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

Friday, May 8, 2015

Moving money across African borders with the click of a cellphone button just keeps getting easier. The mobile money revolution – essentially the use of cellphones to access financial services – is already transforming the face of financial inclusion on the continent.

But growing cross-border options and the interconnection of mobile operators is hastening this change, which has implications for traditional financial services such as banks and money transfer operations, according to experts.

For a start, it is driving down the costs of international remittances in sub-Saharan Africa, where they outstrip the global average – although remittances from South Africa to neighbouring countries are the most expensive in the region, according to the World Bank.

With well-established money flows flying from cellphone to cellphone, most famously through services such as M-Pesa in Kenya, cellphone operators are increasingly offering not only cross-border transaction services but are also interconnecting their services.

Interoperability (the ability of customers of different mobile services to transact with others) has already been a success for MTN in West Africa. And, early this month, it was announced that, in East Africa, the epicentre of the mobile money revolution, MTN Mobile Money will be connecting with M-Pesa, the mobile money transfer service launched by Safaricom, in which Vodafone has a 40% stake.

Although this is not the first cross-border interconnection in the region, it links the two largest operators in countries with about 90-million mobile customers, according to the Groupe Speciale Mobile Association (GSMA), an organisation of mobile phone operators.

Money corridor

The agreement will link M-Pesa customers in Tanzania, the Democratic Republic of Congo, Mozam­bique and Kenya, and MTN Mobile Money users in Uganda, Rwanda and Zambia.

The first corridor between M-Pesa in Kenya and MTN in Rwanda is expected to be up and running by the end of May, MTN’s group head of mobile financial services, Serigne Dioum, said this week.

Other corridors would follow soon after, pending the finalisation of technical integration and approval from the countries’ central banks, he said.

Partnerships such as these will prove stiff competition for traditional money-transfer services such as Western Union, given the accessibility of cellphones and the relative affordability of the products on offer.

“Our ambition is to move money transfers from traditional channels to MTN Mobile Money channels,” Dioum said.

In a bid to achieve this, he said, it had priced its transfer offerings aggressively at 5% of the transaction, compared with the 10% to 15% offered by other service providers.

Although this would not happen overnight, given the extensive cellphone penetration and the good traction of mobile options, MTN expected that it would be able to capture at least half the market very quickly, Dioum said.