Mobile banking in Africa: Meeting the market’s demands

The success of mobile financial services in Africa is well known throughout the industry: the proliferation of mobile phones has transformed attitudes across the continent towards banking. Speaking to some of the market’s key players, Developing Telecoms asked what it is that makes the services so compatible with the market.

According to Hannes Van Rensburg, CEO of Fundamo Africa, practicality is a key factor behind the success of mobile banking – far more people own a mobile phone than a bank account. Economies are typically cash-based, so bank accounts seem somewhat irrelevant, but in the face of currencies that are frequently devalued, physical transactions often require vast wads of notes, even for small sums.

While it is of course unwieldy to conduct deals in this manner, it is also potentially unsafe. Long distance deals require vast amounts of cash to be couriered between destinations, and this has the potential to attract unwanted attention. Mobile money transfer services can completely eliminate the inherent risk of transporting cash, and while this alone seems like a revelation compared to the alternative, this is far from the only factor behind their popularity in Africa.

Dare Okoudjou, CEO of MFS Africa, considers the success of mobile banking to arise, at least in part, from the lack of alternative financial services across the continent: “The vacuum around financial services can be tied to a lack of infrastructure. Banks are typically limited to capital cities, and branches are very scarce. Mobile was successful in Africa due to the lack of fixed-line infrastructure, and it’s the same with financial services – the supply was poor, and the solution was easy and convenient.”

While there are African countries that do have developed financial infrastructure, such as Morocco, Egypt and South Africa, vast swathes of the continent have none to speak of – Van Rensburg highlights the Democratic Republic of the Congo, an area almost the size of Western Europe, which has no ATMs. Electronic financial services that are taken for granted in the developed world, such as chip & pin, are typically not available; at best, the required machines are obsolete and unreliable.

Africa’s infrastructure, states Van Rensburg, cannot provide the reliability that people demand of financial services. He notes that there is an ever-decreasing, but nonetheless accepted degree of unreliability with communications technology; however, this is not the case with finance. Erratic electricity supplies, inadequately trained staff, and an absence of technical support are all factors which obstruct the spread of reliable infrastructure.

Mobile banking, however, has established its own infrastructure. Referred to informally as ‘the agent network’, it transforms normal shop owners into miniature bank branches. The agent network consists of informal retailers who augment their existing business by offering financial services, allowing the footprint of distribution to be much larger than in a classical financial model - such as a network of bank branches – by providing myriad points of presence where consumers can make monetary transactions.

Retail infrastructure is usually clearly defined in the developed world (shopping malls etc.), so from this perspective it is somewhat disconcerting that this infrastructure is far more loose and informal in developing countries, with markets typically acting as key retail centres in communities. Van Rensburg explains that trust is built up by branding to overcome this lack of definition – agents in the network are legitimised through their affiliation with a recognised company. The construction of a brand is critical to success for financial services, and requires are careful mix of agents, services, prices and promotion.

There are of course complications; according to Okoudjou, these can be broadly split into two categories – regulating the agents, and providing them with an incentive. The first is typically dealt with by banks and operators demanding that the agent submit an audit as a means of regulating their revenue.

The second is more problematic. As mobile money agents are usually everyday shopkeepers, it is more profitable for them simply to sell airtime, as networks will typically pay them a commission of 2% - 4% of the airtime value sold. Strong demand for airtime makes this an attractive prospect for shopkeepers.

Handing over cash in exchange for mobile ‘e-money’ – or ‘cashing in’ - is usually free, and so customers won’t accept a discrepancy between the values of the cash they hand over and the credit they receive. Therefore, operators can only pay the agent a commission of 1% or less, regardless of the overheads involved.

“This level of commission is not sustainable with mobile money agents as it makes the proposition too expensive for the end user”, says Okoudjou. “Because the balance of commission isn’t in favour of mobile money, operators have to think creatively to come up with incentives – typically, these include higher commission on cash-out, registration fees, and ongoing commission on revenue generated by users.”

However, it is likely that such incentives will become more commonplace as the way in which airtime is sold changes. Over 99% of mobile subscribers in Africa are prepaid, so selling airtime is big business. Initially, scratch cards were used, but most operators have now implemented an electronic top up service, whereby the user opens a mobile account – in the place of a bank account – to which airtime is credited directly by the dealer.

“This process is introducing users to the value and ease of electronic services”, says Okoudjou. “The mobile money ‘cash-in’ procedure is built largely on electronic transfers. This familiarity with electronic processes is key to building subscribers’ confidence in mobile financial services.”

Whereas previously bank accounts were considered unnecessary, they are now something akin to a perk of owning a mobile phone. Particularly in countries with rapid uptake of mobile banking, the mobile account is typically not the marketed product – rather, the services that are facilitated by the account, such as money transfer services, are seen as the more attractive prospect.

The ease of obtaining these services – and, by extension, an account – is the biggest revolution that mobile banking has introduced to the financial services market, according to Van Rensburg: “With the same rigour and regulatory compliance required to open an account in a bank branch, mobile banking allows people to open bank accounts on street corners with little complexity, less convoluted processes, and much lower costs.”

Therefore, the distribution method is perhaps the key advantage that makes mobile banking so suited to the African market, he adds. “It took banking around 100 years to bank a billion people. It is conceivable that mobile banking could bank a billion people in the next ten years. It is the ease with which we can bring people into the banking industry that makes mobile banking such an attractive service in Africa.”

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