Having just returned from 2 weeks in West Africa looking at the branchless banking market, one thing became quite clear to me: most African commercial banks have a very small retail banking business. As a Reuters Africa News blog post recently wrote:
Retail banking is not a high margin business. It is one where you have to earn a little from lots of customers, know them well and serve them well – not easy when you have many millions spread over a large area who may not be worth much individually even if they are better off than they have ever been before.
But the post goes on to make reference to a report by Bain & Company indicating that the financial services industy in Africa could grow by 15% a year until 2020, with the biggest growth area coming from retail banking. So what’s changed?
Mobile banking in particular is seen as being a powerful driving force after the success of the M-PESA mobile money transfer service in Kenya and others elsewhere.
Speaking of M-PESA (when are we not, right?), there’s been some interesting discussions lately around interoperability in the Kenyan market. An article in the Business Daily bemoans the fact that a proposal has gone to the Prime Minister’s office asking the Central Bank of Kenya to “establish a form of clearing house that will process all transactions from all four mobile money platforms.” The article goes on to say:
The small print [behind this proposal] reveals that some kind of market imbalance is being hatched in the quest to level what some believe is an uneven playing field. The success [of M-PESA] did not come easy to its creators. It was a hard fought battle against regulators as well as an expensive exercise for Safaricom who had to spend million – perhaps billions – educating its agent network, and indeed the world on a previously untested product. The proposal will effectively hand M-PESA’s rivals access to over four years experience in crafting that working eco-system - at no cost.
This topic also came up at the AITEC Banking & Mobile Money COMESA conference in Nairobi last week where Paynet Groups’ CEO in Kenya Bernard Matthewman said that there were 24 bank switches and credit management systems with multiple mobile banking platforms across the country. He continued on to say:
There is efficiency to be gained by not replicating infrastructure – you reduce costs and reap greater margins. You are in a much better position to go to places with less economic activity. Competition is increasing and CEOs are recognising that critical mass and volumes are needed to compete in the retail space. They are realising that they cannot reach competitive scale on their own.
Interestingly, the article includes similar quotes from representatives from Equity Bank and Orange, but not from Safaricom. Instead, in another article from the Business Daily describing the proposal before the Prime Minister, Claire Ruto, Safaricom’s corporate affairs officer said that:
Although consumers may initially enjoy the resulting price cuts, such a move bears the risk of killing innovations in the money transfer market. This is proprietary innovation and we don’t understand why our competitors should want to ride on it yet they too have theirs.
But to finish up, let’s switch from the supply side of the discussion to the demand side. We’ve blogged a lot over the last couple months about the launch of mobile money in Haiti. But one wonders how it is actually being used by people now that it’s in the market. A grant from USAID/HIFIVE has allowed a pilot of 100 beneficiaires to receive their unconditional cash transfers through the mobile phone, supported by Mercy Corps Haiti’s Economic Recovery Team. Here’s an update from Mercy Corps about how the first mobile money disbursement went:
When Marie first attended mobile money training, she didn’t understand how the money could be on the phone and would have preferred to be given cash directly. Now that she has seen mobile money in action, she believes that buying things is ‘very easy with the phone.’
- Sarah Rotman
Maybe we could borrow a leaf from the interoperability of voice and SMS services across networks since no one is complaining that this is a bad thing. How did we achieve this? Voice and SMS interconnection adds value to the telecoms sector as a whole and subscribers bear the actual cost of interconnection. I bet the same will happen when it comes to MM interoperability, which would presumably add value to the national payment systems and financial sector of a country like Kenya.
Alex… Pole to disappoint you but when you have spent alot of your money, time and cracked your brains to deliver a unique and innovative solution to the market, why oh why would you give up your edge to the competition? I am sorry, but that does not make business cents. Please note this has nothing to do with “Safaricom’s Attitude” but everything to do with smart business acumen.
If we look at from a people’s perspective, why oh why would Kenyans want to wait 3 to 4 days to clear money transfers via a clearing house? (This beats the convenience of sending and receiving e-money at almost real time…) who bears the cost of this additional service? (This will definitely still be passed on the people in terms of fees and charges…) how are the dealers /agents catered for (in terms of their commissions for transactions) if this is the perceived way if reducing costs? (The more you reduce the costs… the less of the “cake” there is to share between the operators, the dealers /agents, and now the proposed new entrant “the clearing agents” …) what would the impact be for the agency business in Kenya? (Note these are also people… with a life, responsibilities and dependants…)
I think let’s analyse proposals more deeply and objectively before jumping blindly for the “cheaper option”.
Daniel: I think the quote is meant to show that with proper education around mobile money, the technology barrier among users can be overcome. But you are right that there is a whole different set of challenges around whether mobile money is useful for consumers before the acceptance points for merchant payments are widespread.
Sarah: what is that last quote supposed to show? That it really is easy to buy things with a mobile and all the client needs is education? Is this accurate within the context of Haiti where mobile money is growing quickly, but not ubiquitous?