04 February 2021

Mobile money, affectionately known as MoMo to many, has been a staple of the east African economy for years. After more than a decade since its emergence, the service has evolved as the formal financial service of choice for many underserved groups in developing countries.

Pre-pandemic days, the rapid adoption and widespread use in this part of Africa wasn’t necessarily to do with convenience, but on its necessity, since it bridges gaps for the “unbanked” population that the existing banking sector doesn’t.

It comes as no surprise then that emerging markets have become the epicentre of mobile money activity and sub-Saharan Africa has long been experiencing the most growth. Prior to Covid-19, transaction volume and value in the region saw double-digit growth during the last decade, and mobile money accounts are expected to reach 500 million at the end of 2020.

Championed by the late Bob Collymore, the late chief executive officer (CEO) of Safaricom, Kenya and Tanzania have embraced the technology that helped the unbanked pay and receive money for goods and services for some time now.

Nevertheless, we are now in very different times - fighting a war with an invisible and indiscriminate enemy, going by the name of Covid-19. Is that good or bad news for mobile money? Let’s start with east Africa, which is now synonymous with the likes of Safaricom’s M-pesa service.

Edwin Okoye, chief executive officer of Follow Me Talk, a smartphone financing company, says that while mobile money is popular, it is saturated. “What will happen now due to Covid is that people will need to look for ‘deals’ on mobile - either with cheaper calls, or spreading the costs of handsets,” he says.

“Mobile Money is already a saturated market in Kenya - with nearly all the banks trying to have a go at it. Covid has had a massive impact on the Kenyan economy and one big impact has been that smartphone sales have gone through the roof. People are at home looking for new business ideas and consuming more data looking for jobs or communicating with loved ones.”

He says that one implication of Covid that Follow Me Talk can predict is that there will be more take up of financing of smartphones. “At the moment people are still conscious of the economy but we predict that before Christmas and certainly in 2021, there will be a big rise in financing,” Okoye continues. “Covid has increased phone usage in Kenya - especially with more people working from home. People also want to try new alternatives for cheaper calls, or new international numbers for cheaper calls to friends and family abroad. It’s actually a great time to be launching an MVNO service.”

However, head left to the west coast of the world’s second largest nation and you’ll find that “Cash is King”. Well, that was true until the Covid-19 pandemic ripped through the continent, making the governments of Nigeria and its neighbours nervous of handling banknotes, owing to the fact they can carry the novel coronavirus, transmitting it from person to person.

While that might be the obvious and conscientious thing to do, it’s not always straightforward expecting a population to embrace a new method of payment when they’ve spent centuries using cold, hard cash. Before that, of course, the infrastructure needs to be established in the first place.

Patrick Roussel, director of mobile financials services, MEA, Orange says apart from northern Africa and in the Middle East, the countries where it operates as a mobile money operator (MMO) in Africa have less infrastructure than in eastern Africa but things are moving and Covid19 is accelerating progress.

“For example, bank switches are not yet present in our countries but with Orange Money we have more and more direct bank integrations (Bank2Wallet) which enable us to propose transfers from a customer’s Orange Money wallet to their bank account and vice versa,” he says. “Also, we have more and more retailers that are willing to integrate Orange Money as a payment method. In general, we can see that, especially since the pandemic, regulators have been increasingly promoting mobile money adoption.”

That said, Anil Krishnan, head of Africa region at Comviva, the Indian mobile solutions and VAS specialist, says even in the  pre-Covid era, “quite a few west African countries like Ghana, Côte d’Ivoire, Senegal and Mali; central African countries like Cameroon, Gabon and Democratic Republic of Congo and southern African countries like Zimbabwe, Zambia, Mozambique, Botswana and Malawi had significant traction on the mobile money front. “Popular MoMo services like Orange Money, Airtel Money, EcoCash, MTN MoMo, etc to name a few have been doing extremely well in multiple African countries even before the onset of Covid pandemic,” he says.  “We are also seeing other markets in the region warming up to mobile money services in the post Covid times. For example, Nigeria has approved regulations to launch of mobile money in the country through Payment banks. While Egypt took slew of regulatory measures like easing KYC rules and increasing transaction limits, Ethiopian regulators have also cleared the decks for the lone operator in the country to offer mobile money services. Morocco recently saw launch of three new mobile money services including Inwi Money and Orange Money. MTN in South Africa re-launched MoMo. These are positive trends that show the popularity of mobile money now transcends east Africa.”

It’s a view shared by Ahmad Sayed, regional director, Middle East and Africa at fellow VAS specialist, Nexign, who says pandemic aside, MoMo “has been a hot trend”, especially countries in western and north western Africa. What’s more, he has the stats to back up the claim. “According to the 2019 GSMA report on Mobile Money, Africa is by far the leading continent for MoMo services with 50 million new accounts created on the continent in 2019 and a 12% increase in registered users,” Sayed continues. “Big operators and groups in Africa try to promote MoMo because it is a huge revenue generator. A good example is Orange with its Orange Money offering and recently launched 100% mobile Orange Bank Africa.”

