Guest Articles

March 25

Jill Lagos Shemin

Will the Coronavirus Pandemic Push Africa’s Mobile Money Markets to the Next Level?

Amidst the countless measures that have been announced recently in response to the coronavirus pandemic, both public and private, you may have missed this announcement from the Central Bank of Kenya: It is cutting transaction fees for mobile money, increasing the amount allowed in mobile wallets and reducing other mobile money tariffs, in an attempt to encourage people to avoid using hard currency and help stem the spread of the virus. This decision is consequential both because of its potential short-term impact on customers and the local economy – and also because of what it suggests about the potential impact of the coronavirus crisis on mobile money markets and digital finance ecosystems in Africa and across the developing world.

Kenya is arguably the world’s most successful and robust mobile money market, the first country where mobile money truly scaled. According to one widely-held perspective, Kenya was able to build its digital finance ecosystem thanks to a confluence of factors, including a “trigger” catalyst event that forced the large-scale and rapid adoption of Safaricom’s M-Pesa mobile money transfer service: the post-election violence that erupted in 2008. The ethnic-based violence left over 1,000 dead and some 350,000 displaced, and prevented many from safely moving about their community or traveling between regions. Without the ability to move cash in-person, people turned to the then-nascent M-Pesa service en masse, and quickly became accustomed to the ease and convenience that it provided. Thanks to this momentum and a large nation-wide agent network, M-Pesa rapidly expanded and provided the basis for a “payments as a platform model,” offering bill pay, merchant accounts and a host of other financial services, including digital credit and savings accounts. If it weren’t for this triggering event, some analysts believe that the platform would’ve taken far longer to reach critical mass, with significantly higher costs for Safaricom, rendering the revolutionary model of mobile money less promising.

Now some are wondering if the coronavirus pandemic will act as a similar catalyst in other mobile money markets. Many countries across Africa have already launched and even scaled mobile money services to a good extent; some have even built reasonably robust digital finance ecosystems. When it reaches sufficient scale – which can take over five years post-launch – mobile money enables a broad array of accessible digital financial services (often called “DFS 2.0”), which can include group loans, innovative asset financing (as seen in off-grid solar home systems), e-commerce services, and more. Yet few – save for China and now Ghana – have achieved the broad network effects and the dynamism seen in Kenya, where consumers can access a range of third-party providers offering relevant, value-added financial services.

Could the coronavirus crisis, with its imperative to self-quarantine and severely limit direct contact with people (and contaminated physical cash), provide an impetus to mobile money growth in other countries, propelling these markets to a fuller, more inclusive digital finance ecosystem? And could the pandemic help the industry overcome a barrier to its future development – its reliance on agent networks – moving these countries to a cashless or cash-lite environment? To answer those questions, let’s explore why trigger catalysts are so important to scaling mobile money businesses and to building inclusive DFS 2.0 ecosystems – and how the unique demands of the coronavirus pandemic could provide the trigger that pushes the industry to greater scale and impact.


Mobile Money Agent Networks: The Foundation Behind Triggering Events

For this broader market to develop, providers (often telecom operators) must first attain a critical mass of active mobile wallet users – estimated at a minimum of 15% of their total subscriber base – to make the business of mobile money work. A key part in driving this uptake is establishing a large agent network. Agents provide a channel for customers to perform over-the-counter (OTC) transactions, which include the typical cash-in-cash-out (CICO) services that spearhead mobile money’s main initial value proposition. Along with converting digital value to and from cash, agents help on-board new customers, introduce them to products, and provide continuous customer service – especially for users with low literacy levels, or low initial levels of trust. Establishing this mass-market familiarity with a new money transfer product can lead to better mobile money wallet uptake, a precursor to a cashless system. This lays the foundation for a digital ecosystem that is instrumental in delivering financial services to low-income populations.

The agent-driven model has become standard in the mobile money industry, based in part on M-Pesa’s success in Kenya. A year prior to the tumultuous election of 2008, Safaricom had laid the groundwork for its mobile money service, spending millions on piloting, developing the technology, and especially on building its network of agents. Indeed, throughout much of 2007, M-Pesa had more agents than customers. It implemented a strategy of continuing to build out the agent network as usage increased, to maintain pace with customer growth in 2008. It was this established agent network and the proximity and guidance it offered to many unbanked and unfamiliar customers that allowed Safaricom to capitalize on the post-election surge in demand that came that year.

However, there is a conundrum with the OTC model: It offers a compelling value proposition for consumers, yet it is expensive and nearly unsustainable for providers. Building and managing an agent network involves a long-term investment, and a willingness to lose money for years before a service becomes profitable. According to GSMA’s 2014 report on mobile money profitability, mobile network operators should expect agent network investments amounting to six to eight times the revenue generated by their mobile money services in the startup phase of one to three years.

This is what is referred to as “the OTC trap”: If a business model begins with OTC, it can lock a provider into this model for too long, limiting its mobile wallet uptake and delaying the development of a full DFS ecosystem. This dynamic has become a significant challenge for the sector. That’s why many analysts believe that the OTC model is best seen as a stepping stone to a more cashless environment, in which CICO transactions decrease and purely digital mobile wallet transactions grow. Yet the GSMA’s 2018 Global Adoption Survey of providers found that CICO transactions still represented the majority of mobile money transactions. In these markets where “CICO is still king,” mobile money has not been able to evolve into a truly cashless ecosystem.


