Written by Kola Sidibe
Over the past decade, Africa has emerged as a global leader in mobile money services, revolutionizing the continent's financial services landscape. Mobile money, a digital payment system that allows users to send, receive, and store money using their mobile phones, has become an integral part of daily life for millions of Africans.
What's even more remarkable is that Mobile Network Operators (MNOs) have played a central role in driving this mobile money revolution across Africa.
Photo: Mobile money in action (Jan Chipcase/ Wiki Commons)
The Rise of Mobile Money in Africa
Mobile money services in Africa have experienced remarkable expansion since their inception. The story commenced with the introduction of M-Pesa in Kenya in 2007, a groundbreaking service enabling users to send and receive money through text messages. In 2006, just before M-Pesa's debut, only 26.7% of Kenyan residents had access to traditional financial services, such as bank accounts and money transfers. Nevertheless, by 2016, this figure had soared to over 75%. M-Pesa's triumph laid the foundation for a mobile money revolution that swiftly spread to various other African nations.
MNOs Dominance in the Mobile Money Space
One of the distinctive features of the African mobile money landscape is the dominance of MNOs in providing these services. These companies, which operate the telecommunications networks across the continent, recognized the potential of mobile money to address the financial inclusion gap that plagued many African nations.
Several key reasons explain why MNOs have been at the forefront of mobile money services in Africa:
Infrastructure Advantage
MNOs already had the necessary infrastructure in place, including extensive networks of agents and retail outlets, to quickly roll out mobile money services. This infrastructure allowed for the rapid expansion of these services to even the most remote and underserved areas.
Trust and Familiarity
People in Africa were already familiar with MNOs and their services. This familiarity and trust in these telecom giants made it easier for people to adopt mobile money as a secure and reliable means of financial transactions.
Partnerships
MNOs forged partnerships with banks, financial institutions, and governments to create a robust ecosystem for mobile money. These partnerships enabled services such as mobile banking, savings, loans, and even insurance to be integrated into the mobile money platforms.
Innovation
MNOs continually innovated, offering new features and services to meet the evolving needs of their customers. They introduced features like bill payments, merchant payments, and international remittances, expanding the utility of mobile money.
Photo: Mobile money transaction at agent's office in Uganda (Fiona Graham / WorldRemit/ Flickr)
The Impact of MNOs' Dominance
The dominance of MNOs in the African mobile money space has had a profound impact on the continent's financial landscape:
Financial Inclusion
Mobile money services offered by MNOs have successfully introduced millions of previously unbanked or underbanked Africans to the formal financial system, providing a secure and convenient means of managing their finances. The notable growth in financial inclusion across Sub-Saharan Africa has been driven primarily by the adoption of mobile money and agent banking, often outpacing the expansion of traditional financial institution accounts.
This trend underscores a clear message: the future of the continent's financial sector is undeniably digital. West Africa, in particular, is emerging as a new frontier for this digital financial revolution, characterized not only by increased accessibility but also by a burgeoning landscape of innovation.
Banks in the region are increasingly forming partnerships with mobile money providers to offer accessible and affordable services to a broader audience, and they are also making substantial investments in their digital infrastructure to pioneer new banking approaches.
Economic Growth
Based on McKinsey's analysis, the financial-services market in Africa has the potential to achieve an annual growth rate of approximately 10 percent. By 2025, it could amass around $230 billion in revenues. It's worth noting that South Africa, being the largest and most developed market on the continent, significantly contributes to this growth but is excluded from the projection.
The impact of mobile money extends beyond mere convenience. It has actively catalyzed economic growth by streamlining transactions, granting small businesses access to much-needed capital, and reducing the expenses associated with cash-based transactions. This, in turn, has stimulated job creation and heightened overall economic activity. Consequently, mobile money firmly establishes itself as a driving force behind financial inclusion and economic progress across Africa.
Cross-Border Remittances
With the widespread adoption of mobile money and its expanding portfolio of digital financial products, remittances have emerged as a crucial use case for mobile money. In 2021, the volume of international remittances facilitated through mobile money surged by 48%, totaling $16 billion.
Africans employed abroad can now send money to their families back home more conveniently and cost-effectively via mobile money platforms. This advancement reduces the remittance costs and ensures that a greater portion of the funds reaches their intended recipients.
Government Services
Governments throughout Africa have harnessed the capabilities of mobile money platforms to efficiently distribute social welfare payments, subsidies, and various forms of financial assistance. This strategic use of technology has resulted in reduced financial leakage and enhanced accountability within the realm of public financial management.
For instance, in Rwanda, an extensive GovTech solution known as IremboGov was introduced in 2015 to revolutionize government services. IremboGov empowers users to apply for and pay for an array of public services, including community-based health insurance, driving test registration, and visa applications, using digital payment methods like mobile money. By early 2020, approximately 300,000 service requests were being successfully processed through this platform each month. IremboGov not only streamlines citizens' access to government services but also strengthens government revenue collection while simultaneously cutting costs by minimizing financial leakage, enhancing transparency, and reducing administrative expenses.
In a parallel endeavor, Tanzania established a comparable non-tax revenue collection platform called the Government e-Payment Gateway. This platform, administered by the Ministry of Finance, delivers electronic payment collection services to all government agencies, bolstering their operational efficiency and transparency. The e-Payment Gateway in Tanzania accommodates payments through online banking, credit cards, and mobile money. This alignment between Public Financial Management (PFM) processes and fintech applications exemplifies the potential of fintech solutions in modernizing and enhancing tax collection processes within revenue agencies.
Innovation and Competition
The prevailing dominance of Mobile Network Operators (MNOs) has acted as a catalyst for innovation and heightened competition within the mobile money sector. This environment has attracted startups and fintech firms such as Flutterwave and Opay, which have entered the market, introducing inventive solutions and propelling further advancements.
But despite the undeniable successes of MNOs in the mobile money sector, there are certain vulnerabilities to consider. The remarkable dominance of MNOs in the mobile money sector could lead to reduced competition and potential regulatory hurdles, which may stifle innovation and limit user benefits. Additionally, concerns over data security, access gaps, and the risk of over reliance on a single channel underscore the need for careful consideration and regulation as these services continue to expand across Africa.
Final note
Africa's leadership in mobile money, with MNOs at the helm, is a testament to the continent's ability to leverage technology to address pressing societal challenges. Mobile money has not only transformed the financial services landscape but has also contributed to financial inclusion, economic growth, and increased access to essential services for millions of Africans.
As MNOs continue to innovate and expand their mobile money offerings, the future of digital finance in Africa holds even greater promise, paving the way for a more inclusive and prosperous continent.