Sayed says that, generally, telco operators are ready for mobile money in terms of infrastructure. “However, implementation of BSS solutions that support online charging and MoMo transactions can make it even easier for CSPs to fully embrace the trend,” he continues. “However, regulatory requirements and local laws can be an obstacle. In some countries, operators are not allowed to operate as a bank – for example, to host a mobile wallet and use it to transfer money – which means that CSPs have to partner with banks and other institutions to launch these services. In this case, the operator provides the front end for financial services to its clients, but the actual transactions happen within the partner bank’s systems.”

Good news then that, in the current climate, MoMo is not the preserve of a handful of east African nations. However, it still begs the question as to how the more ‘unbanked’ countries with little internet access survive if cash is no longer in circulation if app-based transactions become the dominant form of money transaction?

Krishnan says one of the key success factors of mobile money among the “unbanked” in Africa is that the services are fundamentally device and “channel agnostic”. In simple English, that means the services work seamlessly across access channels supported by any type of phones – basic feature phone to smartphone. “Internet availability has proven less of a challenge in the adoption as the mobile money services are being offered over other popular access channels like USSD, IVR, etc,” he continues. “In fact, a significant portion of transactions in Africa (over 90% in some countries) are done through USSD, which does not require internet. On the other hand in markets with reasonable Internet connectivity, we are also seeing the rise of mobile money apps, which provide better user experience as well as more flexibility for innovations such as ‘Scan & Pay’ (QR Code), ‘Tap & Pay’ (NFC) and so on.”

If you don’t have a smartphone, there are other options, such as the mobile payment option that is Orange Money. Even more than that, it’s a service that is very easy to use, accessible from almost all phones and does not need to have internet access, according to Roussel.

“The service works from a simple 2G network through the very classic USSD interface,” he continues. “ Customers register free of charge at an Orange Money point of sale near their home: this can be an Orange store of course, but also, depending on the country, an Orange franchise, a grocery store or a petrol station for example. Then, once registered, our customers can perform all of their other operations directly from their mobile. One of the Orange Money strengths is to put in place a huge number of point of sales i.e. more than 300,000 across our footprint in order to facilitate customer cash in and cash out.”

Roussel says Africa is already seeing increased proliferation of smartphones, such as the Orange Sanza mobile phone range, “providing an affordable way for consumers in the UEMOA region” to gain access to more advanced technology. “These smartphones will deliver new ways for customers to access mobile money services through easy to use apps, and new functionality which will improve the customer experience,” he says.

For Sayed, even countries without widespread internet connectivity can have operators that offer mobile money solutions. “In fact, today primary channels for MoMo are USSD and SMS and high-speed internet and mobile broadband (4G/5G) is not absolutely necessary,  which means this won’t be much of an obstacle for African CSPs,” he adds. “Moreover, MoMo can be a good solution for banks that need to develop remote service channels in places where financial infrastructure is not well-developed. Here operators can help banks by providing them with solutions that enable remote card issuance in compliance with all KYC procedures and reach the existing mobile subscriber base with new financial services.”

Unlike other forms of technology, such as methods of communication, the uptake tends to be more evolutionary. People see their friends using an app, so they join them. Yet while one could argue that the slow, but steady appreciation of mobile money in northern, western and southern Africa is or was evolutionary prior to the pandemic, one could also retort that it has now become a medical necessity – a revolution, if you will.

If the latter is to be believed, does that mean mobile money will be more than a short-term catalyst and – for want of a better expression – “the future”? Sayed says there is no doubt the pandemic has accelerated the trend towards virtual products and remote channels. “When personal visits to banks and cash payments became dangerous, all market participants started looking for a contactless infrastructure that would be ready for operation with minimal modifications,” he continues. “Covid-19 might be a short-term catalyst for use of MoMo, but the growing trend for transactions without physical contact makes MoMo extremely attractive both for CSPs and end-users in a long-term perspective. Earlier people were not making use of MoMo, mainly due to security concerns. Now, after Covid-19 forced them use MoMo solutions, many subscribers feel more confident about it, even those who were initially sceptical. Now the trick for CSPs is to convince people to continue using MoMo and change the ‘Cash is King’ mindset with new digital offerings.”

Roussel says the pandemic has definitely been a catalyst for accelerating trends in digital adoption by Orange’s customers. He adds that during the pandemic, the BCEAO Central Bank and others like BEAC in central Africa and BCC in DRC have asked Orange and other MMOs to cut transaction fees for Orange Money and reduce KYC requirements, in an attempt to encourage people to avoid using cash and therefore help slow down the spread of the virus. “For example, the person-to-government (P2G) payments, like public benefits and pensions, school fees, etc. is particularly vital during a pandemic for people and governments,” he says. “There is a growing understanding that the effects of Covid19 will be long-lasting.  The crisis has increased mobile money adoption, and the strategy of Orange is to accelerate the Orange Money digitalisation for a better customer experience and more services. And Orange is encouraged by the governments and the Central Banks in this strategy.”

