MOBILE MONEY SERVICES DEVELOPMENT: THE CASE OF AFRICA · Wheadon, 2013, p. 74]. Nowadays, the mobile money services, including mobile payments, are developing very fast in Africa,

Studia Ekonomiczne. Zeszyty Naukowe Uniwersytetu Ekonomicznego w Katowicach ISSN 2083-8611 Nr 356 · 2018

Współczesne Finanse 13 Krystyna Mitręga-Niestrój Blandyna Puszer

University of Economics in Katowice University of Economics in Katowice Faculty of Finance and Insurance Faculty of Finance and Insurance Department of Banking and Financial Markets Department of Banking and Financial Markets [email protected] [email protected] Łukasz Szewczyk

University of Economics in Katowice Faculty of Finance and Insurance Department of Banking and Financial Markets [email protected]

MOBILE MONEY SERVICES DEVELOPMENT: THE CASE OF AFRICA

Summary: The aim of this study is to assess mobile money services market deve-lopments in Africa in recent years in comparison to other parts of the world, with parti-cular reference to mobile payments. The empirical research question is to find out what is the state of development of the mobile money services, especially mobile payments, in Africa compared to other regions of the world. Nowadays, the mobile money services, including mobile payments, are developing very fast in Africa, comparing not only to other developing countries but also developed ones. The potential of mobile money services to bring access to financial services is observed in the developing world. The key findings show that in Africa the growing number of mobile money services, inclu-ding mobile payments, can be seen. It is important to say that Africa is in the centre of high development in the area of mobile payments, due to numerous reasons, e.g. the growing use of mobile phones. Africa is the leader in mobile money, which has become an important element of Africa’s everyday life. Furthermore, mobile money services can become the driving force for growth of the domestic economies. There are still very diverse situations between African countries and the local markets vary widely, therefo-re, it is hard to obtain more specific data concerning to mobile payments problem. The paper is based on both literature studies and analysis of statistical data concerning the key aspects of the problem covered by the study. Keywords: mobile payments, mobile money, African states, developing countries. JEL Classification: E42, O33, Q55.

Mobile money services development: The case of Africa

79

Introduction

Mobile money services are becoming very important tool, especially in the developing countries, for people (usually low income households) that do not have a broad access to financial services [African Development Bank, 2013, p. 8]. Mobile payments play a vital role in financial inclusion. R. Cull, T. Ehr-beck and N. Holle [2014] state that both, global and national-level policy makers have been embracing financial inclusion as an important development priority.

Over the last few years, the growth in mobile money services can be seen all over the world. In some regions the growth is very significant. Among those regions is Africa, which is in the midst of high development in the mobile pay-ments area. The African continent faces challenges in the area of financial tech-nology, which is connected with the fact, that about 80% of adult people in Af-rica don’t have an access to banking services and the majority of the continent is still unbanked [McDermott, 2016, p. 34]. On the other side, there is an increas-ing need for financial products, which is the result of the growth of African economies. This need can be seen for example in terms of creating infrastructure and services for the people, who have never entered a bank [www 1].

Mobile money services play a prominent role in integrating low-income and unbanked households into wider financial system, especially by providing access to such services as credit, deposit and fund transfer capabilities [International Growth Center, 2016, p. 1].

The aim of this study is to assess mobile money services market develop-ments in Africa in recent years in comparison to other parts of the world, with particular reference to mobile payments. The empirical research question is to find out what is the state of development of the mobile money services, espe-cially mobile payments, in Africa compared to other regions of the world. As the research method, the descriptive and comparative analysis is used. 1. Literature review

The definition of mobile money varies across the communication industry as it covers a wide scope of overlapping applications. In general, mobile money is defined as “service in which the mobile phone is used to access financial ser-vices” [GSM Association, 2010, p. 3]. There are three major mobile money ser-vices:

Krystyna Mitręga-Niestrój, Blandyna Puszer, Łukasz Szewczyk

80

1. “Mobile banking, which is only one type of mobile money service: it allows customers of a financial institution to access their money, only available to people who possess a formal bank account.

2. Mobile payment – (also known as »m-payments«) is a service allowing un-banked people to purchase or sell goods and services at a merchant shop/store (or remotely) using their mobile wallet through their mobile phone, instead of cash.

