The powerful rise of the 2nd generation of mobile banking in Africa

This white paper is presented by:

Foreword by Authors

Nicole Anderson


David Gyori

CEO Banking Reports
Africa is rising and so is FinTech. When these two trends coincide something dynamic, exciting and remarkable is possible. This is FinTech in Africa. Africa is going through transition and so does FinTech in Africa. Our report is about this transition: the way FinTech can help to close the financial gender-gap; the way FinTech can support the rise of the middle- class; the way FinTech can create a two-layered web of cooperation and fierce competition between banks and mobile network operators (MNO’s). We remain very positive about the opportunities for FinTech in Africa, but there are some future challenges. One of these challenges is what we call ‘Regulation Patchwork’: the collection of 54 economies with different legal frameworks. This patchwork can pose a threat to the Pan-African expansion of some of the most creative, nimble and constructive FinTech companies. All in all opportunities far outweigh challenges and we see Africa and FinTech as one of the most promising matches of the 21st Century bringing African capability to the world and global knowledge capital to Africa.

The Primary Trend

We are in a new and 2nd phase of competition for the African financial consumer: while Mobile Network Operator (MNO) enhanced services like M-Pesa are still on the rise, a new generation of international FinTech companies are emerging.

It started in 2002 when the use of airtime as a proxy for money-transfer was already wide spread in Kenya. Informal airtime credit swap services surfaced. Vodafone read the signals and started to innovate. In April 2007 M-Pesa was launched in Kenya and Tanzania. The victory has led to three key things:

(1) Mobile phone penetration is near 80 percent in Sub-Saharan Africa, while banking penetration is below 35 percent.

(2) The number of countries where more adults have mobile-money accounts than bank accounts are rising sharply and include Uganda, Zimbabwe, Tanzania, Somalia and more.

(3) Unlike bank accounts which are often a privilege of men in traditional societies the penetration of mobile-money is equal between male and female customers.

3 key forces are jockeying for power over the 2nd generation of the African mobile banking market:

• the banks
• the MNOs
• and the FinTech companies

Banks run the risk of losing ground against FinTech companies in this 2nd battle after being painfully defeated by MNOs historically. However: the battle for the 2nd generation is still on.

A useful case in demonstrating these events is the story of WorldRemit and Ismail Ahmed. Ismail Ahmed founded WorldRemit in 2010 in London. As an African working in London, he regularly sent money back home to Somalia. The challenges he faced as a consumer are well known to many working abroad - high fees, short opening hours, security concerns and loads of admin made the process arduous and uncertain. He took action and formed the company which is now a ‘Unicorn’ (valued at close to $1Billion). WorldRemit controls a significant chunk of the USD 100 bn African overseas remittance market. However, WorldRemit is not alone: a creative, nimble and hungry generation of FinTech companies like DoPay, Coda Payments, VoguePay, Kifiya and FarmDrive are now transforming the way young Africans are becoming financially equipped, educated and emancipated.

The differences between the 1st and 2nd generation of disruption in financial services in Africa are summarized as follows:

  • The 1st generation consisted of MNOs, owned by major international telecommunication companies, offering text-message-based services, running exclusively through the network of the given operator.

  • The 2nd generation consists of nimble and creative FinTech companies, often operated by expat Africans from a major global center of financial innovation (e.g. WorldRemit and DoPay from London, Coda Payments from Singapore).

  • As opposed to the 1st gen text-message-based solutions of the MNOs, these companies are offering their services through internet, rendered through smartphone applications.

  • Incumbent institutions still have a chance to create a constructive, cooperative and profitable home turf in the future of mobile banking.

    How can banks read and act on the competitive signals this time?
    Africa needs a strong banking system. It needs to finance infrastructure, leverage innovation, enhance development, weather crises and cooperate as well as compete in a mutually profitable way with MNOs and FinTech companies alike. We believe that the ‘The 10 Market Dynamics’ featured in the next section of this report can help players better understand the ongoing transformation.

