NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Africa is ground zero of the mobile money revolution, a rapidly developing and exciting – but often chaotic and confusing – space. Last week, some of the top names in the industry gathered in Johannesburg at the Mondato Summit Africa to bring some clarity to the sector’s present and future. The discussion included thought leaders and executives from financial services providers like Visa and Equity Bank, development organizations like the African Development Bank and CGAP, and even media companies like Twitter and Facebook. We’ve put together 10 key takeaways from the event:

Mobile money 2.0: Africa leads the way

As Mondato CEO Judah J. Levine put it, there is still a need for a strategic and concerted effort to reach scale across the mobile finance and commerce (MFC) ecosystems, and to push active usage beyond person-to-person (P2P) payments and airtime top-ups. Levine noted that Africa is particularly well positioned to lead the way in the development of MFC 2.0, through its experiments with mAgri, merchant payments, mHealth, mobile micro-insurance and a growing suite of savings and loans products. He identified a number of keys for progressing to MFC 2.0, including communicating a clear narrative around value propositions, isolating manageable portions of the vast pool of data to drive insights, and providing a seamless experience across multiple points of contact.

Collaboration or competition?

The fact that Africa has more “open spaces” with un- and under-served market segments means that high uptake and usage of MFC services could come from incremental evolutionary change, rather than requiring dramatic shifts in behavior, as may be the case in more evolved markets. But several participants stressed the need for the ecosystem to grow collaboratively, amid concerns that attempts to own the channel by any single party might bring short-term benefit, but in the long run throttle the channel by restricting consumer choice.

Interoperability is needed – or not?

Charles Niehaus, payments and mobile money consultant at the International Finance Corporation, gave a case study of how interoperability was achieved in Tanzania. He stressed the importance of moves towards interoperability being industry led, and championed by a recognized, honest broker (in this case, the Bank of Tanzania). He also sounded a note of caution when it came to the issue of pricing: National competition regulation must be respected, he said, and any impression of collusion over pricing must be avoided. It should be left to negotiations that result in bilateral agreements. Natalie Baatjies, senior director for financial inclusion CEMEA at Visa, also felt that interoperability is needed – not just between mobile network operators (MNOs), but also including banks and other players. But John Staley, chief officer, finance, innovation & technology at Equity Bank, questioned the ultimate value of mobile money interoperability when it remains decoupled from the larger digital banking and financial system. He pointed out that interoperability existed elsewhere outside Tanzania, and the issue was not its desirability, but the cost.

Big Data = big potential – and big risks

The value of data as the basis for partnerships was a theme that many participants strongly emphasized. And while this was of itself uncontroversial, the question of who owns it and how much they charge for it was rather trickier. However, speakers did discuss examples of several successful partnerships in the mobile microcredit and microinsurance spheres, and they cited its great potential in mHealth, mAgri and even for facilitating merchant payments, in the case of KopoKopo.

Too soon to shift to smartphones?

Much has been written about the rise of cheap smartphones and its implications for Africa. However, even though perhaps 33 percent of phones in Africa will be smartphones within a few years (as predicted by one speaker), few present were willing to write the obituary of USSD just yet. Areef Kassam, programme director – M4D Utilities at the GSMA, identified it as one of five key channels to bringing basic, but vital, utilities to Base of the Pyramid consumers in Africa (the other four being M2M, mobile money, GSM towers and agent networks). One company providing solar electric, Fenix International, was the winner of the Mondato Digital Finance Plus Social Impact Award in Africa 2015. Michel Hanouch, financial sector specialist at CGAP, on the other hand, pointed towards the need for more graphical and icon-rich user interfaces that would assist consumers with low literacy levels. He counseled a move away from a hierarchical USSD structure towards a flatter graphical interface.

Interestingly, the summit saw two providers of microcredit, afb and InVenture, take two different approaches to this issue: afb is purely USSD, with no forms required, and they did not see the market moving towards apps. Conversely, InVenture (winner of the Mondato MFC Innovation Award in Africa 2015) is an app-based interface. Unsurprisingly, Ebele Okobi, Facebook’s head of public policy – Africa, saw the future as smartphone and app-based. As well as Facebook’s own Internet.org ventures (bringing the Internet to rural areas via balloons and drones), Facebook has been calling on MNOs to give free access to Facebook as an on-ramp to signing up for other data-driven services. Equity Bank, on the other hand, had conducted a study that showed consumers turned off the data on their smartphones and largely restricted their app usage to when they had a wi-fi connection. The picture, all agreed, was certainly mixed.