3. Mobile transfer – (also known as money transfer »person-to-person« – »P2P« – or »mobile remittances«) it is a service that allows unbanked people to send or receive small sums of money to/from any other mobile phone user (even if they are subscribed to different telephone service providers) across the coun-try, from urban to remote rural areas, and across international borders. In practical terms, the customer must first deposit cash into his mobile wallet. Then, on the phone menu, the customer selects the option »send money«, and enters the recipient’s phone number, the amount he wishes to send and his 6-digit security PIN. The sender can confirm that all the information entered is correct. The receiver will get a text message that he can show to a local mobile company agent to receive the money in cash” [ACP Observatory on Migration, 2014, p. 6-8].

It should be underlined that currently, there is no standard definition of the above terms. Mobile payments are payments for goods and services with a mo-bile device by taking advantage of wireless communication. A mobile payment service comprises of all technologies that are offered to the user, as well as all tasks that the service provider perform to commit the transaction [Dahlberg et al., 2008, p. 2]. The Committee on Payment and Settlement Systems [2013] defines mobile payments as payments initiated and transmitted by access devices that are connected to mobile communication networks. Transaction values are small in amount and serve the purpose of purchasing goods or services at the point of sale, or remitting funds. Money originates from two major sources, in-cluding customer funds, located at banks in the form of a deposit account or credit account (including prepaid cards), or customer “stored-value funds” main-tained by mobile network operators [Khiaonarong, 2014, p. 6]. Mobile payment may include a few potential parties (Fig. 1).

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Mobile payment solutions development should include careful analysis of benefits for the consumers. It is important to take into account that the develop-ment is heavily driven by technological understanding and technology limita-tions. T. Dahlberg and N. Mallat suggest that [2002, p. 652]: – it is necessary to view payment solutions from customers’ point of view and

not to concentrate only on technological issues, – payment solutions must be built on unfulfilled identified costumers’ needs, – payment solutions based on new technologies must be adopted with educa-

tional means that will help to overcome a reluctance to adopt them, – consumers must be able to understand what the payment solution is and what

kind of benefits does it provide. The fast adoption of mobile money systems in developing economies,

which can be seen in recent years, reflects the benefits they can offer in countries where a large proportion of the population does not have an account at a finan-cial institution or where underdeveloped financial infrastructure means that there is limited access to convenient and affordable financial services [Flood, West, Wheadon, 2013, p. 74]. Nowadays, the mobile money services, including mobile payments, are developing very fast in Africa, comparing not only to other devel-oping countries but also developed ones. 2. Mobile money services in Africa in comparison to other regions

of the world

Mobile technologies are changing economic and social life in developing countries, also in Africa, where many people are using mobile phones for a range of financial transactions, such as receiving and sending money transfers. Indeed, mobile money is already being used by banks and mobile network operators to provide millions of unbanked consumers a way to store and access money digi-tally. The limited information available suggests that for millions of consumers in developing countries, mobile money is transforming lives by providing access to financial services and the ability to pay and be paid electronically – some-times for the first time in their lives. Mobile money services, allow unbanked people to use their phones as a bank account: to deposit, withdraw and transfer money with their handset. People can also use mobile systems to pay utility bills and pay for goods in merchant shops. Mobile money is considered as a very convenient instrument in every-day life.

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It is important to note, that the net number of mobile money services is growing rapidly around the world (Table 2). The total net number of mobile financial services in the world increased by almost 40 times within a ten-year period 2006-2016. Table 2. Net number of total mobile money services by region (2001-2016, end year)

Region 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sub-Saharan Africa

0 1 1 1 1 1 1 6 21 37 64 99 117 132 136 140

South Asia 0 0 0 0 0 1 1 4 7 11 16 30 39 41 41 42 Latin America and the Caribbean

0 0 0 0 0 0 0 0 0 2 9 14 26 29 30 30

East Asia and Pacific

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Middle East and North Africa

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Europe and Central Asia

0 1 1 1 1 1 1 1 1 1 1 2 3 6 9 8

Total 1 3 3 5 6 7 7 17 38 69 116 177 230 254 270 277

Source: GSM Association [2017, p. 16], [www 2].

In its simple form, mobile money services allow consumers to use their mo-

bile phone as a virtual wallet, storing “cash” which they can either spend with retailers, pay service providers, transfer to peers, or exchange for physical cash with a participating agent. Companies can also use the service to disburse bulk payments and salaries or receive payments from consumers. These services bear particular relevance to Africa, where mobile money has experienced rapid growth. This is as a result of the continent’s rapid economic growth in general, combined with a large unbanked population in the region. For example, there are more mo-bile money accounts than bank accounts in countries such as Kenya, Tanzania and Uganda. In essence, mobile money services can provide financial access to con-sumers without a bank account, and for companies, they can offer lower transac-tional costs and a scalable alternative to conventional banking services [Muya, 2015, p. 2]. Additionally, Africa has the world’s youngest populations − in around 40 African countries, over 50% the population is under 20 [www 3]. Young people are generally open to new ideas and innovative products.