Why Mobile Money Needs to Go Truly Cashless – And How Coronavirus Will Accelerate the Transition

Mobile money providers can earn much greater margins if more customers transact directly from their phones without agent-driven CICO. Additionally, when people automatically receive more of their money via a digital channel and store it in their mobile wallets instead of cashing it out, they transact electronically more with other mobile wallets, digital merchants – and anyone who can accept a digital payment. So the transition to cashless transactions is crucial not only to the business success of mobile money, but also to the transition to an ecosystem able to offer DFS 2.0 products for the marginalized and the unbanked.

Coronavirus is traveling much farther and affecting far more countries than previous disease outbreaks in Africa, like Ebola – and it’s also affecting countries around the world that are major remittance-senders to Africa. And we may never witness another time where human-to-human contact is being so discouraged in so much of Africa, for such a long time period. The crisis represents a potential trigger event that could allow mobile money providers in many African markets to move their business away from its dependence on agents, drastically increase mobile wallet adoption, and move quickly towards a robust digital ecosystem.

In response, based on learnings from Kenya and analysis of other mobile money successes, mobile money providers should pursue two approaches in tandem:

First, they should continue to invest in their agent networks. The Kenya example and the “OTC trap” have demonstrated the effectiveness of agents as an on-ramp to a mobile money ecosystem. Investing in these networks will be primarily to generate the uptake and customer awareness that emerging services require: Agents should focus on registration of new customers as wallet-holders, activating dormant customers, and providing marketing and awareness of mobile money value-propositions, especially centered around the risk of virus transmission. Providers can combine this with corporate social responsibility/public health efforts and join with their Ministries of Health, offering branded hand sanitizer at agent kiosks instead of the more common free t-shirts or stickers they usually offer for marketing.

Second, now is the critical time to spend money and resources on advertising, public awareness messaging, innovative below-the-line marketing, and promotions for mobile wallet-based products. The goal of these efforts should be to motivate customers to become active mobile money wallet users – in other words, to convince them to send, receive and hold digital funds in their wallets rather than transacting via agents. As mentioned above, Kenya is already taking steps to motivate this behavior change. Sonatel/Orange in Senegal is following suit, offering no fees for digital merchant payments for 30 days, and working together with government utilities to provide free water and electricity payments. MTN Zambia has also followed Kenya’s example, linking digital payments explicitly to coronavirus with its “No cash, No germs, Go MoMo” campaign.

The steps above may seem counterintuitive: Why invest in the agent network, which primarily serves OTC transactions, while moving customers away from OTC? Yet it is well-documented that OTC persists due to customer comfort and familiarity, and the right provider response on agent incentives and pricing can help change this dynamic. For instance, Ghana significantly transitioned customers away from OTC to increased mobile wallet usage, showing it can be possible to engage agents and move customers past their dependence on cash.


How Governments and Other Stakeholders Can Help Providers Establish DFS 2.0

The current pandemic will surely prove to be a time of extraordinary change, including changes in behavior. As such, it presents an unusual opportunity that, if navigated intelligently, could generate positive, tangible outcomes for low-income communities among the broader, tragic outcomes in public health and economic growth.

To help providers play a greater role responding to the crisis, and move towards a cash-lite DFS 2.0 ecosystem, policymakers and government ministries could:

  • Consider the example set by the Central Bank of Kenya in cutting transaction fees: Can other regulators follow suit – or even go a step further?
  • Accelerate existing initiatives that encourage a digital economy, like:
  • Convene key actors to consider lowering the capital requirements for mobile money providers to operate, so they have more liquidity to build out their business.
  • Invest in or fast-track the infrastructure for digital government-to-person (G2P) and person-to-government (P2G) payments, to enable the electronic payment of public benefits and pensions, school fees, etc. (This capability can be particularly vital during a pandemic when delivery systems are stressed.)
  • Work closely with providers on a robust nation-wide advertising campaign for digital payments, leveraging the opportunity to co-brand. This showed enormous uptake in Cote d’Ivoire, where a public-private partnership with mobile money providers boosted annual school registration fee payment.

Development finance institutions and banks could:

  • Offer bi-lateral support and funding to finance the transition to a necessary infrastructure for digital payments – for G2P and even for the host government’s own internal operations – so they can accelerate implementing G2P payments (something that’s already happening in many countries, to a limited extent). 

Investors could:

  • Extend financing for capital-intensive operations, like building out a provider’s agent network, or quickly hiring a larger software development team or technical vendors to improve mobile wallet-based user interfaces.
  • Provide capital for the design of effective marketing materials for agents, especially “how to” materials visually showing how customers can use their own phones for transactions. The goal would be not only to reduce customers’ long-term dependence on agents, but also to limit the short-term contact between agents and customers, and the tendency for agents to use customer phones to perform transactions (a practice that’s not ideal at a time of social distancing).
  • Engage credit guarantors/guarantee mechanisms to support and risk-share the financing of the more capital-intensive needs described above.

Meanwhile, it goes without saying that mobile money businesses and governments alike should be pursuing every angle possible to protect citizens, and to temper the burden on their health systems. This could involve distributing hand sanitizer to agents, along with tapping agent networks to transmit public health recommendations on hygiene and preventing virus transmission. These are unsettling times, and mobile money providers and digital stakeholders should not hesitate to move quickly to lessen the dangers for their customers – while also working to create a fully digital ecosystem where the risks, expense and inconvenience of cash-based transactions are a thing of the past.


Jill Lagos Shemin is a global development professional currently based in West Africa.


Photo courtesy of USAID Digital Development.




Coronavirus, Finance, Technology
COVID-19, digital finance, digital payments, financial inclusion, global development