The irony is that despite the pandemic bringing global economies to a grinding halt, some positives have come from it, depending on one’s own personal circumstances. For Krishnan,

it has reinforced the need and demonstrated the multiple benefits offered by mobile money services. “A large number of users beyond east Africa where MoMo was already popular have experienced the benefits of contactless payments at merchants, P2P transfers, enabling financial transactions like bill payments, etc during the lockdown period,” he continues. “Mobile money is also enabling government and humanitarian organization to disburse financial aid directly to mobile wallets of the vulnerable people, collecting Covid-19 relief donations digitally, paying salary to front line workers etc.”

Krishnan believes these use cases and benefits will – in Comviva’s view – propel the adoption of mobile money in these markets as we have witnessed significant growth in mobile money transactions during the pandemic period. “It is our strong belief that the interest in mobile money is not short-term and this service is here to stay even in post Covid-19 era,” he says.

However, it’s not all roses for players in the mobile money space.

The success of such services attracted the attention of tax authorities seeking to expand their revenue base. After all, in sub-Saharan Africa, the formal economy represents about 34% of the population, putting extra pressure on states to seek new sources of revenue. Mobile money services have been such an opportunity. While there is no doubt that African governments have to raise taxes and broaden their tax bases, they must also approach tax policy with a discerning eye. Despite the diverse methods proposed to tax mobile money, in most cases the results – especially on mobile money transaction – are controversial, proving the structural weaknesses of taxation in the region and putting Africa’s financial inclusion at risk.

A recent report from GSMA notes: “State authorities are unable to fully understand the nuances of emerging sectors, such as mobile-money services or even the wider digital economy.” The result has been “badly designed taxes which, although they may seem attractive at first sight, fail to consider the impact on the broader economy and society.”

Independent research and reports from prestigious organisations, such as the above mentioned GSMA, reveal aspects of the problematic way in which mobile money services are treated. This includes specifics of the population that uses these services or the negative impact on financial inclusion those taxes bring about.

According to another report of GSMA, 77% of mobile money providers reported paying sector-specific taxes in 2019, whether on fees, transaction values, or total revenue. Additionally, 23% of those affected said taxation was harming the uptake of mobile money services and their business, revealing the regressive effect of poorly designed taxes.

Sadly, in the absence of a vaccine/cure, we’re still no closer to knowing when we might see the back of this debilitating, the world at large will have to continue looking at ways to minimise the spread. If, in this case, Africa is looking to migrate from paper to digital money, it’s not a bad idea to know what’s out there.

“Today you have to be an Orange customer to use the service,” says Roussel. “Now it is possible in many Orange Money countries to make money transfer transactions to non-Orange Money countries such as for example between Botswana where Orange is implemented and Zimbabwe where Orange is not.”

Comviva is also doing its bit, with customers in over 40 countries in Africa. It also takes a lot of pride in what it calls its “dominant” position in the African market for its digital financial solutions that include our mobile money platform, digital banking suite and electronic recharge & voucher management solution. ”Today we not only serve telecom providers, but also banks, fintech and digital payment providers,” adds Krishnan. “We are building on our strong leadership position in the region to expand our reach into other countries for our digital financial solutions both in greenfield as well as transformation opportunities.”

What about Nexign? SAYED says the Russian firm is willing to develop its Network Monetisation Suite and offer its functionality to African customers to help them embrace mobile money and its benefits, like fast money transfer, micropayments and NFC-based payment products.

“Nexign has already a successful example of partnering with MegaFon - a pan-Russian provider of digital opportunities and a leader in the Russian and global telecommunications market - to create a popular mobile money product,” adds Sayed. “MegaFon subscribers were offered a virtual bank card that mirrored the mobile balance and could be immediately used with an NFC-based smartphone payment system. As a result, MegaFon received a convenient product closely integrated with the connectivity services and loyalty programmes. Within the 1st year of the project MegaFon issued one million virtual cards bound to subscribers’ mobile accounts and increased ARPU by 100% for mobile money users.”

He argues that Nexign’s solutions are flexible enough to support multi-currency and be implemented in various countries. “Despite different regulatory requirements in each region, Nexign’s delivery team is ready to share its experience and work closely with African CSPs to develop MoMo offering that will be fully integrated with partner’s solutions and will be suitable for the local market,” says Sayed. “Ultimately, Nexign can help African CSPs be fintech advocates in their region and become trusted partners for customers that use financial services.”

While the bad news is, we don’t know how things will pan-out in the short or even long-term, the good news is you don’t have to have all the mod-cons synonymous with wireless technology to make or receive payments. This could make mobile money.