Africa Blazes a Trail in Mobile Money

Africa Blazes a Trail in Mobile Money

          
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Africa Blazes a Trail in Mobile Money

Time for Banks and Mobile Operators to Devise Strategies
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    People in Senegal, Mali, Ivory Coast, and Madagascar can use a service called Orange Money to send and receive money through their mobile phones. Likewise, mobile phones can be used to pay insurance premiums in Ghana and Nigeria, to prepay for electricity in Rwanda, and to undertake debit card transactions in Zambia and South Africa. And practically everybody in Kenya who owns a mobile phone has heard of m-pesa, a mobile-phone-based money-transfer service that has thousands of agents around the country and is doing for people in Nairobi and the Kenyan countryside what a traditional bank’s ATMs do for people in the developed world.

    All of this activity might suggest that mobile financial services, which are embryonic in most parts of the world, have become a mature market on the African continent, particularly in sub-Saharan Africa. That’s not quite true. Although there has been a surge of mobile-money use in sub-Saharan Africa—a surge that has generated a lot of interest and prompted us to write this report—even in this region, mobile-money services are really just getting started.

    Further, as is the case with all high-potential new markets, too many vendors are competing for what is still a small pie; almost certainly, many of these vendors will not survive. (For an overview of the two main types of mobile financial services, see the sidebar “Mobile Bank Accounts Versus Mobile Wallets.”)

    MOBILE BANK ACCOUNTS VERSUS MOBILE WALLETS

    People often talk about mobile financial services as a uniform offering. In fact, there are typically two offerings that get lumped into the category of mobile financial services: mobile bank accounts and mobile-money solutions (also known as mobile wallets).

    Mobile bank accounts are subject to national banking regulations, meaning, among other things, that there is deposit insurance and that the provider must be able to verify the identity of its customers (through the know-your-customer regulations that are increasingly relied on worldwide to prevent fraud, money laundering, and terrorist financing). Mobile bank accounts are designed to tie into banks’ back-office systems, and the technology supporting them is complex.

    Mobile-wallet solutions are simple transaction systems that are usually based on mobile billing systems—the same systems that allow mobile users to add airtime or increase their data allowance. This less complex technical solution is not subject to national banking regulations, is often not interoperable (in terms of money transfers between different MNOs), and does not include deposit insurance. In addition, owing to the high amount of prepaid mobile-phone use in sub-Saharan Africa, MNOs usually don’t know who their customers are.

    As mobile financial services become more deeply embedded in the lives of sub-Saharan Africans, it’s likely that regulators will start paying closer attention. In fact, that process has already begun. Consequently, it probably makes sense, over the long run, to build a system that has the flexibility to comply with banking regulations.

    But although the exact shape of the market remains to be determined, African banks and mobile-network operators (MNOs) cannot afford to ignore mobile financial services.

    In Africa, mobile financial services won’t primarily be an add-on used by an already “banked” population; rather, for most Africans, taking the mobile route will be their first experience with formal financial services. Indeed, for the many people who are “unbanked” in sub-Saharan Africa or are using only informal financial services, a mobile financial service may be their main means of accessing formal banking services for years to come.

    A bank or MNO that isn’t active in the mobile-financial-service market runs the risk of becoming less and less relevant and of failing to capture the long-term value that would come from business model innovation. (For a perspective on the importance of this area, see “Driving Growth with Business Model Innovation,” BCG article, October 2014.)

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