    The 10 Market Dynamics

    MD1. Mobile Money with Remittances: Mobile money – fueled by telecom companies – is mature. Remittances flowing into Africa from outside the continent is on the rise and heading towards an annual sum of USD 100 bn (globally it is growing beyond USD 500 bn). We see early signs of these two mega-trends being combined which presents an opportunity to those service providers who leverage this consumer need.

    Market-ready products have three fundamental features:

    (1) A mobile wallet for the remittance sender
    (2) A choice of (a) text message (b) smart phone application (e.g. wallet) to manage the fund inflow
    (3) For the recipient, it provides a choice to hold the money in (a) a Telco mobile- wallet, (b) a mobile wallet from the remittance services-provider or (c) on a bank account.

    The financial services provider who can fulfill on all three layers, all sub-options (a, b, c) and targets the remittance senders with the service is likely to gain significant market leadership.

    MD2. Spontaneous or unpredicted adoption and use cases: M-Pesa taught the world the lesson of spontaneous innovation. Vodafone picked up a spontaneous trend (people using airtime as a store of value and a means of payment) adapted swiftly and turned it into a service. This is something that large companies should pay more attention to. Scanning, recognizing and analyzing spontaneous and informal innovation can create new opportunities for large companies.
    Frontier markets are full of creativity. Creativity squeezed out and brought to life by lack of capital, infrastructure, clarity and formalized solutions. These “street” trends often hide unpolished diamonds. ’Root, bottom-up’ solutions only start to emerge if there is demand for them.

    Within the field of market-research there is targeted methodology to address these needs: ethnographic research which allows the researcher to be integrated into a community for a couple of days. The researcher lives with the research subjects and therefore learns to understand the daily reality of the life of the target-communities.

    This methodology is ideal to pick up the signals of spontaneous innovation which can be translated market-ready solution. The African consumer is highly creative: we just need to listen.

    MD3. The need for Pan-African unity in financial regulation: The growth of mobile money (especially Generation 1) is highly dependent of the institutional backbone of the given country. We know that Telecom companies have significantly different success rates of addressing unbanked people with mobile money in different countries. Some of these differences can be explained by the differing rules, regulations and institutional forms.
    Even beyond mobile money and financial services we often hear about the ‘regulation patchwork’ that Africa poses for companies trying to expand cross- border. Africa is a continent of 54 countries with typically individual and uncoordinated sets of rules and traditions. Amidst this ‘regulation patchwork’ an international African presence is a significant advantage. We see a potentially bright future for certain prudent, cautious, but expanding Pan-African banks.
    The mobile money market is borderless in adoption and a Pan-African presence is a significant asset when negotiating with telecom companies. It follows that there is even stronger ‘currency’ when cooperating with FinTech companies who typically have a hard time mastering multi-country strategies in ‘patchwork’ of regulatory environments.

    MD4. Mobile Money means more than just payments: Banks still have an unbeatable advantage to exploit mobile money. The value of mobile money includes:

    1: ‘Core’ function A system of money transfer

    2: ‘Basic’ Functions Allows consumer to buy airtime, withdraw cash, make purchases, pay bills, conduct P2P transfer, domestic remittance

    3: ‘Basic+’ Functions Allows customer to conduct P2P transfers to nonusers, international remittances, and salary/wage receipt 

    4: ‘Bank Level’ Functions Satisfies the transfer of money to a bank account, earning on interest-bearing account, savings, overdraft, micro-credit and historical view of transactions

    5: ‘Bank+ Level’ Functions Extends to insurance, collateralized debt, data-based loans (social-media and historic user-data based scoring)

  • The most dynamic in terms of the number of new users: 1 and 2
  • The most dynamic in terms of growth rate: 3 and 4
  • The most relevant for banks and telecoms to cooperate: 4 and 5

  • The ‘noise’ from entrants offering solutions strengthens the desire to have simplicity through the ‘One-Stop-Shop’ service. And banks are the natural candidate. There are significant non-financial implications of mobile technology in an emerging rural environment: agricultural info, mobile-health, disease info, droughts, floods, drinking-water information. Financial services providers need to make decisions on how they want to exploit these opportunities.

