Comments on Mckinsey’s “Mobile financial services in Africa: Winning the battle for the customer,” By Mutsa Chironga, Hilary De Grandis, and Yassir Zouaoui

on 10 October 2017
ARED kiosk operator accepting mobile money payments

Frankfurt (Germany), October 2017. This week we share an interesting article from McKinsey & Company, “Mobile financial services in Africa: Winning the battle for the customer,” written by Mutsa Chironga, Hilary De Grandis, and Yassir Zouaoui. The authors review Mobile Financial Services (MFS) in Africa, and present their view on five paths that banks can take to be successful with MFS. With several of our companies leveraging mobile money in their solutions and offering MFSs, we follow the topic closely.

ARED's kiosks take mobile money for energy, WIFI, and top-up services
ARED's kiosks take mobile money for energy, WIFI, and top-up services

It is well known that Africa is the global leader in mobile money, which has become an important component in Africa’s financial services landscape and expanded financial inclusion. Mobile Network Operators (MNO’s) have dominated this market for the last decade, but recently Fintechs have presented a strong challenge and banks are also beginning to compete aggressively in this space. For instance, our investees at Clean Group UG are developing innovative suite of digital financial services aimed at increasing financial inclusion for unbanked populations in West Africa. Similarly, Farmcrowdy’s digital agricultural platform expands financial access for rural farmers who do not have access to credit, by matching them with farm-sponsors in Nigeria.

AgroCenta's AgroPay service provides secure and convenient payments for rurally living farmers
AgroCenta's AgroPay service provides secure and convenient payments for rurally living farmers

Mobile Money is one subset of MFS that allows customers to send, receive, and store money using their mobile phones. Just over half of the 282 of the globally operating mobile money services are located in Sub-Saharan Africa, according to the GSMA. Today, there are a 100 Million active mobile money accounts in Africa, representing 1 in 10 adults, a figure which is far higher than South Asia, the region with the next highest mobile money penetration. Mobile Money solves many problems for consumers and small business, many of which have no access to bank accounts, allowing them to send and receive money securely across long distances. