Mobile money: Africa’s best contribution to innovation so far?

August 14, 2013 10:53 pm0 comments by:

The evolution of mobile money in Africa is a clear example of a business in which the continent is leading and not lagging. Besides the classical money transfer services already present since several years, many providers are now expanding their services by entering the banking industry and opening up to interesting scenarios so far unexplored by the so called “developed economies”. There are of course aspects to be addressed in order to further enhance the potential of this business, but the current mobile penetration together with several other aspects seem to foresee plenty of opportunities ahead.

When it was first launched several years ago, mobile money was just a transfer tool for microfinance institutions to help borrowers receive and repay loans in a more convenient manner. Nowadays instead, it is a business that can represent an incredible opportunity to connect and merge people participating in the formal and informal economy: according toGSMA’s Mobile Economy 2013 report, “more than 2.5 billion adults do not have access to a formal bank account and are not able to access basic financial services in order to save, borrow or transact”.

Most importantly, it represents one of the most interesting innovations contributed by the African continent, because it is in Kenya that it all started in 2007 through the launch of the first platform: M-Pesa. Since then, the mobile money service provider controlled by Safaricom has been rapidly expanding, and is currently an important pillar for Kenyan people’s daily expenses. Its operations are now consolidated in other African countries such as Tanzania and South Africa, while several other mobile operators have now joined the business by tapping other major markets such as Ghana and Nigeria. The further consolidation of this business in several realities, however, does not make news any longer. What nowadays becomes more interesting instead, is the expansion of services provided, which opens up a discussion to many interesting considerations.

Cost cutting and liquidity increase are the first aspects that can be highlighted: besides being able to pay electricity bills and school fees, now customers in Ghana can also buy life insurances through MTN. Moreover, it is latest news that M-Pesa customers can pay for retail goods for a commission of 1.5% per transaction charged exclusively to the seller: a competitive rate compared to other less accessible and more expensive instruments such as credit cards, currently charging between 3% to 5% commission (BDlive, August 2013). Another aspect that highlights the impact that this instrument can have on financial inclusiveness is related to borrowing: Safaricom is infact entering the kenyan savings and loans business through a service called M-Shwari in collaboration with Central Bank of Africa, achieving very promising results so far.

The GSMA’s report also warns about potential pitfalls that should be considered in assessing mobile money services: operational challenges, lack of regulations and a need for further learning seem to be elements that could limit the diffusion of mobile money. Nevertheless, lower cost transactions, higher liquidity and financial inclusiveness together with the increasing levels of mobile penetrations in the continent, represent  an interesting opportunity to explore. Some cases have also shown how this system can be considered safer than banks: in the 2008 post-election violence infact, Kenyans regarded M-Pesa as a safer place to store their savings than financial institutions, heavily compromised in ethnical disputes at the time.


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