Mobile financial services are a hot topic - and nowhere is this more apparent than Africa, a continent with millions of unbanked mobile phone users. However, massive growth potential could may not be enough for investors if the cost of implementation is too high. DT editor James Barton spoke to Peter de Villiers, co-founder of Clickatell, to find out how to stop expenses from escalating.
DT: What are the factors that make mobile finance a key growth area?
PDV: There are over 5 billion people with mobile phones, and it’s estimated that 2.5 billion of them are unbanked. When you looked at what banks in emerging markets were looking to do going forwards, it was clear that brick and mortar banking was not the way to expand in these markets – it’s not a viable option, let alone the way that consumers want to be served.
There are live 117 mobile money deployments globally at the moment with another 88 planned in the next 12 to 18 months. Of those, only two have been very successful – MPESA in Kenya and Smart in the Philippines – but there are projects that are starting to make inroads, such as Easypaisa in Pakistan. We’ve looked at how mobile payments could take off in these markets, and it’s clear that there is a pressing need for infrastructure, interconnectivity and lower costs.
DT: Why is cost such an issue?
PDV: In this global economic climate, it’s not only countries and governments that are lacking capital – banks across the world have suffered a blow, and don’t have massive amounts of money to spend on CAPEX. Offering a low-cost managed technology set is a great opportunity; it allows banks to focus on customer acquisition.
A key way of keeping costs down is sharing infrastructure across multiple operators. It’s no secret that mobile payments are taking hold, but it will be a major stumbling block if infrastructure costs too much to deploy.
The African continent is the hotbed for mobile payments at the moment, so we’re setting up infrastructure in countries such as Nigeria that allows banks to connect to us. Nigeria is a particularly attractive market due to the regulatory reform happening there regarding mobile banking, as well as the size of the market.
DT: Have regulatory hurdles been an impediment to the spread of mobile banking?
PDV: It’s not a direct-to-consumer service so the regulatory environment is contextual, but it dictates how quickly banks are able to offer these solutions. Nigeria’s regulation has become more stable, with the Central Bank helping to formalise and manage processes. Mobile money will not happen without a bank involved.
DT: Is this because of distribution? Banks in emerging markets often have a network of agents for providing services...
PDV: Banks choose how they want to go to market; some have branches, but more than 80% of them use the agent model, which presents a lot of challenges. There’s a big debate about agent networks and distribution methods – we provide banks with an SMS aggregation solution for alerts and notifications, a USSD which allows handset-agnostic banking over a secure channel, and integration into paying and billing systems.
For the network to be sustainable, agents must be shared among banks – ideally, banks should be able to move away from brick and mortar branches and offer services to customers in a secure environment over any mobile phone.
DT: If agents were able to offer services from many different banks, would this undermine the efforts that banks make to distinguish themselves from their competition?
PDV: Banks will be better able to train and indeed pay agents if they are shared, but it does somewhat undermine the brand. It’s more likely that banks will begin sharing agents in more remote, difficult to reach areas, whereas in cities and other population centres they’ll be more likely to have their own agents. In markets where capital is hard to come by, the cost of doing business is high – ultimately, to look at the success of the market, a shared agent model may be more sustainable.
In this early stage of market development, most banks will attempt to establish their own agent network but there will likely be more consolidation as the market matures. In the long term there’s not enough money to be made to keep the agents successful, and the infrastructure costs are not sustainable – you’re basically asking people on the street to trust another person with their money, and if there’s a lapse anywhere then the whole experience could start to unravel.
DT: What can be done to drive growth in this sector if capital is hard to obtain?
PDV: Banks need to be able to afford access to technologies instead of spending their money on infrastructure – implementation is certainly being accelerated by the affordability of equipment and expertise. Regulatory stability is increasing confidence in the investment community. The pain points in the market are high in terms of the consumer’s ability to conduct transactions – the alternative is walking miles to arrange a transfer or waiting hours to check a balance, so people will be drawn to these services.
Growth in this area will be significant – the things that need to be kept in check are fragmentation and bad consumer experiences. Having regulation relevant to mobile finance will help to build the consumer’s confidence.
DT: Africa is something of a hotbed for mobile financial services - is this due to specific issues in Africa, or could MFS be a viable option in other emerging markets?
PDV: Emerging markets in general are viable markets. Societies are predominantly cash-based, and people – in particular the growing middle classes – are becoming more aspirational. They want to transact with brands, their disposable income is increasing – so while Africa is the hotbed due to the right pain points and certain processes of events, almost every other emerging market is now accelerating implementations in the field.
Mobile money will be very different in developing countries compared to developed countries. People have this concept that if you don’t work and you live in rural Africa, waiting five hours to use a bank is OK as you’ve got nothing else to do. This couldn’t be further from the truth: people need to devote their time to collecting water, planting food etc. Mobile banking has been successful in Africa as it addresses these pain points, reducing the amount of time needed for transactions in a cash environment.
DT: Do you think that these same pain points exist in other emerging markets?
PDV: Definitely – Brazil, Mexico, India, Pakistan, Eastern Europe; these markets all have very similar pain points, but the way these technologies take hold will be different in these markets depending on whether it’s a microfinance-led community, or an operator brand.
People transact in these markets with cash – it’s not going to just be the mobile operator or the bank, you have to consider the people who are allowing money to change hands today, and how they can move forward with these new technologies.