Nigeria. In 2009, there were approximately 92.6 million mobile subscribers in the three countries, representing a mobile penetration rate of 40 percent. This indicates that there are still growth opportunities in the region, especially in rural areas. MTN and Globacom remain the largest mobile operators in the MTN - 44.4% Globacom - 18.9% OTHERS - 21.1% ZAIN - 15.6% Mobile Penetration Rate (%) 0.0 5,000.0 HIGH 0.5 LOW GDP Per Capita ($) Cote d'Ivoire Cameroon Nigeria three countries, with 44.4 percent and 18.9 percent market share, respectively. However, with the acquisition of Zain by Bharti Airtel, the competitive landscape is expected to change in Nigeria. Frost & Sullivan expects that Airtel is likely to increase its market share in Nigeria in the next five years, thanks to the implementation of its Indian model. This model of Airtel's has started to bear fruit in Kenya where the company has managed to chip away at its competitors' market share. Moreover, CDMA operators have been losing market share to GSM operators in Nigeria. This is mainly due to the lack of economies of scale. In response to this downward trend, CDMA operators should focus on mobile broadband services and complement their product offerings with GSM services. The mobile market generated US$8.6 billion and is expected to reach US$12.6 billion, growing at a CAGR of 5.6 percent from 2009 to 2016. The healthy growth rates can be attributed to an increase in mobile data and subscriber acquisition revenues as mobile operators initiate several new data tariff plans to boost their overall revenues.
Regulatory and infrastructure overview
The level of telecoms deregulation varies among the three countries, with Nigeria being the most liberalised. Other factors include:
• Nigeria has introduced a unified licensing regime.
• No monopoly on intercity fibre-optic deployments is present. • Nigeria is on the threshold of implementing mobile number portability.
• Unlike Cameroon, mobile operators are allowed to deploy intercity fibre-optic backbone in Côte d'Ivoire and Nigeria.
• In Cameroon, mobile operators are only allowed to roll out metro fibre-optic backbone. • Only the incumbent Cameroon Telecommunications (Camtel) is allowed to build nationwide fibre-optic backbone.
However, in Cameroon, the regulator has drafted a new ICT bill that will put an end to this situation. This bill is expected to come into force before the end of 2011. Only the Nigerian Communications Commission (NCC) has a clear policy on mobile number portability (MNP) in the region. The NCC is expected to implement MNP before the end of 2011. This implementation is likely to boost competition in Nigeria's telecoms sector and subsequently mobile operators are expected to provide enhanced services to their customers. Similar to other sub-Saharan African countries, there remain little or no competition laws and this lack of regulations has led to anti-competitive behaviour among the telecoms operators. Currently, competition-related issues are handled by telecoms regulators. There are interconnection regulations in these countries. NCC has recently introduced asymmetric interconnection rates, while regulators enforce symmetric interconnect rates in Cameroon and Côte d'Ivoire. Small market participants and new entrants are expected to benefit from this new interconnection regime in Nigeria. Mobile operators have deployed nationwide 2G/2.5G networks in these countries, whereas 3G/3.5G and WiMAx networks are still limited to major urban cities.
West and Central African market development and trends
To mitigate decline in revenues from voice revenues, mobile operators have started to provide mobile money services to consumers in Côte d'Ivoire and Cameroon. These offerings are expected to help mobile retain customers and sustain profit margins. This is likely to remain the trend in the next five years in these countries as Nigeria's Central Bank has issued licences for mobile money services to mobile operators. Another key trend is the moving of mobile operators in the broadband space in these countries. Unlike in other sub-Saharan African countries, mobile operators in these 3 countries have started to play aggressively in the broadband market. To this effect, these mobile operators have acquired ISPs and built data centres to cater to the lucrative corporate customers. Moreover, mobile operators have been outsourcing the management and maintenance of their networks to third parties. This is mainly observed in Côte d'Ivoire and Nigeria, where mobile incumbents closed outsourcing deals with vendors such as Nokia Siemens Networks and Helios Towers Africa Limited. Due to the lack of xDSL infrastructure and other alternatives, 3G and 3.5G networks are expected to become primary access technology for the Internet. Mobile operators are expected to deploy 3G and 3.5G networks in Cameroon and Côte d'Ivoire by 2012, due to high demand for mobile broadband services.