    MD5. Maturing customers are less motivated by the ‘Social Causes’ branding that once appealed: Mobile money has significant social benefits, however these often get mixed with personal user advantages creating an unclear value proposition. A clear value proposition – based on user advantages – is more powerful attracting customers than any social cause or impact. Large corporates often seek to establish a socially responsible picture of their brand.

    We see some corporations emphasizing how mobile money enhances financial inclusion, growth, entrepreneurial activity, gender equality in finance; how it reduces income-gaps, corruption and extortion; how it democratizes finance but when we hear these we have to remember: the individual client decides to how to use or not to use it based on four primary factors – Faster, Easier, Cheaper, Safer.

    MD6. Mobile money is a ‘High Growth’ trend but still ‘Slow ROI’ for financial institutions: Mobile money is a high growth but slow ROI (Return on Investment) business. Mobile money has a slow ROI for the service provider has to achieve volume and scale. The service provider that owns/runs the infrastructure can leverage ‘stickiness’. For a MNO, mobile money links loyalty and greater usage of financial services.
    Banks will compete for this volume model and lower return products if they wish to win loyalty and customer acquisition.

    MD7. The growth of co-opetition: ‘Co-opetition’ and ‘Frenemies’ are realities for banks trying to be successful in the African mobile money market. Telecoms need banking services integrated into their mobile money solutions, but are often unwilling to treat banks as equal partners. MNO’s are applying for banking licenses in Africa thereby gaining the permission to provide the full range financial services. At the same time banks can hardly master mobile money without telecoms. Banks seldom have cooperation in their ‘corporate DNA’.
    Beyond telecoms there is a ‘coopetitive’ (combination of competitive and cooperative) relationship between FinTech companies and banks. This (and the telecom relationships) also requires a mature and fine-tuned management approach.

    MD8. Learning through trials: The African customer is very creative and practical. Services that are adopted in mature markets are often adapted in emerging markets. These are hard to predict and can hide unexpected value. Before introducing M-Pesa telecom executives thought that micro-loans would be a natural extension to the service because the electronic back-payment was much cheaper than the old cash-based services and hence they contracted MFIs (Microfinance Institutions) as primary partners. During the trials they learned the true power of M- Pesa and broadened their reach of distribution through air-time resellers (to be M- Pesa partners).

    The pilot phase was strategically crucial and transformative in the M-Pesa story. Africa has proven creative application of services often emerge while piloting. There are so many problems and constraints in people’s lives that products can often solve one that original developers never thought of. Deliberate search for this unexpected ‘mis-adoption’ can only be uncovered through piloting. Banks often have a hard time piloting, but experimental spirit is a very beneficial quality when dealing with innovation on frontier markets.

    MD9. Acting collaboratively in a decentralized model: Mobile money is a multi- stakeholder business. Others key stakeholders beyond the banks and MNO’s include agent networks, regulators, FinTech companies, MFIs, existing banking clients, hardware and software providers. Banks are used to a leading position in their web of stakeholders. Mobile money could mean a change in the balance of power.

    MD10. Matching aspirations of customers: Personal finance is often motivated by aspirations. People from a mass segment want to become affluent, while unbanked people - from often financially deprived backgrounds – aspire to have basic financial products available to them. Mobile money can spread easily and quickly in countries where large segments of the society are unbanked. This is a step into financial inclusion – the 1st step on the ladder to building financial freedom.


    The 2nd generation of FinTech is rising in Africa. In addition to Mobile Network Operators there are now more and more African-born FinTech companies and internationally relevant companies with Africa as a valuable market.

    The combination of Mobile Money and Remittances is a growing market. Mobile Money is a key trend in itself and the inflow of Remittances through FinTech providers is rising fast. We already see the first signs of these two merging into integrated cross-border services.

    There is an opportunity to learn from the 1st generation of FinTech in Africa as we enter the 2nd generation. We need to watch, identify and formalize spontaneous innovation. Spontaneous innovation is underestimated and mostly untapped. Success will come to those who can harness the lessons from this vast and uniquely creative continent.

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    Primary Sources unbanked-says-new-report _blazes_trail_mobile_money/ 686451 services-western-union-world-bank floods-india-drinking-water africa#.awBxAv02l8