What is life without a bank account like? It would be difficult (though not impossible) to use online payment services, like PayPal, or to pay bills electronically with the click of a button. Employees and other workers would get paid with envelopes of cash. None of this is unusual in Africa, where an estimated 57 per cent of people are "unbanked" — meaning they have no bank account. For this reason, African countries have pioneered a popular alternative to traditional banking, known as "mobile money". Many people prefer this option to pre-paid debit cards or money orders because it offers greater speed and ease of the service.
What is mobile money?
Not to be confused with online banking, which requires the internet and a bank account, mobile money is a payment service that allows monetary transactions between mobile phones, either smartphones or "old-school" mobiles. Even without a bank account, money can be sent and received. The funds are added to or deducted from the customer's phone credit, and this can be converted into cash when necessary.
The African mobile-money revolution really began when a Kenyan service called M-PESA was launched in 2007. Unlike traditional banks, which often have monthly fees and minimum deposit requirements, mobile-money accounts can be opened at a low cost. There are no monthly fees — users are charged on a per-transaction basis. For many ordinary African citizens, mobile money has been life-changing, especially for those living in rural areas, far away from traditional banks.
According to the Global System for Mobile Communications Association (GSMA), an industry body, the global market for mobile-money payments reached $1 trillion in 2021. Nearly 70 per cent of that came from sub-Saharan Africa, as many countries in this region have underdeveloped banking infrastructure.
There's plenty of evidence that mobile money helps to increase economic growth and reduce extreme poverty. Data from the Bill & Melinda Gates Foundation indicates that mobile money has given a significant boost to food security, household savings and financial resilience. Businesses also benefit from the use of mobile money. Data on firms in Kenya, Tanzania and Uganda suggests that it lowers transaction costs and increases the likelihood that companies will invest. These advantages, however, are dependent on widespread access to mobile phones.
Mobile services
According to GSMA, there will be 613 million unique mobile subscribers in sub-Saharan Africa, about 50 per cent of the population, by 2025. With many cheap mobile phones on the market, including lots of pre-paid models, mobile-money users are able to top up their credit whenever they need to and transfer some of that credit to other phone users.
The problem, however, is that most online merchants cannot easily accept this type of transaction. "Mobile money is built on USSD (unstructured supplementary service data)," Cameroon-based entrepreneur and fintech specialist Otto Beseka Isong explains. "USSD comes with 2G and has bandwidth limitations. You cannot carry a lot of data with it — just simple instructions. That means you cannot rely on USSD for full payments." While USSD allows users to transfer money, it does so without transferring any extra information about the customer, the recipient or the payment itself, making it incompatible with many e-commerce platforms. Mobile-money users often have no choice but to choose the cash-on-delivery payment option, which is not offered by all vendors.
Beseka Isong noticed this problem and developed Pursar, a fintech platform that can be linked to mobile-money accounts and used for digital payments to help users in Cameroon access e-commerce markets. "For digital payment to work, you need to take the technology to http or https for secure internet protocol," he says. "That's when you start talking about 3G and 4G. Because telecom providers are targeting the mass market with their mobile-money solution, they don't want to upgrade to http or https, because they want everyone to have access to their solution." Across Africa, there are currently more than 800 million people with no internet access, so such an upgrade could be devastating for all those offline users. However, although avoiding an update to the mobile-money service may allow greater inclusion across the continent, this also leads to greater exclusion from global e-commerce markets.
Uneven progress
According to McKinsey & Company, Africa's electronic-payments market is expected to grow by 152 per cent between 2020 and 2025, but this growth will be very uneven. Despite significant infrastructure developments in a number of African countries, particularly Egypt, Ghana, Kenya, Nigeria and South Africa, many sub-Saharan countries continue to lag behind when it comes to digital payments.
It is likely, however, that the rise of smartphones will force Africa's mobile-money and fintech markets to evolve. This transition won't be easy, as mobile-money providers will have to acquire new skills to diversify their offering. Regulatory solutions and corporate collaboration between the key stakeholders will also be essential to ensure that the needs of the local consumer within the global market are met.
Mats Granryd, the director general of GSMA, says: "Over the past ten years, mobile money has grown from a niche offering in a handful of markets, to a mainstream financial service." The mobile-money market isn't going anywhere, but the coming decade is likely to see a radical modernization of Africa's fintech industry, in which a tricky balancing act between digitalization and inclusion will have to be performed.