Sub-Saharan Africa is adopting mobile financial services at a pace seen in few other places, presenting banks and mobile-network operators (MNOs) with a set of strategic choices that will go a long way toward determining their success in the region.
The use of mobile financial services in sub-Saharan Africa to do such things as pay utility bills and send money to relatives could produce an estimated $1.5 billion in fees for mobile-money providers by 2019, according to research being published today by The Boston Consulting Group (BCG). The report, Africa Blazes a Trail in Mobile Money: Time for Banks and Mobile Operators to Devise Strategies, says that sub-Saharan Africans are looking for more-secure ways to borrow and save money and are open to other financial products delivered using mobile phones, including loans and insurance.
Although mobile financial services are emerging all over the world, sub-Saharan Africa’s unique circumstances—a combination of a mostly “unbanked” population and heavy mobile-phone penetration—have turned the region into an early adopter of mobile banking and a test bed for the technology’s potential. Eight of the ten countries that make the most use of mobile financial services are in Africa, and sub-Saharan Africa has the highest proportion of active accounts (43 percent).
With the population in sub-Saharan Africa growing and becoming wealthier, the number of people aged 15 or older with an individual annual income $500 or more will rise to more than 460 million by 2019. This trend is likely to strengthen as governments in sub-Saharan Africa increasingly focus on their education, health, and security systems—enhancing the potential for long-term economic growth in their countries. According to BCG, by 2019 there will also be some 400 million unique mobile-phone subscribers and almost 150 million traditionally banked sub-Saharan Africans. That will leave some 250 million sub-Saharan Africans aged 15 or older who have incomes of $500 or more and mobile phones but no traditional bank account. This gives a sense of the potential market for mobile financial services.
“Mobile financial services aren’t new, but they’re at an inflection point and adoption is accelerating,” said Hans Kuipers, a BCG partner and coauthor of the report. “This is not something that African banks or MNOs can afford to ignore. A bank or MNO that isn’t active in the market runs the risk of becoming less and less relevant.”
Mobile financial services are “a way for African banks to drive and capitalize on the trend toward financial inclusion,” added Michael Seeberg, a BCG principal and a coauthor of the report. “Failing to come up with a strategy could erode a bank’s existing customer base as even traditionally banked Africans increasingly turn to the simpler and cheaper mobile offerings.”
For banks and MNOs, a welcome dynamic of the market is its nascent state and the immature vendor landscape. With the exception of m-pesa—a service whose breakaway success in Kenya, the report notes, stems largely from favorable regulatory circumstances—no mobile financial service in sub-Saharan Africa has established an impregnable position yet.
To succeed, banks and MNOs will need to invest in infrastructure, business capabilities, and governance.
A critical piece of infrastructure is a network of agents. These are the physical places where sub-Saharan African consumers can sign up for a mobile financial service and make deposits and withdrawals—the equivalent of the terrestrial world’s bank branches.
Consumer insights are among the important business capabilities. This speaks to a bank or MNO’s ability to identify and develop the offerings that would matter most to consumers. It also has to do with knowing when to introduce different services.
Good governance is critical because of the partnerships that will be needed to create an ecosystem for mobile service offerings. Mobile financial services should not be a go-it-alone proposition; neither banks nor MNOs have everything that’s needed to succeed on their own. The banks have the back-office systems and the understanding of risk and financial-industry regulations; the MNOs have the access to customers and the relationships with mobile-phone-store operators that could become a foundation for agent networks.
“Banks and MNOs are complementary in this space; each has something the other needs,” Kuipers said. “In many cases, it will make sense for them to team up.”
While it’s true that the market is still coming into focus, it won’t be long before mobile financial services play a significant role in this part of the world. The technology is here, mobile penetration is deep and growing, and a huge portion of the sub-Saharan population is becoming bankable.
“The vendors that want to establish a strong market position are going to need to find the right partners and start developing an offering,” Kuipers said. “The time to do those things is now.”