Needed: more focus on women

Anne Gincherman, chief product development officer at Women’s World Banking, pointed to the role of mobile money and agent banking in bringing “banking to the doorsteps of women,” who are generally “time poor.” She noted, however, that MNOs need to improve how they take account of women’s specific needs, stating that only 23 percent of MNOs segment for gender when considering customer requirements.

Kenya: not a mobile money model to emulate?

Though Kenya’s M-PESA is the go-to example of a mobile money success story, for John Staley, the idea that Kenya is a model that others should replicate was questionable, given the dominant position of Safaricom that made it difficult for banks to enter the space. He also highlighted the lack of settlement and clearing that raised the specter of fraud in mobile money, which gave regulators the need for caution. Moreover, he highlighted that the median transaction in Kenya was U.S. $1, meaning the economics of further digitizing transactions are challenging, but that new technological innovations such as the blockchain on which Bitcoin is based could create the affordable channel that Africa needs. Staley boldly stated that Africa needs to move away from a focus on mobile money, and towards mobile financial services.

International remittances bring challenges and opportunities

Erik Van Thielen of TransferTo drew attention to the challenges and opportunities that exist in international mobile remittances. He noted a shift in the remittance space towards working with both digital and brick-and-mortar financial institutions, and that TransferTo provided a hub that connects more than 1,000 operators, utilities and service providers operating in 30 markets. He also highlighted the trend towards alternative value transfers for micro-remittances, including but not limited to airtime, which now makes up 20 percent of remittance transfers. The digitization of vouchers and alternative value means that small transactions of $5-$10 are now economically viable for a range of players, including Western Union, TransferGram, Azimos and Xoom.

’Banks are broken’ for mass market digital finance?

CGAP’s Michel Hanouch identified six digital attributes of mobile financial services: 1) real time; 2) P2P connections; 3) user experience; 4) ID/verification; 5) remote sensing; 6) data trail. However, he raised the issue of the difficulties faced by entrants, who often find it hard to identify suitable partners and test models. He warned that most are still experimental, and even today there are few proven business models.

Johan Bosini, managing director of mobile at afb Group, declared provocatively that “banks are broken for providing financial services to the mass market” – though obviously not everyone present was in agreement. He highlighted the value of partnerships with MNOs, whose networks and customer data can enable alternative credit scoring. He said that afb’s approach involves individualizing loan limits (which are profitable right down to a U.S. $0.30 – yes, 30 cents! – loan amount), fees and terms. By focusing first on the hardest segment, unsecured loans, he said, afb can build trust with those who hold the data. He told the delegates that afb even takes into account the time of day a loan is applied for. As an example, he cited the fact that 4 a.m. to 6 a.m. tends to have high demand from traders, as they buy stock to sell – whereas a loan applied for at 1 a.m. is much more likely to be for a(nother) drink.

The potential to reshape other sectors

On the hugely important topic of agriculture, discussion involved drones’ potential role in assisting in soil monitoring for crops, and the use of algorithms for such diverse activities as counting livestock, or recommending fertilizer requirements. Big Data and geographic information systems can dramatically increase the number of data points policymakers can rely on for building infrastructure or administering subsidies, and mobile trading platforms mean a large trader can track many small plot-holders to facilitate the aggregation of producers.

Moving from farming to surgery, Dr. Torooti Mwirigi, senior program manager at the PharmAccess Foundation, stressed the importance of partnerships in mHealth, and the ability to deploy small groups to ensure good data is collected on a number of test programs to determine viability. He drew attention to a vicious circle in Kenya, in which clinics don’t think they will get paid, so they’re reluctant to treat people other than those who are seriously ill. Hence, the sick don’t go to clinics because they believe they are only for people who are very seriously ill. He added that while the government lacks adequate data to inform policymaking, the mobile channel has the potential to change this, through projects such as mTiba in Nairobi that utilize e-vouchers for health clinics, as well as better use of conditional cash transfers via mobile money.

Editor’s note: This post was adapted and republished with permission based on coverage of the summit on Mondato’s blogs.

Chris Connolly leads Mondato’s media efforts and provides research and analysis to support its reputation as a thought leader.