Discussing the issues of mobile money it is worth paying attention to the num-ber of agencies offering mobile money service. Table 3 and Figure 3 presents the cumulative number of agents transactional outlets that have been registered as at the end of the months indicated, Table 3 and Figure 4 – active agents outlets that have facilitated at least one transaction within the past 30 days of the indicated months.

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such as a MNO or an issuer of stored-value cards [African Development Bank, 2013, p. 7].

In Africa, bank-led models are the most often applied in middle-income countries, for example South Africa. In these countries, the financial sectors are characterized by a variety of distribution channels, including traditional ATM branches, mini-ATMs, mobile phones and debit/credit cards, in partnerships with retail institutions and others [African Development Bank, 2013].

African low-income countries, which confronted with social and economic development challenges, are dominated by the non-bank-led model (MNO-led model). The success of the model is dependent on a large reliable network of agents and low risk management of electronic value for a cheaper but secured solution to financial exclusion in low-income African countries. By the end of 2016, there were over 930 000 active agents [African Development Bank, 2013, p. 11]. 3. Mobile payments in Africa

Mobile payment is a service associated with the use of a mobile phone. Cel-lular technology spread rapidly in West Africa in the 2000s. The presence of private companies emerging on these markets in the 1990s contributed to this, following the deregulation of the telecommunications sector in most countries. These operators, mainly new in the region, finance the modernization and ex-pansion of the infrastructure network. They are significantly increasing their quality and geographical coverage [African Development Bank, 2015, p. 17].

Mobile payments are already booming in the world. The total number of mobile payments users in the world increased by over 380 million in years 2009-2016 (Fig. 7).

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164

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62 5

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65 1

64 4

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79 8

48 7

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219

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061

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An important factor for mobile money services development is Internet pene-tration, which is certainly lower in Africa but the trend is upward and depends on the country. When assessing the mobile payments market, it is worth paying attention to the fact, that South Africa is one of the largest economies in the region, and second only to Nigeria. In South Africa, the use of the Internet is higher than 60%, and al-most half of the population owns a smartphone. Blackberry currently has the largest market share at the level of 36%, while the sale of Android phones points to the fact that it can become the main operating system. In addition, the SnapScan mobile payment application has started operating in South Africa, enabling consumers to pay for parking, groceries and even donations to the church or to the homeless via a mobile phone. The South African bank FNB reports that its clients make 230 mil-lion mobile transaction transactions per month compared to 45 million on the popu-lar M-Pesa platform in Kenya. Kenya is another country with an increasing number of mobile connections and the most important trend in Kenya is the use of mobile money [McDermott, 2016, p. 35].

Since the second half of the 2000s, the growth of the mobile telephone net-work prompted mobile operators to develop additional mobile services, includ-ing mobile payments. In Africa the main operators, who participated in its im-plementation, are multinational telecommunications companies, including the South African MTN, the French Orange, the Indian Airtel, the English Vodafone and the Emirati Etisalat, which includes the West African subsidiaries of Mo-rocco, Telecom acquired by Etisalat in 2014. Alongside these large multinational groups, there are other regional players on the market, for example the Nigerian Globacom, Inova in Burkina Faso, Celpaid in Côte d’Ivoire and Ferlo in Senegal [African Development Bank, 2015, p. 18]. Table 5 presents examples of the main mobile payment operators on selected African countries.

Table 5. The main mobile payment operators on the West African Market

Nigeria Cote d’Ivoire Togo Benin 1 2 3 4

Glo xchange (Glo) Airtel Money (Airtel) EasyWallet (Etisalat) MTN Mobile Money Wari

Orange Money MTN Mobile Money Flooz (Etilasat) QashServices Celpaid Wari

Flooz (Etilasat) Wari Togocell

Flooz (Etilasat) MTN Mobile Money ASMAB (IMF)

Guinea-Bissau Senegal Burkina Faso Niger MTN Mobile Money Orange Money Wari

Orange Money Yoban’tel TigoCash MobileCash Wari

Airtel Money (Airtel Inovapay Mobicash (Etilasat) Wari

AirtelMoney Flooz Orange Money Wari


93

Table 5 cont.

