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Why is mobile money such a big deal in Africa

With the most noteworthy examples being Vodafone’s M-Pesa in Kenya and Econet’s EcoCash in Zimbabwe, mobile money has established itself as a viable financial solution throughout Africa. 

Mobile network operators (MNOs) frequently offer mobile money in markets where a sizable portion of the populace lacks access to formal bank accounts, banks, ATMs and cash. It is a type of e-cash that is used to make digital transactions using SIM-enabled devices and mobile phones.

Without being directly connected to the formal banking system, users are able to receive, withdraw and send money. Through their personal cell phones, users have access to financial services, savings, insurance, loans and merchant transactions. Mobile money is accepted as payment in many stores, retailers and large enterprises, but these businesses need to partner with a reputable FinTech provider, such as 4C Group of Companies.

For businesses in Africa, 4C offers innovative FinTech solutions through their digital platform called iNSight™. It serves as the link between the merchant or bank and a payment portal (or mobile device). The software acts as both a compatibility layer between companies and service providers and a security tool that protects consumers and businesses during every transaction.

What exactly is mobile money?

A service must meet the criteria listed below in order to be classified as “mobile money”:

  • It must allow the transfer of currency, either by making or receiving payments, through a cell phone or mobile device.
  • It must be accessible to anyone without access to a bank account or an authorized financial institution.
  • It must include a network of physical transaction points, including agents that make the service more readily available to the population.

Mobile banking applications such as Apple Pay, Google Wallet, and banking apps do not qualify as mobile money services. This is because they simply access traditional banking accounts and services using cell phones.

What led to the establishment of mobile money in Africa?

The first MNO in Africa to launch mobile money with its M-Pesa brand was Safaricom Kenya, a member of the Vodafone Group, in 2008. It was developed to enable peer-to-peer financial transactions, and it solved a massive problem for Kenya’s urbanised workforce. It allowed them to send money to their parents and other family members who lived in rural areas.

Sending physical cash was risky, inconvenient, and expensive. Money dealers would charge 15% of the transaction’s value. By introducing an electronic ‘currency’ that could be instantly transferred between cell phone numbers, M-Pesa provided a solution to this issue. With M-Pesa’s rapid and widespread adoption, companies in Kenya quickly realised its potential and started accepting mobile money as a legitimate method of payment for their products and services.

As a result, M-Pesa became easier to use, which led to an increase in its use among Kenyans. South Africa, Lesotho, Tanzania, Mozambique, Egypt, Ghana, and even Afghanistan currently use M-Pesa. The competition has expanded as additional MNOs have introduced their own mobile money services under their own brands.

Mobile money transactions totalled $70 billion (R1.1 trillion) in December 2020. In Africa, there are more than 300 mobile money services with 1.2 billion registered users overall. This demonstrates how businesses cannot ignore Africa’s rapid adoption of mobile money. To have access to a wider customer base, large companies must incorporate mobile money into their systems.

Banking versus mobile money

Mobile money in Africa has rapidly developed into a powerful financial service in little over a decade. This has raised concerns about whether banks would completely be replaced, but this is unlikely. To govern the use of mobile money and the maximum amount that can be transferred at once, certain countries have developed regulatory frameworks. This ensures the continued viability of formal banking services.

The MNOs that provide mobile money services are regulated and are required to abide by a number of laws and rules. Many of these regulations are designed to protect users, while others are intended to protect banks. These e-currencies are essentially digital tokens that are exchanged for real money that is deposited into the MNO’s bank account. MNOs are required to hold these deposits in a trust account with a registered bank.

The MNO may then issue the electronic token for each unit of currency deposited. These tokens are credited to the user’s mobile money wallet, where they can be sent to other wallets to pay for goods and services. Although the US dollar is a popular base currency, the value of the electronic token is fixed to the value of a specific currency, typically the local currency used in that country.

How do users without bank accounts get access to mobile money? MNOs set up registered mobile money agents who can deposit or send e-cash in exchange for physical currency in order to make the service more accessible. Users can exchange bank notes with the agent, who will then send their phone the equivalent sum in mobile money. To allow users to withdraw money, the agents can also exchange mobile money for actual cash.

These agents expand the customer base by bringing mobile money services to remote and rural areas. It functions essentially like an ATM network, with registered agents in place of machines. Similar to how a typical bank may deduct a transaction fee from a user’s account when they make a withdrawal, the agents also receive a small fee per transaction that is deducted from the user’s payment.

In Africa, a large number of banks are also registered mobile money agents. This enables their users to convert money in their bank accounts into mobile money. The process of converting cash into mobile money is known as ‘digitisation’ and every single day in Africa, over $500 million per month is digitised.

Mobile money has actually leveraged technology to expand access to financial services to those who might have previously been excluded from it, rather than posing a threat to the formal banking sector. Banking and mobile money go hand in hand to boost financial stability and economic growth.

Why businesses require mobile money services

It is evident that businesses in Africa must integrate mobile money services into their structures. By accepting mobile money as payment, they will expand their customer base, particularly in rural areas. Mobile money has unquestionably become more popular due to its exceptional benefits and value to the customer.

It provides an instant, reliable, secure and affordable means of transacting. Mobile money provides access to a wide range of goods and services for individuals who own mobile devices and empowers the unbanked. It enables users to send money to businesses, pay their bills and purchase data and electricity from any location.

Businesses that use mobile money will have lower payment processing costs and access to a massive consumer base. Additionally, it provides customers with recurring payment options, enabling companies to start issuing loans or accepting payments in instalments.

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Written by Taryn Hill

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