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Content Origin: Quartz Africa
Africa is a global leader in mobile money, with telecom operators embracing innovative practices that allow customers to not only pay bills but also access services including loans, insurance, and savings.
Yet increasingly, fintech startups with access to greater funding and banks are trying to permeate the mobile financial services (MFS) sector and pull some of these customers their way. This strategy is dependent on the recognition that the future is digital, and that mobile money presents a lucrative opportunity to grow revenue and deposits.
Banking institutions across Africa currently face numerous challenges, including high-cost models and fees that make it unaffordable for low-income segments, a high preference for cash over digital transactions, and a predisposition towards cooperatives. As such, Africa’s retail-banking penetration stands at half the global average for emerging markets at 38% of the gross domestic product, according to management consulting firm McKinsey.
In contrast, McKinsey estimates there are 100 million active MFS customers in Africa dealing in transactions worth $2.1 billion. Telecom operators have more customers (Africa’s largest operator MTN has over 170 million users), better distribution networks (Kenya’s Safaricom has over 130,000 mobile money agents), can easily spread products given mobile phone diffusion (74% continental penetration as of 2016), not to mention the ease and safety of use in contrast to the paper-heavy processes of banks.
As the epicenter of mobile money growth, there are also diverse services operating in sub-Saharan Africa including Safaricom’s M-Pesa, MTN Mobile Money, Orange Money, Tigo Cash or Tigo Pesa, Vodafone Cash, and Airtel Money.
As such, adopting a mobile-first approach will only help banks, says Vahid Monadjem, the founder of the South African-based payments platform Nomanini. Given African banks’ ranking as second in the world in growth and profitability “mobile money presents the opportunity to increase payments income as well as earn interest on increased deposits—an income stream which is usually not accessible to telcos,” Monadjem says. “Ultimately, every dollar of cash that is moved to a digital store of value will land on the balance sheet of a financial institution which can then be lent out multiple times over.”
Monadjem says that in the short run, banks and telcos should engage in “coopetition” with the aim of achieving mutually beneficial results. These include lobbying for better regulations, increasing shared agent networks, improving their distribution capabilities, besides enhancing interoperability between wallets.