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What mobile money is and what it is not?

Mobile money is a service in which the mobile phone is used to access financial services. Mobile money is money sent to a beneficiary’s mobile wallet. The person who receives the mobile money transfer can transfer it to another person, business or other payment recipient or go to an agent to cash out. The telco-led mobile money wallet thrives on creating a wallet using a mobile phone number. The service is built-into a SIM card and available to activate once you buy a line from a mobile network operator. Once activated, the mobile phone number can receive money that could be redeemed/cashed through an agent, transferred to other parties or used to pay for goods and services. Mobile money is not used up like airtime. Airtime cannot be used as money to purchase other items or pay bills. Mobile money is not value-added service (VAS), neither is it direct-carrier billing.

A real-life scenario of a mobile money transaction

Otieno, a Kenyan national living in the US, usually sends monthly upkeep money to his parents in Kisumu every 25th of the month. He has hung his scrubs and is pulling his surgical mask and gloves off his face and hands when he realizes, he was five days late. He quickly washes his hands, got into his office and picks up his phone. He taps the WorldRemit app, charges $700 from his Bank of America card, having agreed to the exchange rate presented by the remittance company, and provides the mobile money account/phone number of his mother. WorldRemit, in turn, sends KES68,757 to Otieno’s mother M-Pesa account instantly.

Otieno’s mother is ecstatic when she receives the SMS notification from WorldRemit. She quickly checks her M-Pesa wallet balance. As usual, Otieno remembered their upkeep. When she didn’t receive the SMS notification five days ago, she was worried, but she knows her son. She walks to an agent in Kondele Flyover to cash out, say Ksh5,000, from her mobile money wallet. She uses 1,000Ksh to buy Omena, Unga, and Sukumawiki from the market. She promised Otieno’s dad to make his favourite meal, Ugali. The remaining Ksh4,000 would be used for groceries, church offerings, and a cash gift to her sister who lives close by.

The remaining money in her wallet will pay for utilities such as KPlc (electricity bill) and Kiwasco (water bill). She and Otieno’s dad will need data to make WhatsApp video call with Otieno, so she would buy airtime. After thanking him for the money, they have a lot to discuss with Otieno. They will enquire how he is faring now that he has gotten his Permanent Resident (PR), if he was dating a Kenyan girl in the US and his plan on getting married.

After the call, they will relax over GoTV as they devour their meal. This means Otieno’s mother have to pay the TV subscription before she is cut off. All these bills she can easily pay from her M-Pesa mobile money account. Most importantly, Otieno’s mum must transfer money to her supplier. She sells groceries in a small store beside their house in Kondele. She had sent some money from her sales earlier in the week but with Luo cultural festival coming up, she thought to augment her stock. She also must transfer Atieno’s wage to Atieno’s mobile money account. Atieno doubles as her store attendant and housekeeper. If Atieno wouldn’t be transferring most of the money to her parents in Mbita for the school fees payment of her youngest sibling, Otieno’s mum would have given her cash.

If no extra expenses come up, Otieno’s mum might transfer money to her tailor’s mobile money account. The payment is for a fabric she took to her three months ago. She had thought that Otieno would come home and bought the Kitenge fabric to make for him. Though he now lives in America, she wanted him to always remember his roots.

This story just explained international/cross border inbound remittance into a mobile money account and transactions made through mobile money for business purposes such as customer payment: pay tailor, buy airtime and data; pay for utility: electricity, water, and GoTV; pay supplier; salary payment, and others. Otieno’s mum can also send money through her mobile money account for personal purposes such as to her peers, relatives, or friends.

Diverse mobile money payment use case.

Mobile money is used for both payment and disbursement from government to persons as with payment of subsidies or aids; business to persons as with salary payment; business to business as with payment from a manufacturer to a supplier; consumer to business as with e-commerce payment, utility/bill, product or service payments; and person to government as with tax and license payments.

