Mobile Financial Services in Africa -The Business Case for Operators and Banks

Abstract

Activity in the mobile financial services space around the world has ramped up a notch as more companies seek to bring to reality the vision of widespread usage of mobile devices to pay for goods and services. For various reasons, however, implementing this vision has been held back in practice: consumers are comfortable with existing payment options; the technology is not yet optimal; the end-user experience is cumbersome; and business models are still largely in flux.

Mobile payments are having a more penetrating impact in poorer economies than in mature ones, with market dynamics that are starkly different, especially in Africa. This is understandably due to a more constraining supply environment - one that is primarily cash-based, rife with antiquated regulations and burdened with a banking system that is geared to focus on the high end of the consumer market. The greater impact of mobile payments in emerging markets is also due to the more challenging demand picture of markets where most consumers have much lower incomes and lack bank accounts.

It is in this context that new business models have emerged over the past few years that are transforming the financial landscape in developing countries. A new report by Pyramid Research, Mobile Financial Services in Africa: The Business Case for Operators and Banks, reviews and analyzes mobile financial services offerings in African markets, looks at drivers and obstacles to mobile financial services, breaks down business models to assess their true bottom-line impact, and provides market projections based on intrinsic market dynamics.

• What combination of necessity on the demand side and opportunities on the supply side have created the unique success of mobile-based financial services in Africa?
• What are the practical challenges - from regulation and compliance to fulfillment, security and distribution - that complicate mobile payment implementation in Africa?
• What role does technology play in the success of various mobile payment approaches in Africa?
• What business model will drive mobile financial services growth in Africa over the next five years? Will it be driven by mobile operators, banks or third parties?
• Why do operators play such a central role in the more successful services, such as M-PESA? What are the strengths they bring to the table?
• What benefits do mobile financial services bring operators? Is there revenue to be made? How?
• How fast will mobile money transfer services expand? How many users will they have by 2013?
• Are the prospects for mobile-based international remittance services different, and if so, why?
• What business models will dominate mobile finance in the various markets of Africa? Will M-PESA clones lead the way?

Target audience

Learn how different business models can be used to provide mobile financial services, in particular what the role is of the main players and the supporting ecosystem. Find out which factors - regulations, technology - make a service successful. Draw on conclusions based on the experience of successful African operators that have wide application in markets at various stages of development.

Determine how different markets require different approaches to mobile finance. See how your role varies between business models and how you can build on your strengths in each situation. This report offers the analysis you need in order to take advantage of the mobile opportunity, especially among previously unreachable income segments.

Identify the opportunities in mobile finance by examining case studies of successes in some of the most difficult markets in the world. This report provides a thorough grounding in the important issues facing one of the most exciting segments of the telecommunications industry, giving you the fundamental tools to develop long-range plans and winning strategies.

Discover where your greatest opportunities lie and how deep you involvement in the business of providing mobile financial services should be. Understand the challenges facing your customers and what role you can play in meeting those challenges. This report promises the analysis you need to take a larger share of operator spending with informed go-to-market strategies and creative solutions, particularly in a time of economic downturn worldwide.

Methodology

• Our projections include mobile banking transactions and money transfers. Services we consider phase III services (payroll, merchant payments, etc.) are not included in our estimates, although we believe they can represent upward of 10-20% of our estimates over the long term.
• Our revenue projections focus on the service providers' revenue from mobile payment transactions. Mobile operator revenue generated from mobile payment-driven SMS usage is not included in our estimates.
• For indicative purposes, we also estimate the dollar volumes of money circulating through mobile transactions. While we provide some anecdotal data on overall mobile payment transaction volumes, we believe such estimates are highly uncertain (including everything from airtime recharges to cash withdrawals, and potentially to payroll disbursements) and only moderately meaningful. As a result, our projections focus on mobile money transfer volumes.
• We use two approaches to estimate mobile banking and domestic mobile money transfer revenue, depending on the nature of the data available. In the first method, we start from the average transaction value per user, based on estimates obtained or estimated from service provider data and other sources.These estimates are then multiplied by the number of transactions per user and the average number of active users over the course of the year. In the second method, we multiply the average revenue per mobile banking user by the total number of users.
• International money transfer estimates are built top-down, starting with top-level remittance data generated by the World Bank and projected using a 2% annual growth rate after 2009.
• We focused on six key African mobile transfer markets - Kenya, South Africa, Nigeria, Ghana, Tanzania and Egypt - from which we extrapolated to the rest of the continent, based on our assessment of developments in each market' s mobile payment space over the next three to five years.

Furthermore, the reader should bear in mind a number of limitations to our estimates:

• As suggested, they are top-level estimates with some margin of error.
• They do not purport to encompass all new forms of transactions and business models that may emerge over the next five years.
• Our estimates are built on assumptions generated in a number of key markets and obtained from a small number of key providers (South Africa, Kenya, M-PESA, etc.). While we adjusted our estimates based on the nature of each individual market, our core markets understandably drive our assumptions.