Can mobile banking be the key?
The last century has given birth to several extraordinary inventions. But few have been as revolutionary as the mobile phone. Who would have thought that a device the size of the human palm could transform the lives of millions of people across the world? And yet that is exactly what the mobile phone is doing, particularly in developing countries such as Africa.
According to Informa Telecoms & Media, the number of active mobile subscriptions in Africa crossed the half a billion mark to reach 506 million at the end of September, 2010. By the end of Q3, Africa accounted for 10 per cent of the world’s mobile subscriptions - not bad for a continent that also accounts for 15 per cent of the world’s population. What’s more, Informa Telecoms & Media predicts that in five years, the number of mobile subscriptions in Africa will touch 842 million.
Sure, the Western World is also seeing an increasing number of mobile users. But whereas in the West, the mobile phone is simply a means to communicate and consume content, in Africa, it is so much more. The mobile phone has become a basic tool of empowerment for millions of the rural poor. It is offering them a means to access healthcare and education, become entrepreneurs and gain access to financial services - many for the first time in their lives.
Reaching the unbanked
When Safaricom launched M-PESA in Kenya in 2007, few would have predicted its enormous success. The Economist reports that today, millions of Kenyans use the mobile based money transfer service to pay for everything, from school fees to taxis to remote money transfers.
The success of M-PESA is remarkable, given the fact that not too long ago, it was impossible for large swathes of Kenyan society to apply for a loan or even open a savings account. Today, 12 million Kenyans have M-PESA accounts - this in a nation of 39 million people.
Observing the success of Kenya, many other African countries are jumping onto the mobile banking bandwagon. In South Africa, Wizzit Payments provides basic banking services for the unbanked and underbanked through mobile phones. In Nigeria, Paga, a mobile payments platform, will provide a safe and convenient means of transferring money, paying bills and more. In Uganda, the MTN Group, one of Africa’s leading Telecom companies, has introduced MTN MobileMoney – a convenient, secure and affordable way of making payments. Within its first year of operation, it acquired 890,000 users. That’s double what it had forecast.
So how is mobile banking succeeding where traditional banking could not?
Abiodun Ogunlabi, Head of Mobile Money at MTN Nigeria, observes that for years, banking services remained out of the reach of many people, particularly the rural poor. The reasons for this are varied. For one, traditional banking was a privilege of the rural elite, and as such was limited to capital cities. Even if banks wanted to expand to rural areas, the lack of infrastructure made it difficult to do so. Add to that political instability, low incomes and high taxes, and it is clear why banking was far from widespread. In 2009, the BBC reported that just 5 per cent of the Tanzanian population had bank accounts, while in Ethiopia, one bank had to suffice for every 100,000 people.
On their part, rural Africans were deterred by various factors such as the high monetary threshold of opening a bank account, as well as the dangers of losing money while transferring it over long distances.
Why mobile money works
All the above reasons are exactly why mobile banking has proved to be so successful. For starters, it is much safer than traditional banking, as it completely eliminates the risk of transporting cash. Secondly, it does not require any kind of fixed line infrastructure. All it needs is an agent network – usually informal retailers positioned at strategic locations – who act as bank branches.
One of the biggest advantages of mobile banking, according to Abiodun, is its ease and convenience. All you need to do is register with an approved agent, display some form of ID and then deposit cash into your account. No convoluted processes, long waits or endless documentation. Besides, the costs are low, especially as mobile handsets become more affordable.
“Today, there is hardly any difference between storing money in a bank and in a mobile wallet,” says John Mutuku, Chairman and Founder of Comet Ventures, a financial solutions provider, headquartered in Kenya. The advantages are also the same. For instance, farmers no longer need to sell their goods through middlemen who often cheat them out of large sums of money. Instead they can trade directly with customers and thus create more wealth.”
Mobile banking has also eliminated other forms of exploitation. “Daily wage earners, many of whom are uneducated, don’t realize that they’re being cheated by deceptive employers,” says Abiodun. “With mobile banking, this risk is eliminated, as employers are forced to transfer money directly to bank accounts instead of handing it out in cash.”
Mobile banking also encourages savings. It enables people to afford medical treatment, educate children and pay for weddings. Besides, storing money virtually is far less risky than tucking wads of cash under a mattress or into a biscuit tin.
Bringing more Africans into the mobile banking fold
Today mobile banking is one of Africa’s biggest success stories. And it isn’t just the rural poor who have benefited. Observes John, “Lately, mobile banking is being increasingly adopted by the upper classes of society. They are realizing how easy and convenient it is to pay for children’s’ school fees, air tickets, domestic expenses and more. In fact, mobile money could soon replace the credit card.”
Despite the immense success of mobile banking in countries such as Kenya, South Africa and much of North Africa, there are still large sections of the continent that remain relatively untapped. In Burundi, the Central African Republic, Eitrea and Rwanda, mobile penetration is less than 30 per cent. However, efforts are underway to introduce mobile banking in more countries. In 2009, the MTN Group teamed up with Fundamo, a leading financial services provider, to power the MTN MobileMoney services for over 80 million users across 21 countries.
The future of mobile banking looks particularly promising in promoting cross-border trade. Mobile money transfers across countries are quicker, easier and more efficient than traditional financial channels. Besides, the paperwork is minimal and the costs are low. Mobile money is proving especially useful for remittance payments among migrants who constitute a significant demographic of Africa’s population.
Cross-border trade
However, to enable cross-border trade through mobile money, governments and regulators need to establish regulatory frameworks that are more efficient and less rigid. Banks and mobile operators/networks need to work together to provide innovative, affordable services. Customers need to readily embrace change; and finally, society as whole needs to realize that mobile banking could prove invaluable in spurring economic growth.
“Mobile banking can lift a lot of people out of poverty,” predicts John. “A combination of well thought-out regulations, affordable mobile phones and widespread acceptance will do more for the economy than any foreign aid can ever do.”
