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

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    How to Win in an Era of Mobile Money

    The question for the next three to five years isn’t whether there will be an opportunity for banks and MNOs in mobile financial services; rather, the question is how to capture it. To succeed, companies must make ongoing investments in three areas: infrastructure, business capabilities, and governance.


    The transaction system for a mobile financial service must have several characteristics. It must be low cost. It must be modular so that future changes can be accommodated. It must be compliant with minimal financial regulations (reducing the likelihood that future overhauls will be required), and it must be interoperable with other transaction-processing systems and payment platforms. Today, neither the typical MNO billing system nor the typical core banking system meets all of these requirements—the MNO billing systems are too inflexible, and the banking systems are too expensive.

    The second essential infrastructure component is secure communications. No consumer will use a system that might leave him vulnerable to losses or fraud.

    Among communications protocols, SMS is the least secure and USSD is somewhat more secure. Encrypted data and STK are the most secure. However, encrypted data isn’t a realistic possibility given that most of the phones in use in Africa are mid-price feature phones, not high-end smartphones. The STK protocol has its own challenges; it might require programming a menu on a SIM card and the recall and reissuance of SIMs for all users. But the May 2014 introduction by Kenya’s Equity Bank of a SIM attachment—a 0.1-millimeter adhesive film that sits on top of existing SIM cards, making it possible for the bank’s customers to use its mobile services without having to replace the complete SIM card—demonstrates that infrastructure challenges can be overcome. At a time when regulators and new mobile-service users are likely to want additional assurance, Equity Bank’s workaround should inspire other USSD providers to be creative about adding security.

    The third essential infrastructure component is a network of agents. These are the physical places where customers can sign up for a mobile financial service and put cash into their accounts or take it out. Without these agents, a mobile financial service has no more chance of being heavily used than does a highway with no on-ramps.

    The most obvious starting point for banks and MNOs is to have their existing branches or stores double as mobile-money agents. Generally speaking, however, these outlets exist only in Africa’s larger cities, so independent agents, perhaps mobile-phone-store operators, will be needed to bring mobile bank offerings to rural areas. Even this is not a straightforward solution, however, because most mobile-phone-store operators in sub-Saharan Africa don’t keep a lot of cash on hand. Fundamentally, the challenge is to develop a sufficient number of local liquidity points—neither too few to provide coverage nor too many for the people running them to reach profitable scale. The tactical challenges include preventing fraud, equipping the agents with the necessary tools, and establishing some “super agents” that can provide liquidity to these more ubiquitous local agents. To succeed with this, companies will have to build out the network locally and institute a well-thought-out incentive structure. 

    USSD (short for unstructured supplementary service data) is a protocol on mobile networks that allows real-time connection and information transmission using short codes. It can also present a text-based menu that a user can interact with.
    STK (SIM application tool kit) is a set of commands that allow for embedding on the SIM card applications that can build an interactive exchange between a menu-driven user interface and a network application.
    Business Capabilities

    To develop successful mobile financial services, banks and MNOs will need six capabilities.

    Strategic Agility. Mobile financial services are new, and companies will need to make adjustments to their operating models and try various tactics to get the results they want. Among the areas in which strategic agility will be most important is the planning and management of the agent network, especially with respect to making individual-agent economics work. For example, one mobile-money operator in West Africa has set up a revenue-sharing model designed to be very generous initially, in order to give agents an incentive to sign up as many customers as possible. Once the service reaches critical mass, the operator plans to normalize those contractual arrangements.

    Consumer Insights. This speaks to a bank’s or MNO’s ability to identify and develop the offerings that would matter most to consumers. For instance, in some parts of Africa, the use case that will drive adoption may be long-distance domestic remittances; in other markets, it may be added airtime or even church donations. Consumer insight means knowing which additional services to roll out and when.

