Understanding Africa’s Booming Mobile Money Industry

The global mobile money industry is growing rapidly in terms of the number of transactions, user accounts and services deployed across multiple geographical regions. In 2019, the industry crossed several milestones with the number of registered mobile money accounts exceeding one billion globally and daily transaction volume nearing USD 2 billion. There are currently more than 290 mobile money services deployed across 95 countries, mainly in Africa, Asia and Latin America, according to the GSMA’s State of the Industry Report on Mobile Money.

The industry report reiterates Sub-Saharan Africa as the enduring epicentre of the booming mobile money industry with 469 million registered accounts in the region; almost half of the global total of 1.04 billion accounts. With over 50 million newly registered accounts in 2019, Sub-Saharan Africa is not showing signs of slowing down in mobile money adoption as the GSMA forecasts that the region will surpass the half-billion mark by the end of 2020.

The success in the adoption of mobile money in East Africa led by Kenya’s operator M-PESA significantly championed the campaign for mobile money growth across Africa as a mainstream technology for driving financial inclusion and providing access to the unbanked and informal sector. For context, as of 2010, East Africa accounted for 96.6% of Africa’s mobile money geographical spread led by M-Pesa. Fast forward to 2018, other subregions have grown in market share with East Africa maintaining about 58.5% of the market share, West Africa 31.6%, Central Africa 7.7% and Southern Africa 2.2%. In 2019, mobile money growth spreads further across the sub-regions, with East Africa adding 22 million newly registered accounts, 21 million in West Africa and six million in Central Africa.
Some of Africa’s largest economies have not seen overwhelming growth in mobile money adoption as prevalent in Kenya. This slow adoption is in part due to initial regulatory pushbacks in Egypt, Nigeria and South Africa that deter telecommunications operators, the primary drivers of mobile money – from undertaking financial and quasi-banking services. Ethiopia, Africa’s second most populated country, has a strictly regulated telecoms sector with less competition which has further hindered the spread of mobile money; amidst other unique market conditions such as low levels of consumer trust and financial literacy.

However, regulatory reforms are gradually opening these rigid markets as governments seek to meet financial inclusion targets. With a combined adult population of over 242 million, and with less than 40% of adults who have a bank account in Egypt, Ethiopia and Nigeria, the GSMA describes the continent’s top three most populated countries as sleeping giants with the potential to unlock over 110 million new mobile money accounts in the next five years.

Nigeria had initially allowed non-banking operators such as fintech companies to operate mobile money and agent network services, giving rise to several non-bank-led services. One of the most notable non-bank-led mobile money services in Nigeria is Paga, a digital payments company with an active agent network of over 24,411 outlets spread across Nigeria’s 36 states. Founded in 2009, the company has 14 million customers in Nigeria and has processed over 104 million transactions worth about USD 6.6 billion, according to a Techcrunch January article that quoted the company’s CEO.     In September 2018, Paga announced it had raised USD 10 million from investors led by the Global Innovation Fund to expand its business to other emerging markets starting with Mexico, Ethiopia and later the Philippines.

Foreign and local investors are actively investing in Nigeria’s digital payments and mobile money solutions that target the country’s unbanked population. In November 2019, PalmPay, a digital payment startup launched in Nigeria and raised USD 40 million in seed funding from Chinese investors led by Chinese mobile phone company Transsion. Also, OPay, a fintech startup founded by consumer internet company Opera with a focus on the Nigerian market, announced in November 2019 that it had raised USD 120 million from Chinese investors in Series B round to scale its payments product in Nigeria and expand to Ghana, Kenya and South Africa. The startup initially raised USD 50 million in June 2019. The Series B investors include Meituan-Dianping, GaoRong, Source Code Capital, Softbank Ventures Asia, BAI, Redpoint, IDG Capital, Sequoia China and GSR Ventures.

Beyond the booming fintech space that has dominated the mobile money market, Nigeria’s mobile network operators (MNOs), which were once excluded from operating Payment Service Banks, are now emerging as significant competitions to both bank-led and non-bank-led actors following new regulations by the Central Bank of Nigeria in October 2018 that allowed MNOs to roll out financial inclusion services targeting the unbanked. In August 2019, Nigeria’s largest MNO MTN with more than 60 million customers, launched its MoMo Agent mobile money service. Other telecoms operators in Nigeria have followed suit with different mobile money services and agent networks.

