Mobile banking holds entry point for mobile operators

11th November 2014

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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A new report by global telecoms, media and technology specialist adviser Analysys Mason shows that cross-border money transfer services is the next opportunity for operators and other mobile financial players in Africa as the take-up of mobile money services grows.

Outlining the potential in the Africa Telecoms Review 2015, Analysys analyst Mpho Moyo explained that this was owing to the growing number of customers with access to mobile money accounts and the various operators’ extended geographical network reach.

Mobile operators were increasingly forming partnerships with financial institutions or international remittance companies, integrating mobile payment systems and mobile wallets across countries and using their multi-country mobile money networks to develop services that could encompass the full scope of international financial services.

The report showed that Africa had 23 operator-led cross-border mobile money transfer initiatives by mid-2014 – one each in Central Africa and North Africa, five in Southern Africa, seven in West Africa and nine in East Africa.

This would continue to grow “dramatically”, Moyo noted in the review, adding that the number of mobile money wallets in major East African markets, including Tanzania, Kenya and Uganda, had surpassed that of the number of bank accounts.

The report pointed out that Kenya’s Central Bank data showed that there were 23.75-million registered mobile money accounts by June 2013, compared with only 18.9-million bank accounts.

Research emerging from a new ConsumerLab report, published by information and communication technology (ICT) giant Ericsson last week, showed similar growth trends as digital technologies led to banking innovations.

“Mobile payment systems are currently widely used and there are a number of solutions that are increasing in popularity. Between 2012 and 2013, mobile payments doubled to $1-billion,” Ericsson commented in its ICT and the Future of Financial Services report.

Ericsson predicted that mobile payments would surpass $58-billion by 2017 as digital technologies redefined the traditional relationship people had with money, banking and insurance services.

Ericsson cited the “real success story” emerging from the rise of mobile payments as Vodafone’s mPesa in East Africa, which had successfully provided banking to people who had lacked access to banking infrastructure.

Analysys analyst Enrique Velasco-Castillo said the Asia–Pacific and the Middle East and Africa (MEA) regions were the two “most fertile regions” for digital economy deployments.

The results from Analysys’ latest Digital Economy Readiness Index, which compared over 340 digital economy initiatives by 32 of the largest operators worldwide in terms of mobile revenue, showed MEA commanding the highest scores for mobile financial services globally. This was followed by Asia-Pacific.

Further, mobile education and mobile financial services had emerged as the two most successful verticals in terms of the average readiness score in the MEA region.

Velasco-Castillo cites mPesa, in addition to MTN’s Mobile Money and Orange Money, as “best practice” examples of product–market fit.

This was particularly relevant as economic and sociocultural factors were the driving force behind the rise in cross-border mobile money transfer services.

“Africa’s economy is heavily driven by the informal sector. In 2013, this sector contributed 55% of sub-Saharan Africa’s gross domestic product and accounted for 80% of its labour force,” Moyo said.

The informal sector was increasingly able to participate in the formal financial systems through the use of cross-border mobile money transfer services.

Mobile financial services allowed vendors to avoid the red tape around opening a bank account, which typically required more extensive documentation than registering with a mobile operator, as well as providing a “safer, quicker and often less expensive” alternative to cross-border money transfers.

Ericsson said the use of digital technologies in the financial services sector, which had been used to increase efficiency and productivity for incumbents, was actually “disrupting the very foundation of the financial services industry itself”.

“[The financial services sector] is now highly susceptible to digital disruption, [owing] to ubiquitous low-cost technologies that allow end-users to recreate or reinvent the manner in which financial services are delivered within society,” the ICT giant explained.

Digital transformation within financial services, which was a foundation within Ericsson’s view of a “Networked Society”, would activate new forms of currency, restructure trust – wherein an “Internet of relationships” would deliver new “networks of trust” based on the technologies that enabled digital currencies – and redefine the types of entities that act as corporations.

“As one of the main foundations of our economic system, a digitally transformed financial system holds potential to disrupt not just money, banking and insurance, but the very foundations of our social structures, the role of governments in currency and the manner in which goods and services are valued and paid for,” the report outlined.

A DEVELOPING INDUSTRY
Ericsson pointed out that ICT had been significantly leveraged within the financial sector since the 1960s, when commercial banking became the first sector to computerise its operations.

By the late 1990s, the industry had become fully digitalised.

“As systems developed, ICT use [increased], branches adopted digital technologies, money became available 24 hours a day through ATMs and payment systems became digitalised after the introduction of chip and pin solutions,” it said.

Modern developments expanded to include electronic bill payment and online near-real-time, interbank, interaccount transfers, in addition to telephone, Internet and mobile banking.

However, Ericsson noted that few commercial banks created real-time, online systems, since there was “no competitive advantage in being out of sync with the rest of the industry”, leaving the industry open for more disruption as technology increased its hold on the industry.

New entrants were using digital technologies to enter adjacent markets through payment schemes, with the potential rising for industrial disruption as computational capacity was distributed globally.

“Early investment in large information technology systems, and often substantial physical branch networks, which in the past have posed significant barriers to entry within the financial services sector, can now be considered as brakes on innovation and unnecessary cost bases due to the creation of a dominant design in the banking technology and business model.”

The report pointed to the challenges a UK bank had in replicating services similar to mPesa.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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