In the money

Hannes van Rensburg, CEO of Fundamo, discusses the mobile financial services market in Africa.

Tags: Mobile banking
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In the money Hannes van Rensburg sees huge potential for mobile banking.
By  Hannes van Rensburg Published  July 5, 2010

Mobile financial services are already playing a profound transformational role in Africa by extending the privileges associated with a financial identity and improving economic inclusion, contributing to a sustainable increase in national GDP. The GSMA predicts mobile financial services will also create the opportunity for 1.7 billion unbanked in developing countries with mobile phones to secure a financial identity by 2012.

The economic downturn has cast a shadow over this positive growth, African banks had limited exposure to toxic investments and survived the crisis with little impact on their balance sheets.

The downturn did affect the mobile financial services sector indirectly by reducing the availability of capital in Africa. This has made the establishment of mobile financial infrastructures extremely difficult as the funding needed to start up new operations has been largely unavailable.

The mobile financial services market in Africa for banks, as it stands, is devoted to customer acquisition in order to rapidly gain market share. The market is dominated by the first and second largest banks. Therefore, it is difficult for vendors and smaller mobile companies to develop sufficient traction needed to provide a positive cash-flow business case. In order to survive the next two years, the smaller players in the market need to be acquired by the leading telecoms providers and banks to sustain their growth. Consolidation is crucial.

We are already seeing consolidation in some markets like Nigeria. But in fast organic growing markets such as Kenya, the banks and operators are in the planning stages to grow their transaction volumes and customers in the countries within which they operate, by merging and consolidating.

Consolidation is a major drive for many banks and lots of scope for growth exists as the untapped market for financial services is vast. The introduction of bank and operator consolidation allows banks to extend their market share without the need for investment in tangible bank branches, while allowing operators to provide mobile financial services. Furthermore, the provision of mobile financial services will differentiate banks and operators from their competition and, in turn, generate additional revenues for both parties.

Over the next two years, as the macro-benefits of offering mobile financial services to lower income segments become more apparent, we expect the introduction of government incentives to deliver these services. These types of incentives are currently driven primarily by NGOs such as the Mzanzi initiative in South Africa.

As the mobile industry develops and retailers make a bid to become involved, the mobile banking industry in Africa is set to evolve. Examples of this progression are already emerging, from cash-in and cash-out functions on mobile wallets being made available at retail outlets, to new cash-collection mechanisms for retailers, and payment services for small businesses.

As this market grows and matures we expect the services to go beyond transferring money to relatives, to more transformational services, such as bill payments and loans. With these new mobile services we will also see a reduction in technology CAPEX for operators as more flexible and secure solutions become available for less. Further benefits for African banks include reduction in overhead costs, such a building maintenance and staff.

It is a broad belief in the industry that operators and banks will go head-to-head for large customer bases within the mobile financial services market. I believe that operators and banks can create a relationship based on mutual understanding where banks deliver the banking credibility and mobile operators deliver distribution of the service.

By each contributing their own strengths, they will generate larger, more profitable markets from which they will both benefit. Examples of market improvements can already be seen from the mergers between M-Pesa and Equity Bank, and Mobile Money and Standard Bank.

This will deliver win-win business models and drive growth within the market. For example, ten banks could collaborate with one operator for a single mobile financial solution on one platform boosting economies of scale and market share for a minimal investment. Relationships between banks and operators are already evolving in this direction with the shared platform in Pakistan being a case in point.

In the coming months, growing mobile infrastructure and win-win business models along with new pressures and catalysts will continue to spur mobile financial services growth in Africa. By working together on mutual opportunities banks and operators will ensure that Africa leads the world on mobile financial services.

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