As a pandemic highlights its continued importance, what’s next for mobile money in East Africa?
The launch of M-Pesa in Kenya in 2007 marks the beginning of what many consider the first success story of mobile money. The Safaricom initiative was aptly named: m for “mobile” and pesa, Swahili for “money.” Anyone with a cellphone number and within travel distance of a store with an M-Pesa agent could now store money virtually. No bank, no credit, no fees for storing the money. In a country where at the time many were subsistent farmers, pastoralists, or working jobs that paid less than USD 2 per day, it opened the door for the millions of Kenyans previously shunned by traditional financial institutions to participate in new ways in the economy. As a global pandemic increases the importance of cashless and virtual transactions 13 years later, is it time for “Mobile Money 2.0”?
The Current State: Mobile Money in East Africa
In 2019, 1.8 billion transactions worth KSh 4.3 trillion (USD 42.9 billion) took place using mobile money in Kenya. In January 2020 alone, there were already 150 million transactions worth KSh 371.9 billion (USD 3.7 billion) according the Central Bank of Kenya. 28.9 million in a country of 53 million had active registered mobile money accounts in December 2019. Close family ties means mobile money affects most lives in a country where there are 14% more active mobile phone SIM cards than people. By contrast, there are only 11.6 million bank cards of any kind (debt, credit, prepaid) and 2,459 ATMs - far short of the 175,959 active mobile money agents. In a country that cannot afford for a coronavirus outbreak of the same proportions as Europe or the United States, this infrastructure may save lives as the dominate networks M-Pesa and Airtel Money waive fees for some (M-Pesa) or all (Airtel Money) transactions, allowing for cashless transactions that facilitate social distancing. Neighbors Tanzania and Uganda have similar proportions of their population with active mobile money accounts, and have surpassed Kenya in the value of monthly transactions using mobile money. East Africa as the birthplace of the industry is reflected in Sub-Saharan Africa’s domination of the mobile money market, accounting for over half the value and number of global mobile money transactions in 2019 according to the GSM Assocation’s report. After 13 years of steady growth from the initial 21,000 mobile money transactions in Kenya in March of 2007, it may be time for the East African mobile money to upgrade.
What’s Next
Many have focused on “interoperability” as the initial and main limitation with mobile money. MTN and Orange’s joint venture Mowali that would allow transfer of money between any mobile money accounts regardless of provider at low costs was publicized as a major step towards improved interoperability across Africa and the globe. M-Pesa continues to dominate the Kenyan and Tanzanian markets a year later. Despite Mowali’s claim to revolutionize interoperability for mobile money, M-Pesa already includes this feature at virtually the same fees for transferring money between M-Pesa accounts. In fact, M-Pesa’s additional costs in Kenya for transferring to an out of network mobile money account remain lower than MTN’s in Uganda.
Interoperability between mobile money and traditional banks is another concern, one the Nigerian company Paga attempts to address. Paga provides a platform that integrates individuals’ access to money. It allows its customers to handle transactions from opening bank accounts and depositing money to mobile money transfers. It is possible to do so online, on the Paga app, or through the classic mobile money method — through a Paga agent and a SIM card without the need for a smartphone, computer or internet access. M-Pesa continues to strive to work with banks to allow transfers and even ATM withdrawals, but Paga’s advantage is that it was built for such interoperability from its inception.
If Paga or Paga-like initiatives were to enter the East African markets right now, it is unlikely they would displace the large mobile money providers. Few current users of mobile money have much need for interoperability with banks, computers, or apps, but this is rapidly changing. Demand for such integration will more than likely increase as income rises, internet access broadens, and the price of smartphones fall. Transsion’s Tecno, Infinix and Itel continue to drive smartphone prices down as they increase their market share and focus on developing products specifically for African markets. As more East Africans own smartphones, internet- and app-based solutions will become increasingly important. If mobile money providers want to continue to compete, they will need to ensure that their mobile applications are able to function on low-cost smartphones as seamlessly as mobile money via text messages currently does. Not only this, but they will need their applications leave room for innovation. Smartphone-based rather than network-based mobile money solutions open up endless possibilities compared to the current non-smartphone options for new functions beyond peer-to-peer and merchant transactions. Consumers will begin to demand increased independence and capabilities and perhaps interest on their virtually stored cash. Mobile money networks not ready to explore these possibilities will be left behind, although the COVID-19 pandemic will provide additional time as it slows the transition to smartphone use.
