In recent months, boosted by the Covid 19 period, fintechs specializing in money transfers and withdrawals have seriously shaken up the Mobile Money market. They are essential mainly through an aggressive pricing policy on urban markets. But Mobile Money, which is beginning to adapt to this new competition, has greater room for improvement. We Are Tech tells us why.
The last ten years have witnessed a significant development of Mobile Money in Africa. They were less than 80 services launched across the continent in 2012. In 2021, their number had reached 173 for 621 million registered accounts and a volume of $36.7 billion in financial transactions, up 23% compared to 2020. Even the value of financial transactions carried out by Mobile Money increased by 39%, compared to last year, reaching $701.4 billion. It is the growing health of the sector over the years that has led to the rapid emergence of new players that are fintechs.
Over the past five years, financial start-ups have experienced strong momentum on the continent. Those specializing in payments, transfer and withdrawal of funds have seen their number grow, as has the volume of financing mobilized. Some have been able to gradually strengthen their position in their home market or develop in several territories.
Today, the financial market in Africa is witnessing growing competition between Mobile Money and fintech operators. A battle that promises to be long and which reflects the confrontation of two economic models with their strengths and weaknesses.
Since the launch of Mobile Money in Africa in 2007, telecom operators have made significant investments. Several million dollars have been mobilized over the years to extend and modernize the mobile network without which the financial service is not accessible, deploy a network of agents to manage financial operations, develop software, database and system efficient and secure financial services to guarantee the effectiveness of financial transactions both on mobile and online for those who have finally switched to digital.
On the fintech side, the investment made so far has been significant, although it could be considered less than Mobile Money. Indeed, just like telecom operators, fintechs have invested in the development of IT systems that support their business. They have also invested in a network of agents and partnerships. However, unlike mobile operators, fintechs, which do not have a telecom network to build and maintain regularly, have more leeway. However, operations carried out online require investing in large connectivity capacities for real-time monitoring of financial operations.
Fintechs have proliferated because they have identified underserved needs or new markets linked to new uses such as micro-credit. For Said Bourjij, expert in financing and development (French-speaking Africa and the Mediterranean basin) and Managing Director of Epargne Sans Frontière, ” fintech has two particularities: it relies on digital mastery, but above all, it places the customer at the heart of its models by seeking to respond to its new uses. The dynamics of offers are strong there, but none aims to cover all parts of the financial sector ”.
For its part, Mobile Money has evolved over time. It has nothing to envy to fintechs since it can stand up to them by offering consumers solutions of similar value.
Beyond sending and withdrawing funds, they have been able to add a variety of options to their service, including merchant payment, bill payment, international transfer, micro-savings, micro-credit, etc and even to offer everything on a very functional digital platform.
This can be observed with services such as Safaricom’s M-Pesa, Orange Money or even MTN MoMo in certain countries. Beyond sending and withdrawing funds, they have been able to add a variety of options to their service, including merchant payment, bill payment, international transfer, micro-savings, micro-credit, etc and even to offer everything on a very functional digital platform. It is this combination of offers and digital that explains the power of M-Pesa, which in 2021 has become the main driver of Safaricom Kenya’s financial growth. M-Pesa accounted for 38.3% of the telecom operator’s estimated annual revenue of $2.5 billion.
Access to services
According to the Global Telephone Operators Association (GSMA), the mobile internet penetration rate was 28% in sub-Saharan Africa in 2020 compared to a mobile penetration rate of 46%.
In its report ” Sub-Saharan Africa Mobile Economy 2021 “, the Association explains that of the 1084 million people identified in the region, 303 million (28%) were connected, 206 million were not covered by a network at all. mobile (19%) and 575 million people (53%) lived in areas covered by mobile broadband networks but did not yet use mobile Internet services. Also according to GSMA, smartphones accounted for less than half of the total number of mobile connections. In contrast, sub-Saharan Africa had the highest percentage of mobile connections on basic phones. That’s 45% of all mobile connections.
Mobile Money operators, on the other hand, thanks to the USSD technology they offer in parallel to digital, have their mobile financial services accessible both in town and in villages. An asset that guarantees a head start on digital rivals.
Rural populations in sub-Saharan Africa were 60% less likely to use mobile internet than those in urban areas. As a result, fintechs whose services are essentially accessible via the Internet can only meet the needs of populations in urban areas. Mobile Money operators, on the other hand, thanks to the USSD technology they offer in parallel to digital, have their mobile financial services accessible both in town and in villages. An asset that guarantees a head start on digital rivals.
Through its accessibility by USSD, ” Mobile Money acts as a catalyst for a wide range of other services that could contribute to solving major socio-economic and environmental problems, such as access to basic necessities, maintaining livelihoods of smallholder farmers and rapid distribution of cash assistance to vulnerable populations ,” maintains GSMA.
Mobile Money operators and fintechs are almost already struggling with the same offers, although they do not yet fully address the same market niches. It is moreover aware of the missed opportunities at the level of the rural population that certain fintechs have made the price war an essential axis of their conquest of the urban market. A strategy that Mobile Money operators deplore but which has all the same, in the end, contributed to the creation of value for consumers. In some countries such as Senegal or Côte d’Ivoire, it is undeniable that the action of fintechs has led to a drop in the price of Mobile Money services.
It is moreover aware of the missed opportunities at the level of the rural population that certain fintechs have made the price war an essential axis of their conquest of the urban market.
In 2020, GSMA, which already feared that this aggressive pricing strategy would be widely adopted by fintechs, challenged Mobile Money players on the need to diversify their revenue models to become more resilient and no longer depend mainly on fees paid by customers. In June 2020, providers surveyed for the Global Mobile Money Adoption Survey reported that, on average, 87% of their revenue came from fees paid by customers.
The Association believed that this heavy reliance on this expense category would result in increased exposure to short-term shocks that may occur in the future. It argued that “in addition to protecting mobile money service providers from short-term demand shocks, diversification into higher value-added segments can also prove beneficial to users, allowing services to be offered at more competitive prices .
The regulatory framework
Dans certains marchés, les opérateurs télécoms ont été contraints par le cadre règlementaire en vigueur de séparer leurs activités mobiles de leurs activités Mobile Money. Les nouvelles filiales se sont ainsi soumises à un cadre légale strict édicté par les banques centrales des pays ou régions économiques dans lesquels elles opèrent. En fonction des types de services offerts, des exigences légales préalables ont été définies, notamment l’obtention d’une licence d’exploitation qui définit clairement le champ d’opération. Idem pour les fintechs qui souhaitent fournir les mêmes types de services. Dans l’Union économique et monétaire d’Afrique de l’Ouest (Uemoa), la BCEAO ne transige pas dessus. Pour les opérateurs Mobile Money, cette séparation des activités mobiles et financières donne l’opportunité d’adopter la même stratégie opérationnelle que les fintechs et de se débarrasser des coûts liés à la maintenance du réseau télécoms. Se concentrer uniquement sur le service et batailler à coup d’innovations et de valeur ajoutée pour être leader.
In the end, as competition intensifies between the various players in Mobile Money and fintech and as their economic models collide with their strengths and weaknesses, GSMA is delighted with the impact that these different interactions have on the development of financial inclusion of African populations. The Association also encourages these various players in the mobile and online financial sector to be more committed to consumers, whose decision alone will determine their profitability.