Growing pains: Why Africa's mobile money revolution isn't all it's cracked up to be

When Kenya's mobile money infrastructure took off, many assumed that other countries across Africa would replicate the same model. The reality, however, has been very different.

Kenyans have always found ways to send money back home to relatives. But ten years ago, remembers Leonard Kore, getting cash to grandma was a slow and perilous process.

"We used to put it in a bus," he says. "You go to the bus building in town, queue up, pay for the service. You had to wait for the bus to start, and probably the bus would take another six or seven hours to its destination." Grandma might then have to take another bus to travel to the station to collect it. "In that whole process your money could get stolen."

Then came the mobile service M-Pesa, with the tagline 'send money home', and the Kenyan money transfer world was transformed. "The first people who started using it saw how easy it was," says Kore, a telecom analyst with IDC. They signed up to send money using their phones in droves.

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Since its introduction in 2007, mobile money has grown rapidly in Kenya, quickly overtaking banks as the most popular way not only to send money home, but to make electronic payments as well. Today mobile money penetration stands at 56 percent. Last year's rebasing of the Kenyan economy, taking into account new technologies like mobile money transactions, positioned the country as a middle-income nation for the first time.

The advantages of mobile money are clear: it boosts financial inclusion among the unbanked, helps advance the digital economy, and acts as a catalyst for ICT growth. In countries in which vast segments of the economy tend to be informal, it also makes it easier for governments and regulators to monitor cash flows.

And yet, eight years after mobile money revolutionized Kenya, the country remains an outlier. A number of other African countries have tried to get similar systems off the ground, but none has enjoyed Kenya's astonishing levels of success.

"There is some disillusionment in some countries," says Kore. "Some countries have to reevaluate their strategies because each country is facing a different set of challenges and scenarios."

He suggests that part of the explanation for this lies in the near-monopoly of Kenya's largest mobile operator, Safaricom. Safaricom had around 70 percent of the market in 2007; brand awareness was high, and the company already enjoyed the trust of consumers. Because of Safaricom's already extensive agent network, it was easy for customers to access the agents responsible for handling their money.

2007 and 2008 was also a period of violent instability in Kenya, as rival political parties pitted one ethnic group against another following contested presidential elections. Across the country, people were too terrified to leave their homes. In Nairobi, the worst-affected areas were the slums, home to hundreds of thousands of unbanked Kenyans.

"The whole two-month period where everyone was scared and in their houses, it also increased awareness because you can't go to your bank, you can't access your funds, but somebody sends you 10,000 shillings and it works," explains Kore. "It was necessity. It really worked for the unbanked population."

But perhaps the most important factor in the success of M-Pesa was the lack of government regulation it faced. "They didn't view Safaricom as a bank," says Kore, explaining that regulators failed to recognize how transformative the new technology was likely to be. The idea was pitched simply as a platform, with the actual money stored elsewhere. By the time the service had surpassed the banks in terms of customers, it was too late to cut Safaricom out.

But those heady days are over, and other African governments now have a much better idea of what to expect from a mobile money network.

"Most countries have a very tough regulatory environment, and rightfully so because we are dealing with money," says Kore, pointing to the case of Nigeria, Africa's most populous country.

"If mobile money were to take off, even 20 percent, you're talking about 30 million people," he says. "So they are heavily regulating it. They are very hesitant to open up the mobile money ecosystem to telcos, mobile money vendors, and everybody else, because they fear there might be systemic risks." As a result Nigeria's mobile money penetration stands at only six percent.

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Many of the countries in which mobile money has stalled - including most of North Africa - have been pushing for bank-led systems, says Kore. "They have genuine cause for concern because of monopolies by telcos. They also feel that telcos lack financial discipline, in terms of security and customer processes," he explains.

But banks, unaccustomed to a business model based on transaction fees, don't always see mobile money as profitable enough to invest in. The amounts held in mobile money accounts tend to be low, and the capex required to build the kind of extensive agent network that telcos already operate - and which is necessary to run a mobile money network - is often prohibitive for a bank. "They are not seeing the return on investment," says Kore. "I haven't seen a really good success case study for a bank in Africa that has really benefitted from mobile money."

But for telcos with pre-existing agent networks, mobile money represents additional revenue at practically no cost. This explains the sudden explosion in mobile money adoption in the Ivory Coast, says Kore, where the government reversed an earlier preference for a bank-led system and opted to open up the market to telcos. 46 percent of Ivoirians now have mobile money accounts.

Another success story is Tanzania, where last year's interoperability agreement between Tigo, Airtel, and Zantel made it easier for Tanzanians to send money across networks. Kenya's Safaricom has so strenuously resisted interoperability that Kore predicts Tanzania's adoption rate may someday surpass that of its northern neighbour.

There are a number of other factors involved in mobile money's success as well, including the state of a country's existing electronic payments system; for South Africa, where bank accounts and credit cards are comparatively widespread, mobile money is considerably less appealing, and despite the backing of Safaricom's parent company, Vodafone, uptake has been slow.

"Mobile money will not work everywhere," explains Kore. "In some countries it might be a citizen to government thing, for some countries it might be peer to peer transactions, just transferring money from person to another. And some countries like Kenya will have the full ecosystem."

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