The rise of mobile money in Africa

by Aug 15, 2022

Fierce competition, increasingly saturated markets, and the broad adoption of over-the-top messaging applications have steadily eroded telco revenues in so far as their core services are concerned. It also negatively impacted the attainable margin and as a result, telcos had to identify new revenues outside their core business to sustain their growth and expand operations.

Mobile financial services offer telecoms operators an ideal opportunity for revenue diversification since it leverages the telco’s underlying mobile network and communication technology to provide convenient and secure financial services. By offering users a store of value that they can use to transact, save, access credit, and get insurance, telcos were able to generate new revenues through transactional charges, merchant fees and revenue-share agreements with new partners who provide new services to their subscribers.

Over the past decade, mobile money has expanded from a niche offering in a handful of markets to a mainstream financial service, moving millions of households in low- and middle-income countries from the informal cash economy into a more inclusive digital economy. In 2012, there were 169 mobile money deployments in 71 countries. Ten years on, the number of live deployments has almost doubled to 316 and expanded to 98 countries worldwide.

It has transformed the lives of millions of people globally. Today there are 1.35 billion registered mobile money accounts processing $1 trillion in transactions annually. That is almost $2 million per minute of transactions, 24 hours a day, 7 days a week, 365 days a year.

How was mobile money established in Africa?

Safaricom Kenya was the first MNO in Africa to launch mobile money in 2008 under its M-Pesa brand. It was launched to fulfil money transactions on a peer-to-peer basis, and it solved a major challenge for the urbanised workforce in Kenya – sending money home to their parents and relatives in rural areas.

Sending physical cash was risky, cumbersome, and expensive with money dealers charging up to 15% of the value of a transaction. M-Pesa solved this problem by introducing an electronic ‘currency’ that could be instantly transferred between users with the use of only their cell phone numbers. With the fast and widespread adoption of M-Pesa, businesses in Kenya quickly realised its potential and began accepting it as a method of payment for their goods and services.

In turn, this expanded the usability of M-Pesa, so more and more Kenyans started using it. Today M-Pesa is widely accepted as legal tender in Lesotho, Tanzania, Mozambique, Democratic Republic of Congo, Kenya and Ghana. It serves more than 52 million monthly active users with a safe, secure, and affordable way to send and receive money, top-up airtime, make bill payments, receive salaries, get short-term loans and much more. Several other MNOs have since launched their own services under their own brands.

What constitutes mobile money?

Despite its wide adoption, it is often confused as a form of online banking. For a service to be considered ‘mobile money’, it must meet the following criteria:

●       It must allow the transfer of currency, either by making or receiving payments, through a cell phone or mobile device.

●       It must be available to people who do not have access to a bank account or an authorised financial institution.

●       It must include a network of physical transaction points, including agents that make the service more readily available to the population.

This means that mobile banking applications, such as Apple Pay, Google Wallet and banking apps, do not constitute mobile money services as they simply use the mobile device as a channel to access traditional banking services and accounts.

Mobile TOKENS and the traditional banking system

The rapid rise has led some to question whether it will replace banks altogether. This is, however, unlikely for many reasons. Some countries have developed regulatory frameworks to govern how mobile money is used and how much can be transacted at once, which ensures that formal banking services remain viable.

The operators are regulated and must conform to various regulatory prescripts intended to ensure the integrity of their operations, protect consumers who use their services and overall strengthen the banking system in the country. Mobile money is, in effect, a digital token issued in exchange for real currency. To protect consumers that exchange their hard-earned cash for this currency, operators are required to keep the cash which they receive in lieu of mobile tokens, in a trust account with a licensed and registered bank.

The operator may then issue the electronic token for each unit of currency held in deposit. These tokens are credited to the user’s wallet from where they can be used to send mobile money to other users or to pay for goods and services. The value of the electronic token is usually fixed to the value of the local fiat currency and, as a result, it can only be used in the country where it was originally issued.

how do users without bank accounts get access?

To make the service more accessible, operators established a network of registered agents with whom users can deposit and withdraw cash. Mobile money users can hand cash to an agent to receive an equivalent value in tokens and conversely, they can send mobile money to the agent to receive an equivalent value in cash. The conversion of cash to tokens is called ‘digitisation’ and in 2020 an average of $500 million was digitised in Africa every day.

These agents bring mobile money services to rural and remote areas, which supports the adoption in remote and far-flung areas. The agents receive a small fee per transaction, which comes off from the user’s payment, just like a normal bank would deduct a transaction fee from the user’s account when they make a withdrawal.

Many banks in Africa are themselves registered agents and this allows their users to exchange money in their bank accounts for mobile money. Rather than being a threat to the formal banking sector, mobile money has leveraged technology to promote financial inclusion. In essence, mobile money and traditional banking are collaborating to improve economic growth and financial stability.

Why businesses need mobile money services

African companies have an opportunity to benefit from the unique benefits and value that this service presents to the customer. By incorporating mobile money into their business, companies can offer a much wider customer base an instant, reliable, secure, and affordable way to transact. It also offers a recurring payment solution to customers, so companies can start to offer loans or accept payments in instalments.

It empowers the unbanked and makes a wide range of products and services available to those who have mobile devices. It allows people to pay their bills, buy electricity, purchase data, and send money to businesses from anywhere. It is a key enabler of financial inclusion in Africa and as such makes a direct and measurable improvement to the lives of millions of people.

Mobile money is fast becoming a mainstream payment method as more and more merchants and businesses accept it as legal tender for goods and payments. Merchant payment processing has been growing steadily and in 2021 a total of $66 billion was processed. This represents a 94% increase on the comparable figure for 2020, which demonstrates the pace at which businesses are realising the value it offers them.

4C is an enabling technology provider

4C Group offers a comprehensive suite of financial technologies that give operators and financial services providers an unassailable competitive advantage. The iNSight Payment Gateway is a case in point. It has been widely deployed throughout Africa and is a standard for several leading operators. It connects tens of millions of mobile money users across Africa to a broad range of products, services, merchants, and businesses. The scalable architecture of the solution allows it to function at multiple hierarchies and deploy to markets of any size and transaction volumes.

The iNSight Payment Gateway ensures information is passed securely and in real time between a user’s wallet and the destination vendor/merchant. Each transaction is audited for completeness and records are kept for reporting. The solution offers built-in security, redundancy, scalability, and speed to ensure stability and availability. Non-functional features include but are not limited to, application-to-application authentication, logging, monitoring, error handling, recovery, auditing, deployment tools and a management dashboard.

The gateway offers integrated revenue generating capabilities, including merchant and layby solutions for retail, e-commerce, bill payments, bulk payment disbursements, airtime sales and distribution, event ticketing and much more.  The gateway can be used to give subscribers access to a wide range of adjacent financial services, including credit, insurance, and investment. The GSMA has established that operators who offer adjacent services achieve a 24% higher average revenue per user (ARPU).

The iNSight Payment Gateway also features an integrated API portal based on open standards as well as a developer portal. These components enable scalable integration with third-party service providers, systems, and applications so that our clients can expedite the expansion of their ecosystems.

4C’s iNSight software enables enterprises to offer mobile money services via a secure and scalable payment gateway with a proven track record. For more information about our Payment Gateway, please contact us today.

___

At 4C Group of Companies, we strive to effect operational changes and cost savings for customers through our iNSight product and associated services. This product’s main function is to re-purpose and deliver business-critical information to a variety of systems and stakeholders. 

We specialise in information assurance, business assurance, FinTech solutions and a variety of business systems. For more insights into our products and services, check out our blog page or follow us on Facebook and LinkedIn.

You may also like…