One step ahead. © Manobi

This is the future of banking

There are 100 million mobiles in Africa and the continent is set to leapfrog the industrialised West in the way it uses them. The future of mobile banking is in sub-Saharan Africa.

by Paul Mungo
Last Updated: 23 Jul 2013

At the World Economic Forum (WEF) in Davos, a British company introduced what seemed to be a new concept in mobile telephony.

Mobile ATM, the name of both concept and company, is a joint venture between the Link cash-machine network and technology company Morse. It is launching in the UK this month and will enable mobile phone users to check their bank account details or top up their pre-paid airtime using a mobile-data connection.

Other services are expected to follow. Mobile ATM envisages its system being used to pay London's congestion charge, top up electronic travel cards and perhaps even pay for lottery tickets. But what particularly excited the WEF was Mobile ATM's potential to make financial services much more widely available in the developing world. The system, the organisation enthused, could spread access to banks throughout Africa without having to invest in an expensive branch infrastructure.

The notion, of course, is laudable. But it's perhaps a sign of how quickly wireless technology has developed in Africa that the WEF was unaware that the continent already has a mobile-based financial structure far more sophisticated than anything Mobile ATM is proposing. Mobile phones have already revolutionised communications in the world's poorest continent. Now they are becoming mobile banks, providing many Africans with virtual accounts and speeding money transfers across hundreds of kilometres. What has happened, almost without anyone noticing, is that Africa has harnessed a modern technology to leapfrog the industrialised West. The future of mobile banking is not to be found in Japan or Europe or North America, but in sub-Saharan Africa.

In the past few years, the continent, so often left behind, has seen the world's most rapid growth in mobile phone penetration. Granted, this occurred from a very low base, but the figures are still startling. From 1999 through 2004, the number of mobile subscribers in Africa jumped from 7.6 million to 82 million, an average annual increase of 65%, according to the International Telecommunications Union (ITU). The second fastest-growing market, Asia, grew by an annual average of just 34% in the same period.

Some African countries have seen subscriber growth in excess of 150% in recent years. In 2001, Africa became the first continent to have more mobile phone users than fixed-line subscribers. And by the end of 2005, according to estimates from the ITU, there were almost 100 million mobiles in Africa, more than three times the number of fixed-line connections.

The telecoms boom in Africa has surprised almost everyone, not least the mobile phone companies. Conventional wisdom was that sub-Saharan Africa was too poor to justify investment in cellular infrastructure outside the more prosperous urban areas. Additionally, Africans have never been seen as enthusiastic communicators: just 2.8% of the population subscribe to ordinary phone services. Even Mongolia has twice as many landlines per head of population than Africa. But the slow take-up of fixed lines turns out to have more to do with the poor quality of service offered by state-run telecoms monopolies in Africa. Landlines were expensive; subscribers had to wait months, if not years, to get one, and the service often went down because of poor maintenance, electricity blackouts and theft of cables.

Mobile telephony offered Africa a way to leapfrog the clutter of fixed-line telecoms. Cellular networks are quick to install and relatively easy to maintain. They may also be a more appropriate technology for a huge, sparsely populated continent, where the costs of stringing telephone wire has so far not been economically viable. Additionally, the introduction of pre-paid vouchers has made mobile usage affordable for millions who wouldn't have a hope of getting a fixed line or post-paid service.

Alan Knott-Craig, chief executive of Vodacom, one of Africa's biggest mobile operators, once called telecoms "Africa's big business success story - perhaps the only one". Michael Joseph, chief executive officer of Safaricom, one of the two cellular service providers in Kenya, says mobiles are "the perfect fit" for a continent such as Africa.

One problematic aspect of that fit, though, is the cost of the handsets themselves. It has been estimated that the number of mobile users in Africa could double if the price of a phone was halved - from roughly $60, a typical price, to about $30 (mobile providers in Africa do not subsidise the cost of handsets). Manufacturers and service providers are currently working on a solution. In 2004, a group of mobile network operators in small, developing countries pooled their buying power and contracted Motorola to supply up to six million phones for less than $40 each. Currently, Philips is reported to be working on a new range of chips that will take handset prices below $20.

In the meantime, Africans have found their own ways to cope. Often, phones are collectively owned. "Although a mobile phone may nominally belong to a single person, in some African countries it is regarded as the property of the community because there is a culture of sharing the tools of communication," explains Unesco communications specialist Babacar Fall.

Among less traditional groups, mobiles can function as a village's public phone, with users paying small sums to make or receive calls. In a remote jungle province of Congo, a local entrepreneur has gone so far as to construct a 20-metre-high treehouse to catch signals from a distant mast. Those who climb to his platform to use his mobile pay him for the privilege.

The success of the mobile time-rental market in Africa has not gone unnoticed.

In Uganda and Rwanda, the not-for-profit Grameen Foundation is working with local mobile companies to create 'Village Phone Operators', an initiative that enables poor rural individuals to take out a microloan to buy a mobile and then sell airtime to their neighbours.

Quite what the rental market in Africa is worth is not known, but it has been estimated that the sale of airtime vouchers, often carried out by small-time street vendors, is now a $2 billion a year industry. Local ingenuity has created a couple of unlikely spin-offs from the mobile revolution as well. While in rich countries the volume of text messages sent now outweighs voice calls, in poorer countries with low literacy levels, SMS is dwarfed by voice. However, as sending texts is cheaper, micro-entrepreneurs are also setting themselves up as text writers and interpreters for illiterate clients.

