Last week, we examined the impact of mobile money in Africa, exploring the runaway success of M-Pesa in Kenya by framing this against the broader backdrop of the continent, where mobile money has frequently been touted as the solution to financial inclusion.
While traditional banks are moving to ensure that mobile money does not continue to bridge this gap, the real question is whether the gap is still wide enough to require bridging at all. Russell Southwood, CEO of Balancing Act and author of Africa 2.0: Inside a Continent’s Communications Revolution, argues that the narrative around enabling financial inclusion does hold water. However, he cautions that to understand how this works, it’s important to recognise how people actually use mobile money in practice.
For many users in Africa, mobile money offerings are used exclusively as a ‘cash in, cash out’ service. If users transfer a sum of money, it goes into the system then goes out at the other end. “If you think about mobile wallets, and money that is ‘banked’ in some way - people trust the system to hold the money”, says Southwood.
“The number of people doing that is significantly smaller; there isn't a kind of E-money system. [In developed markets] when we use a credit card, we accept the 1% - 2% charge that is made by the card company to have that convenience.” This is a luxury that a lot of African consumers cannot afford. “In other words, it's not a banking system”, continues Southwood. “It's not a trust system. There's a level of trust, because you trust that whoever you're giving your money to will transfer it to somebody else, but they don't keep it in the system. People take the full amount out.”
At the heart of all these decisions, and all these different parts of the market - some of which are B2B, some of which are B2C - is trust. “You don't have to spend any great amount of time in Africa to know that trust around money is not necessarily at a high pitch”, notes Southwood. “And so that is the obstacle in many ways. You can get the interconnection there, you can make it frictionless for the middle classes etc. - but actually changing people's attitudes to trust and money is very different. What the mobile operators are doing is building on what was always most successful - the simple service. When MTN tried to go into West Africa and do a showboat service which had insurance and loans, they stumbled, and it was when they got back to basics and insisted that the ‘cash in, cash out’ system has to work - and work well - that things began to take off.”
Southwood highlights that the transition is really just beginning. Change is inherently slow – while many thought that the COVID pandemic would accelerate a cashless society in Africa, the changeover took 30-40 years in more developed markets. Around 10-15% of people in Africa use mobile money, but relative to the size of African populations, this statistic represents huge numbers of people. The speed of the adoption will depend on removing the friction from the system, as well as establishing trust - Southwood underlines that fraud is an endemic issue among African operators, which plays into consumer attitudes towards mobile money.
Ericsson’s Global Head of Financial Services Michael Wallis-Brown concurs that the issue of identity management is a big hurdle in terms of consumer trust, but highlights that digital identities are on the horizon for many African markets. This will enable data collection to provide insight into consumers’ trust relationships, which can be translated into trust scores, credit scores, and used for insurance. Wallis-Brown notes that this will be particularly empowering for women, giving them visibility in the financial services environment as well as opportunities for work via engagement with the agent network.
“The data that comes out of Africa is messy, but it all starts from the digital identity and basic KYC [Know Your Customer] – we need to be able to capture the social fabric of Africa, those trust relationships, that distributed economy. It’s a decentralised financial environment that’s already there today in these big cash economies” says Wallis-Brown.
“Whether it’s to do with regulatory compliance, fraud detection, credit scoring, ESG [environmental social governance] scoring – it’s all data, and we capture this social fabric very simply on a mobile phone, and that’s going to be very powerful for the future of Africa and of finance.”
The future of finance in Africa, it would seem, will require financial institutions to establish a greater level of trust with their customers. This could be by reassuring them that they matter and empowering them through the creation of a digital identity, or merely by providing a simple but useful service that delivers on its promises. One thing that is evident is that these institutions are keen to ensure that the runaway success of M-Pesa will not be replicated by another mobile-only offering – so a different model will be required.
Given that M-Pesa’s success was dependent on market dominance, this is perhaps no bad thing. It’s important to remember that mobile financial services are in many ways still in their infancy, particularly in Africa and other less developed economies. Rather than facilitating the transition to a more ‘developed market’ style of economy, in the medium term we’re likely to see consumers continue to use mobile money as an electronic extension of Africa’s cash economies, enabling a more efficient hybrid that will better meet the needs of customers.