    Marketing and Customer Engagement. To be successful with mobile money in Africa, banks and MNOs need to get inside the heads of customers. Like consumers everywhere, Africans respond best—and are most likely to make word-of-mouth recommendations—when a product or service provides an easy-to-use, intuitive experience. In the case of mobile financial services, a certain amount of education is also necessary to ensure that customers trust the product and have the financial literacy to use it. More-conventional marketing tactics (such as offering free airtime when using a mobile service to add minutes) can coexist with the more-intrinsic offers derived from customer insights (like offering vouchers for customers’ favorite shops), helping to drive uptake.

    Start-Up Mentality. The need for quick decision-making and course corrections will be one of the biggest challenges for many banks and MNOs, which tend to engage in top-down decision making and are not known for introducing new services quickly. Those characteristics mean it may be beneficial for the teams working on mobile financial services to be organizationally separate. Competition for banks and MNOs will come partly from venture-funded companies that already have a start-up mentality and speed to market as goals.

    Simplicity-First Approach. Every phase of building a mobile financial service—from getting it off the ground, to adding and tweaking features once the offering is in the market, to adjusting to regulatory requirements—will bring additional complexity. This is natural and to some extent necessary.

    However, complexity doesn’t always add value. Non-value-adding complexity (complicatedness) could come in many forms: in customer agreements that keep getting longer (and harder to understand), in approval and administrative processes that take too long, in data that needs to be entered multiple times or stored in multiple places, in an increase in the number of organization layers or reporting lines, and in key performance indicators that conflict with one another. Similarly, the economics of a mobile offering are potentially threatened when legacy systems or comprehensive core banking systems are used. Instead of wasting money and slowing development with interface complexities and unnecessary functionality, a separate and modular IT-architecture development should be used. Complicatedness must be minimized if the customer experience is to be simple and appealing and if the offering is to remain a low-cost service.

    Regulatory and Risk Awareness. Banks typically put every prospective customer through the same rigorous identification process. With documentation hard to come by in Africa—many Africans, for instance, receive their salaries in cash—it makes sense for mobile financial services to take a more staggered approach to identifying customers. For example, they could accept low-transaction customers on the basis of almost any form of ID whereas other customers who meet a certain risk profile (those requesting a loan or doing a transaction of a level high enough to raise suspicions of money laundering) would be subject to full know-your-customer identity checks.

    As more financial services are added to the platform, mobile-money operators will need to be able to use the information they have on customers’ mobile-money activities and from other sources to monitor and assess individual users’ creditworthiness. This ability to gauge risk is especially important in sub-Saharan Africa’s cash-driven economies because there is typically no easy, convenient way to gauge a customer’s ability to pay. At the back end of the credit business, efficient collection procedures—compliant with consumer protection and other regulatory legislation—are needed to recapture loans that are past due.

    Credit risk is not the only type of risk that must be managed. Operational risk (which is connected to the stability of the service’s IT architecture and the scalability of its transaction processes), when not properly managed, can lead to customer-facing system downtime, payment delays, and failure to deliver on service promises (such as a 24-hour turnaround time on complaints).


    Mobile financial services should not be a go-it-alone proposition, in our opinion. Neither banks nor MNOs on their own have everything that’s needed to succeed. The banks have the back-office systems and the understanding of financial-industry regulations; the MNOs have the access to consumers and the preexisting agent networks. When it comes to mobile financial services, banks and MNOs are complementary, each having something the other needs. In many cases, it will make sense for them to team up. To date, however, there have been very few partnerships of this sort.

    Such partnerships, when they do come together, will require strong governance. The first area of governance involves overseeing the overall ecosystem. This means choosing the right partners by assessing capabilities and determining the best fit in terms of strategy, goals, and objectives. It means defining the legal and commercial nature of the partnership and setting up the partnership so that all parties have something to gain.

    The second area of governance involves overseeing the partnership. Good governance of an individual partnership starts with a clear separation of responsibilities in order to minimize inefficiencies. It also involves making sure that long-term customer needs are prioritized over the near-term profit considerations of either party. In addition, the partnership should be arranged in such a way that both parties regard it as a long-term commitment. In practice, this is hard to enforce in a contract, so the careful selection of a partner in the first place is the most important element.