Africa’s mobile money sector has taken a chunk of the financial services market by keeping underbanked and unbanked citizens within reach of payments and income. As a result, African banks are now starting to offer their own versions of mobile money services in order to unlock new value for their customers and retain market share.
While the mobile money sector in South Africa is not a large competitor to the traditional financial segment, the same is not true elsewhere in Africa. In Kenya, for example, the mobile money sector is estimated to be worth $60-billion (R1.03-trillion). As such, Kenyan banks are now competing with telcos.
The same situation is being seen in other African countries, including Tanzania, Mozambique, Lesotho, Ghana and Egypt. Banks are joining the mobile services sector in order to retain customers and converge their offerings. Some banks have started to build their own mobile money apps, while others are building on the back of existing platforms, like M-Pesa or EcoCash.
Change has been coming for banks
This shift by African banks is not sudden nor recent. Some banks began their transition into the mobile money sector before the Covid-19 pandemic. However, this global crisis inevitably sped up the implementation of digital services and non-cash payments to banks.
A market report conducted by Backbase revealed that 49% of African banks assessed had increased their rate of adoption of mobile money services amid the pandemic. However, some banks had already begun their transition prior to 2020, due to the increased competition posed by fintech companies.
Reasons to compete with fintechs and telcos
Banks are looking for ways to improve convenience and cost-effectiveness for customers. Mobile money is a popular solution in Africa due to the wide coverage of mobile networks and the affordability of mobile sim cards.
Users simply make and receive payments through their phones, so the only real cost incurred is the value of mobile data used. There are no monthly fees or additional charges to have a mobile money wallet.
Most banks have mobile apps that allow customers to make transactions through their phones, but these still require a bank account and monthly charges. As a result, some banks have developed separate mobile money apps that offer a broader range of financial services to users.
For example, customers can now choose to make payments to a vendor through their banking app or the mobile money app. This means that they can use real currency or mobile money, which provides a greater choice for the customer. Payments are immediate and the vendors can access the funds in real-time.
Customers of these banks can now opt to pay their utilities, access loans, purchase airtime and send or receive money through the bank’s mobile money wallet. In addition, users can send money to their families in different countries, provided that the same mobile currency is available there.
Where mobile money is limited
Mobile money does have its drawbacks. Most fintech companies have limits on the amount of mobile money that can be sent or received – either through national legislation or through their own internal decisions. Some African governments have restricted the daily amounts that can be transacted and have started to impose tariffs on mobile money transfers.
This is where banks with their own fintech services can benefit. They can allow customers to move larger amounts of money between accounts or banks through their new mobile apps, without limitations. Certain banks have also eliminated card charges to encourage their customers to use their cards more.
In addition, mobile money services may need improved security in Africa, especially in terms of anti-money laundering (AML) and customer verification. To register for a mobile wallet, usually an identity document is usually needed, but some countries don’t even have this prerequisite.
To register a bank account, on the other hand, requires a more rigorous process of ID verification. This means that banks have an advantage when it comes to know-your-customer (KYC) and security. They also tend to have more investment power in cyber security and innovative technologies.
With many African banks shifting into the fintech sector, their customers will ultimately benefit from improved financial services and freedom. 4C Group offers various fintech services to telcos and banks, including payment gateways for mobile money. For more information about these fintech services, please contact us today.
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