Origin of mobile money in Africa

African mobile money story is known to have started in Kenya in 2007 when Safaricom launched M-Pesa for peer-to-peer money transfer. It was discovered that people were sending airtime to their folks as a means of sending money. A high rate of mobile phone subscribers and a low rate of bank account made sharing airtime a convenient option.

The airtime sharing seems easier as the Telco had sufficient distributors who would buy the airtime at a discounted amount or for a commission. In a short span of time, what began as convenience quickly became a necessity. Rather than continue the sending of airtime, M-Pesa (M for Mobile, Pesa is Swahili for money) was launched in 2007 to enable users to store and transfer money through their mobile phones. With the aid of agents, people could cash out or spend from their wallets.

Pre- airtime sharing era, most rural dwellers not having bank accounts, relied on Money Order or Express Money offered by Kenya’s postal corporation to receive funds from Urban dwellers. The downside of using the postal channel is that it requires the senders and beneficiaries to travel long distances to send and pick up the money. Another alternative was through drivers plying the city to rural areas. This option does not eliminate commuting by both the sender and beneficiary. It is also an informal transaction with no guarantees that beneficiaries would receive the money.

Why would people store value on their mobile phones?

Mobile money is valued for its security, instantaneity, and ease of use. Compared with other payment methods, in the absence of other channels of electronic transfer of money that offers instantaneous credit to the beneficiary, mobile money has enhanced access to funds. When compared to cash, mobile money is safer as it eliminates the risk of theft, misplacement, and counterfeit bill. When compared to cheque, mobile money is more convenient as it eliminates commuting to the bank and time spent in queues waiting to cash the cheque. Cheques might request confirmation from an issuer and also takes days to clear, thereby delaying value. When compared with Bank Branch-Bank transfer, mobile money is more convenient as it eliminates commuting to the bank and time spent in queues waiting to be served.

With low bank penetration in Africa, mobile money accounts provide financial records for the first time for the unbanked. The records provided can be used to assign individual credit-scores that eventually allow users to obtain a pathway to formal financial services such as interest-bearing savings accounts, small loans/credit, and insurance products.

Mobile Money Core System

The core system of mobile money encompasses customer activities, agents’ activities, and mobile network operators’ activities.

Customers’ activities are performed by customers or businesses. These activities include registration, cash-in and cash-out, sending money, buying airtime, bill payment, paying merchants in-store, bulk payment and bank transfers. These have an impact on customers’ or businesses’ mobile money accounts.

Agents’ activities entail serving customers. Their activities include customers’ registrations and cash-in and cash-out for customers, and other ancillary services such as sending money or making payment on customers’ behalf. Another critical aspect of agents’ activities is float management. Float management is essential in managing cash-in or cash-out activities. Agents perform other administrative activities such as statement access, report generation, and PIN changes. To ensure quality agent distribution and management efficiency, mobile network operators have various layers of agents such as super agents, master agents, agents, and second-level agents. The most important driver of financial inclusion is the availability of agent networks to provide the interface between unbanked consumers and electronic payment systems.

Mobile network operators’ activities include financial transactions such as converting cash to e-money and vice versa, transferring funds between mobile money accounts, making agent commission payments, and allocating funds to an agent account.

What are the trends shaping the mobile money industry?

Major trends shaping the mobile money industry are interoperability, cross border remittances, enhanced product offerings, and e-commerce enabling.

Account to account interoperability gives users the ability to transfer money between customers’ accounts held with different mobile money providers/operators; while mobile money to bank account interoperability enables users to transfer money from their mobile money wallet to bank account. Mowali (Mobile Wallet Interoperability), a joint venture of MTN and Orange launched in 2018 with the support of GSMA is an advanced/industry record gesture at interoperability. Beyond enabling users of MTN Mobile Money and Orange Money to transact across their both wallets which brings together over 100 million mobile money accounts and mobile money operations in 22 African countries, Mowali aims to provide one connection for all mobile money providers, banks, merchants, and other digital service financial providers to reach the 396 million mobile money accounts across Africa.