Although the opportunities for mobile money and other digital payments services are massive in Nigeria with about 95% of all transactions still cash-based and over 60% of the population still unbanked, the Nigerian market is highly competitive and regulations are always evolving. Investors and new market entrants would need an in-depth understanding of the nuances of the value chain, regulatory environment and local partnerships across the industry and public sector. The market requires patience with long-term strategic objectives and the flexibility to adapt to rapidly changing regulatory and business dynamics. Even incumbents are still experimenting with new products and niches as the market is quickly evolving in unique ways that are peculiar to conditions prevalent in Nigeria.
According to the GMSA, aside from Kenya, 12 other African countries have seen massive adoption of mobile money with over a third of adults becoming active mobile money users. These countries are Benin, Botswana, Burkina Faso, Côte d’Ivoire, Gabon, Ghana, Kenya, Lesotho, Rwanda, Swaziland, Tanzania, Uganda and Zimbabwe.

Mobile money has facilitated payments and financial services on the continent in unique ways that improve overall economic benefits and increase GDP. Perhaps most importantly, mobile money is helping formalize Africa’s largely informal sector with access to financial services such as insurance, credit rating, savings; as well as unlock tax opportunities in areas where it would otherwise be near-impossible for governments to generate tax revenue. The informal sector contributes approximately 86% of all employment in Africa, according to the International Labour Organization, and about 25%-65% of GDP with Namibia, Mauritius, South Africa at the low-end (under 25%) and Benin, Tanzania and Nigeria at the high end.

One of the innovative application use cases of mobile money in Africa is in Ghana, where about 85% of Ghanaian investors bought shares of MTN Ghana’s Initial Public Offer using MTN’s mobile money service. Common non-cash-in-cash-out application use cases that are widespread across the continent include P2P transactions and merchant payments for consumer products and services rendered. In Ghana, Kenya and Zambia, about 40% of adults receiving agricultural payments into an account, accepted these payments via mostly mobile money accounts.

Mobile money has become even more important on the continent with the need to curb the spread of COVID-19 pandemic. Governments and health advisors are dissuading people from involving in cash-based transactions as a means to limit human contact and deescalate the spread of the deadly virus. Some governments are implementing measures as intentional policy levers to move a higher percentage of transactions to mobile money and other digital payment services which experts expect would drive further adoption of mobile money on the continent beyond the COVID-19 era.

For instance, as a response to curbing the pandemic, Ghana’s monetary regulator lowered the Know Your Customer (KYC) requirements for the use of mobile money, enabling citizens to use existing mobile phone registrations to open accounts with the major digital payment providers. Safaricom, the operator of M-PESA, waived transaction fees in its East African market to encourage adoption of digital payment as a commitment to reduce possible transmission of COVID-19 that may be associated with the physical exchange of cash.

Further prospects in Africa’s mobile money industry include geographical expansions and technological interoperability to allow seamless cross-border and cross-platform payments across the regional and international divide. This next wave of development has already begun in the matured markets in East Africa and elsewhere led by the established operators. In April 2018, Safaricom, Paypal and TransferTo collaborated to enable M-PESA users in Kenya to transfer money between Paypal and M-PESA accounts. Safaricom also cooperated with Western Union to allow M-PESA users to transfer money and receive payment from 200 countries. Kenya’s Family Bank Ltd and fintech SimbaPay also partnered to enable M-PESA customers in Kenya to send money to WeChat users in China.
On the regional platform interoperability front, two of Africa’s largest telecoms operators MTN and Orange launched a joint venture called Mowali to enable interoperable payments across the continents. Similar collaborations exist, and a lot are emerging as providers seek to solve market fragmentation challenges, expand to new markets or consolidate existing user-bases.

As the mobile money industry is maturing across the continents, common and unique challenges become more conspicuous, giving established operators the leverage to apply compounding learning experiences to new markets. However, most of the problematic challenges prevalent in Africa appear to be both drivers of mobile money adoption as well as hurdles.

For instance, the lack of universal and accessible government-issued identification, which is predominant in many African countries, posts difficulties for formal banking services such as creditworthiness rating while also creating an advantage for mobile money operators to leverage SIM card registration information and thrive.

Perhaps, the biggest threat to mobile money in Africa is regulatory uncertainty and macroeconomic challenges such as inflation, currency devaluation and unemployment which reduces consumer spending and dwarfs transaction volumes. Mobile money is a business of high volumes due to meagre commissions and highly volatile customer sensitivity to charges. Operators are rapidly increasing market share, and expanding into new markets to improve margins, overcome the risk of macro-economic challenges in solo markets and remain sustainable.

Joseph U Ibeh is a senior analyst at Space in Africa

Source: www.chinainvestiment.com.cn.