Mobile Money Innovation; A Threat to the African Banking Industry?

Mobile Money Innovation - A Threat to the African Banking Industry?

Mobile Money innovation is gradually transforming the economy and banking system in Africa.

While the global banking industry is facing sluggish growth, Africa’s banking sector provides a refreshing contrast. This is thanks to the digital-first approach, simpler banking models and compelling price offers from telecommunication agencies. The Mobile Money euphoria by African telcos is therefore, a promising innovation.

The local banking sector resisted the coming of the digital banking model (mobile money) at the onset for fear of the negative impact it could have over monetary policy. Until they discovered the one reason every developed economy and most developing ones have abandoned – “quantity targeting”. Quantity targeting because, it is a vulnerable strategy to financial innovation. Examples include the spread of credit cards transactions, mobile money, internet banking and PayPal, etc.

Most countries, especially in East Africa have now adopted modern monetary frameworks using interest rates. The impact of mobile money services is therefore highly likely to be beneficial and may enhance rather than undermine the efficacy of monetary policy implementation.

It is based on these promising factors that increasing partnership between mobile money and local banks has led to a flourishing financial sector in Africa. This is corroborated by a survey carried out by McKinsey and Company’s global banking practice.

According to the survey, 2.500 banking customers in six African countries preferred using digital channels. While 25% of customers chose price as the most important factors in choosing banks. Equally important is convenience, also cited by 25% of customers. Service is the third most important factor selected by 12% of customers.

Furthermore, the survey shows that nearly 300 million Africans are banking today through mobile money. This number is likely to rise to 450 million in five years.

The continent’s overall banking market is the second-fastest-growing. It is additionally the second most profitable of any global region and a hotbed of innovation.

What is Mobile Money?

Mobile Money is a form of electronic banking system that allows you to conduct financial transactions using your mobile phone. The Mobile Money innovation has extended financial services to unbanked people in Africa at a significant lower cost. 

Mobile Money Innovation - A Threat to the African Banking Industry?
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Mobile phone penetration is rising across sub- Saharan Africa, with almost 76% of the population having a mobile phone subscription.

Mobile Money Innovation - A Threat to the African Banking Industry?
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The growth in mobile phone ownership raises the potential for mobile money services to reach unbanked Africans. Consequently, it provides them with a more affordable payments system.

The Coming of Mobile Money Innovation into Africa

M-PESA, is the first mobile money service in Africa, introduced by Safaricom, an East African-based telco in 2007. The service is designed to enable remittances to be sent home and enjoys widespread adoption. Today, 96% of households outside Nairobi-Kenya have at least one M-PESA account.

The mobile money industry is now processing billions of dollars a day. It is reportedly generating direct revenues of over $2.4 billion, with 690 million registered accounts worldwide. The service has evolved into the leading payment platform for the digital economy in many emerging African markets. This includes M-pesa, Pesapal, MTN mobile, Orange Mobile, Bitpesa and Nexttel Possa, just recently introduced in Cameroon, among others.

However, some local African financial institutions still believe that the arrival of the Mobile Money service is a threat to their existence and expansion. This is particularly true for micro-financial institutions that provide daily saving services to small and medium-sized business owners.

Nevertheless, some of these local banks have seen the light in these challenges and have taken advantage of it. For instance, they are harnessing Africa’s widespread mobile-phone coverage to create low-price offerings and innovative distribution models. That is, partnering with the mobile money service providers to facilitate mobile money to bank transactions.

Influence of Mobile Money Services

Mobile Money has created room for telecommunication operators to embrace other innovative practices that enable them to pay bills, bail a friend in distress, load and also save. It has also become a way of life for millions of Africans.

“Mobile money is convenient for many of us who rely on our phones to pay bills and make transactions without having to go to the bank all the time,” a Kenyan, Kiryowa said. “Without it, I think we would have a lot more problems,” he added.  

Mobile money innovation: a threat to the African banking industry?
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In countries like Uganda, Kenya and Cameroon, mobile money business has been able to create employment for many citizens.

More recently, mobile money innovation has played a vital role in the economics of most African countries, particularly for Kenyan women. The sudden expansion of mobile money has lifted an estimated 2% of Kenyan households (about 194,000) out of extreme poverty. It has also enabled 185,000 women to move out of subsistence farming and into business-related ventures.

With the successes registered with this mobile money innovation, it is all soon going to be about digital banking and digital money transfer. This is visibly clear and achievable in this era of digital economy.

 

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