1 2 3 4 Sierra Leone Ghana Mali Guinea

Airtel Splash Africell

MTN Money Airtel Money Tigo Cash Wari

Orange Money Mobicah (Etilasat) Wari

Orange Money Wari

Source: African Development Bank [2015, p. 18].

MNOs offer mobile payments as part of their mobile services, Table 6 shows mobile money services organized in mobile payments. Table 6. Types of different money payments services and platforms available

in the East African Community

Category Service Platform offering service M-payments Buy airtime (on-network) All mobile money platforms

Pay post-paid phone bills All mobile money platforms Educational institutions (school fees) M-Pesa (Lipa Karo)

MTN Mobile Money Uganda Financial institutions (loan repayments) M-PESA Kenya Health service providers (charges) M-PESA Kenya Utility providers (monthly bills for electricity, water, sewage, Pay TV)

All mobile money platforms

Hotels (services) M-PESA Kenya Churches and NGOs (contributions) M-PESA Kenya

M-PESA The United Republic of Tanzania MTN MobileMoney Uganda

Businesses (customer to business, i.e. payments)

M-PESA Kenya (Nunua na M-PESA) MTN MobileMoney Uganda Airtel Money across EAC

Bulk payments (business to customer, i.e. salaries)

M-PESA Kenya M-PESA The United Republic of Tanzania MTN MobileMoney Uganda MTN MobileMoney Rwanda

Mobile ticketing (buy tickets for events, hotels, airlines etc.)

M-ESA Kenya

Source: UNCTAD [2012, p. 6].

MNOs started by targeting entities that receive recurring payments from

various clients, such as energy companies (e.g. power, water, sewerage, pay TV) and those that make wholesale payments (e.g. salaries and school fees).


94

Many of these services have been launched as free promotional offers to help build a business and prove its utility to the consumer. “For example, Safari-com clearly states that “it is currently FREE to pay a bill using M-PESA. Please note that this is an initial offer valid only for a limited period” for the Nunua service on M-PESA” [UNCTAD, 2012, p. 7]. Some service providers stated that they can eliminate the costs for their customers who pay premiums for mobile money, because they provide them with a cheaper way to regularly collect fees from customers. “For example, the National Water and Sewerage Company in Uganda has scrapped all its cash collection centers and resorted to using banks and mobile money as the only means of repaying” [UNCTAD, 2012, p. 7]. MNOs also began to cultivate buyers for mobile payments, mainly for large entities with many branches, such as supermarkets (for example M-PESA cooperates with supermarket chains Uchumi and Naivas in Kenya, and MTN MobileMoney cooperates with supermar-kets Uchumi in Uganda) [UNCTAD, 2012, p. 7].

It is worth emphasizing that sectors such as education, health, tourism and insurance, are gradually “waking up” to the opportunities of using mobile money as another payment channel for their customers. Conclusions

Mobile money services market has flourished on African continent in recent years in comparison to other parts of the world (taking under consideration among others number of: total mobile money services, mobile money accounts, agents offering mobile money service and mobile payment users). It can be seen that Africa is at the forefront of the mobile banking revolution, spearheaded by the mobile phone technological platform for financial services. Furthermore, the number of mobile Internet subscribers is rising in Africa. Africa seems to be-come the worldwide leader in mobile money services. The Africans have will-ingness and ability to absorb innovations in the area of mobile money services. Mobile money services in African countries started to transform the domestic markets.

African mobile money services are based rather on non-bank-led model which is typical for lower-income developing countries. It can’t be forgotten that properly functioning mobile money services require a supportive ecosystem, with a number of players and infrastructure. Among them are mobile network operators, which provide the technological infrastructure and offer ‘mobile products’ which are tailored-made for customers needs in Africa. Additionally,


95

MNOs ensure security of transactions and distribution. They are especially im-portant in low-income countries, where the banking sector is not sufficiently developed.

Young societies of growing African economies are marked by high demand for financial services. There are many factors, however, which cause the high number of unbanked people reluctant to use traditional financial services deliv-ered by banking institutions. Mobile money services development (such as for example mobile payments), can create opportunity to “switch over” to new and innovative financial services excluding “traditional” path of its evolution. Against this background, the question arises whether or how this will influence the activities of banking sector in Africa. Or it will contribute to further vast development of Fintech industry on African continent. References ACP Observatory on Migration (2014), Mobile Money Services: A Bank in Your Pocket.

Overview and Opportunities.

African Development Bank (2013), Financial Inclusion and Integration through Mobile Payments and Transfer.

African Development Bank (2015), West Africa Monitor Quarterly, April, Iss. 6.