Cross border remittance also furthers the mobile money agenda. City and rural dwellers do not require a bank account as they can receive money from cross border into their mobile money account. MFS Africa has helped to make this easy. MFS Africa provides an advanced framework that not only connects mobile money providers/systems to one another but also to money-transfer organizations, banks, and other financial institutions, enabling money remittances to and from mobile money accounts. Via a single connection, it offers users the ability to terminate transactions to nearly any mobile wallet in Africa while managing the downstream technical interconnection, foreign exchange, and financial processes.

Mobile money providers are evolving from core mobile money transactions and commissions to meeting the evolving needs of individuals and small businesses. From offering customized solutions to business, they have also evolved to offer financial products such as loans, savings, and insurance. M-Shwari and M-Pawa are products of M-Pesa partnership with Commercial Bank of Africa to provide access to deposit and loan to M-Pesa customers to enhance the M-PESA value proposition. While M-Shwari is available to M-Pesa customers in Kenya, M-Pawa is available to M-Pesa customers in Tanzania.

Mobile money has become a critical enabler of e-commerce. With low bank card penetration and the risks associated with cash-on-delivery, merchants are offering a mobile money payment option for online transactions. In Kenya, the Central Bank attributed the growth in mobile money transactions to e-commerce adoption. Safaricom’s payment partnerships with PayPal and AliExpress also opened up global marketplaces to Kenyan consumers and entrepreneurs who make payment using their M-Pesa/mobile money account. Also, local merchants selling goods and services online present mobile money payment option on check out. Furthering e-commerce, Safaricom launched an independent e-commerce platform, Masoko. Masoko follows the marketplace model used by Amazon and Alibaba. It also presents a card payment acceptance option. Safaricom leverages its mobile money agent network as delivery and collection points.

Statistics of mobile money in Africa

Mobile money operates on low-tech mobile channels, such as APIs and USSD. Low-income groups require easily accessible and cost-effective technologies. Mobile internet affordability, smartphone affordability, and the ability to use smartphones make feature phones the preferred option. Any mobile innovations that hope to scale in Africa must adapt to the lives of low-income mobile users by adopting low-tech, offline solutions.

Nearly half of the global mobile money account is in Sub-Saharan Africa. In 2018, sub-Sahara Africa had 395.7million registered mobile money accounts. The region has over 130 live mobile money services, mostly led by mobile operators and a network of over 1.4million active agents.

Countries where mobile money is used in Africa

Research shows that 37 countries in Africa have mobile money services. The slide share below has three slides. The second slide has a list of countries in Africa where mobile money is accepted and the mobile network operators providing mobile money services as of February 2020. The third slide has an extensive list created by GSMA as of May 2018. It has the mobile money service, organization offering it, country and region, launch date, technology partners, bank partners, international remittance partners, and web address.

Telesom’s ZAAD, a deviation from typical mobile money large agent network model.

Telesom, a Somaliland MNO, launched ZAAD mobile money in June 2009. ZAAD adopted a different strategy from most MNO model which adopts large agent networks for mostly cash-out and cash-in. ZAAD’s focus was to keep money within the mobile money ecosystem. It used salary payments as an entry point to the system. ZAAD convinced employers to distribute salary payments using its bulk payment system, and merchants to accept mobile money at their stores. This encouraged digital spending as against cash out. To encourage this, ZAAD did not charge transaction fees to customers or merchants.

ZAAD built a parallel agent network with employed, salaried staff in contrast to using agent distribution networks that depend on commissions. In fact, most people use informal mechanisms such as transferring money to a friend’s mobile account for cash. In 2010, during a severe drought, people donated money to support their relatives through ZAAD. Also, international non-governmental organizations (INGOs) use ZAAD to distribute Cash and Voucher Assistance (CVA) to aid recipients. 78% of the Somaliland population use ZAAD.

Conclusion

Mobile money in Africa emerged as a product that blended in with the social and economic lives of people. With low bank penetration and high mobile penetration, mobile money adoption rate in Africa is the fastest in the world. In the word of Harish Natarajan, “…after all nobody decides to make a payment; they decide to purchase or undertake a particular economic transaction, and payment is inherent to that.”