Last year, the mobile telecoms sector in Africa was said to be worth $25 billion - not bad for an industry that barely existed a decade ago.

But its real impact may be many times that. In the developing world, the value of mobiles to the user is greater than in the developed world because other forms of communication - the postal systems, roads and land lines - are often poor. Mobiles provide a point of contact and enable individuals to participate in the economic system. For instance, fishermen off Zanzibar use their mobiles to call ahead to ports to find which is offering the best prices for their catch. In Cote d'Ivoire, groups of farmers share mobiles so they can follow the hourly fluctuations in coffee and cocoa prices.

Artisans and workmen can advertise their services in neighbouring towns and travel there only when they are informed by phone that there is a job. With bad roads and unreliable public transport, anything that minimises the need to travel can be extremely valuable. There is already evidence that the growth of mobiles is reducing the variations in prices in markets in poorer countries. Pierre Guislain, of the World Bank's global information and communications technologies department, says the mobile phone has become "a tool of economic empowerment". An example is the way a group of farmers in Senegal used their one mobile phone to find eggplant buyers in Dakar willing to pay three times the rate offered by local middlemen.

A 2005 study by the Centre for Economic Policy Research, backed by UK mobile giant Vodafone, found higher rates of economic growth in developing countries with higher mobile penetration. According to the study, a country with 10 more mobiles per 100 population would have grown by 0.59% more than an otherwise identical country. In South Africa, the study found that 62% of small businesses said they had increased their profits as a result of mobiles, despite increased call charges. Mobiles "have a positive and significant impact on economic growth ... this impact may be twice as large in developing countries as in developed countries".

But none of this has factored in the potential impact of Africa's experiment in mobile finance. The advent of virtual accounts and mobile money transfers could enable Africa to leapfrog the traditional bricks-and-mortar banking systems. Jenny Hoffmann, head of MTN Banking, a joint venture between mobile operator MTN and Standard Bank, which launched virtual mobile banking in South Africa last year, says it could take the continent into a new age of electronic banking, circumventing debit and credit cards. "We may find that credit and debit cards never really take off in Africa because people go straight into electronic transfers on their phones."

At its more basic level, mobile finance employs airtime as a sort of virtual currency. When, say, Grace, who lives in Nairobi, wants to send money to her father in rural Kenya, she buys a prepaid 'pay-as-you-go' voucher at a local shop. Then she sends a code via text to her father so he can use it, either as airtime on his own phone or as real money, by selling the credit on to a local merchant. The jargon for this is 'Stored Value Account' (SVA) - the value of pre-paid airtime held on a mobile.

In Japan and Finland, you can buy a drink from a dispenser using SVA, though not much else. The technology has barely been tested in Europe and America, principally because of the complexities of banking law and anti-laundering regulations. Africa, though, is pushing ahead with it.

In South Africa, mobile banking was launched last year by a small start-up called Wizzit. The service enables customers to use text messages to pay for goods, transfer money and top-up the credit on their phones. Employers can also pay salaries direct to mobile accounts.

Wizzit was quickly followed into the market by MTN Banking. Both Wizzit and MTN have announced plans to expand into other African countries, among them Kenya, Botswana, Nigeria and Uganda. In Zambia, mobile operator Celpay has developed a Sim-based mobile payment system that enables users to access banking services and pay for purchases by text and PIN. The money is instantly transferred into the merchant's Celpay-enabled account.

Giving people access to finance, saving and, perhaps, credit can be life-changing. Muhammad Yunus, founder of Grameen Bank, has said that getting a mobile phone is "almost like having a card to get out of poverty in a couple of years". Having a mobile with a bank in it will be that much more powerful.

MOBILE COMPETITION IN AFRICAN COUNTRIES, 2002 Country Mobiles/100 population Algeria 4.6 Benin 3.4 Egypt 8.2 Mauritius 37.9 Morocco 24.3 Nigeria 2.6 Senegal 7.6 S Africa 36.4 Tunisia 18.6 Uganda 3.0 Source: based on Gebreab (2002), ITU database FIXED LINES VERSUS MOBILE LINES PER 1,000 PEOPLE, 2002 Country Population/m Fixed Mobile Egypt 70.5 110 67 South Africa 44.8 107 304 Tanzania 36.3 5 22 Developing countries 4,936.9 96 101 High income countries 941.2 584 653 World 6225.0 175 184 Source: UNDP, Human Development Report, 2004 VODACOM: EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTISATION, TO 30 SEPTEMBER 2005 (RAND M) 2004 2005 Growth % DR Congo 110 171 55.5 South Africa 3,940 5,214 32.3 Tanzania 152 206 35.5 Group total 4,189 5,563 32.8 Group EBITDA margin 31.7 34.4 MTN: EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTISATION, TO 30 SEPTEMBER 2005 (RAND M) 2004 2005 Growth % Cameroon 243 322 32.5 Nigeria 2,354 3,063 30.1 South Africa 2,714 3,234 19.2 Group total 5,612 7,162 27.6 Group EBITDA margin 40.9 41.7 Source: Global Insights

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