Committee on Payment and Settlement Systems (2013), Statistics on Payment, Clearing and Settlement Systems in the CPSS Countries, Bank for International Settlements, September.

Cull R., Ehrbeck T., Holle N. (2014), Financial Inclusion and Development: Recent Impact Evidence, “CGAP Focus Note” April, No. 92, p. 1-11.

Dahlberg T., Mallat N. (2002), Mobile Payment Service Development- Managerial Im-plications of Consumer Value Perception, “ECIS 2002 Proceedings” June 6-8, p. 649-657.

Dahlberg T., Mallat N., Ondrus J., Zmijewska A. (2008), Mobile Payment Market and Research – Past, Present and Future, “All Sprouts Content”, Vol. 6, Iss. 48, p. 1-16.

Demirguc-Kunt A., Klapper L., Singer D. (2015), The Global Findex Database 2014. Measuring Financial Inclusion around the World, “World Bank Policy Research Working Paper”, No. 7255.

Flood D., West T., Wheadon D. (2013), Trends in Mobile Payments in Developing and Advanced Economies, “RBA Bulletin” March, p. 71-80.

GSM Association (2010), Mobile Money Definitions, July.

GSM Association (2017), State of the Industry Report on Mobile Money, Decade Edition 2006-2016.


96

Hayashi F. (2012), Mobile Payments: What’s in it for Consumers? “Economic Review –Kansas City”, Vol. 97, p. 35-66.

International Growth Center (2016), Mobile Money: Lessons for West Africa, March.

Khiaonarong T. (2014), Oversight Issues in Mobile Payments, “IMF Working Paper” WP/14/123.

McDermott K. (2016), The Mobile Payment Revolution 2015, PAYVISION Global Card Processing.

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UNCTAD (2012), Mobile Money for Business Development in the East African Commu-nity.

[www 1] https://www.seedstars.com/2017/05/09/fintech-in-afrika-is-much-more-than-just-mobile-money-and-remittances/ (access: 28.01.2018).

[www 2] https://www.gsma.com/mobilefordevelopment/sotir (access: 05.01.2018).

[www 3] http://blogs.worldbank.org/opendata/chart-worlds-youngest-populations-are-africa (access: 15.01.2018).

[www 4] https://www.statista.com/statistics/279957/number-of-mobile-payment-users-by-region/ (access: 15.01.2018).

ROZWÓJ USŁUG PIENIĄDZA MOBILNEGO: PRZYPADEK AFRYKI Streszczenie: Celem artykułu jest ocena rozwoju rynku usług pieniądza mobilnego w Afryce w ostatnich latach w porównaniu z innymi częściami świata, ze szczególnym uwzględnieniem płatności mobilnych. Głównym pytaniem badawczym jest ustalenie, jaki jest stan rozwoju mobilnych usług finansowych, zwłaszcza płatności mobilnych, w Afryce w porównaniu z innymi regionami świata. Obecnie usługi mobilnego pieniądza, w tym płatności mobilnych, rozwijają się w Afryce bardzo szybko, w porów-naniu nie tylko z innymi krajami rozwijającymi się, ale również rozwiniętymi. Pieniądz mobilny ma bardzo duży potencjał w obszarze zapewnienia dostępu do usług finan-sowych w krajach rozwijających się. Kluczowe wnioski wskazują, że w Afryce można zaobserwować rosnącą liczbę usług związanych z mobilnym pieniądzem, w tym płat-ności mobilnych. Należy podkreślić, że kontynent afrykański jest współcześnie „centrum rozwoju” płatności mobilnych, z wielu powodów, m.in. rosnącej liczby użytkowników telefonów komórkowych. Usługi pieniądza mobilnego, stały się ważnym elementem codziennego życia w Afrykańczyków. Co więcej, usługi mobilnego pieniądza mogą stać się siłą napędową wzrostu krajowych gospodarek. Nadal występują wyraźne różnice w rozwoju usług mobile money między państwami afrykańskimi i wciąż trudno jest uzyskać bardziej szczegółowe dane dotyczące tego rynku. Artykuł opiera się zarówno na badaniach literaturowych, jak i na analizie danych statystycznych dotyczących kluc-zowych aspektów problemu objętego badaniem. Słowa kluczowe: płatności mobilne, pieniądz mobilny, państwa afrykańskie, kraje rozwijające się.

Documents

MOBILE MONEY SERVICES DEVELOPMENT: THE CASE OF AFRICA · Wheadon, 2013, p. 74]. Nowadays, the mobile money services, including mobile payments, are developing very fast in Africa,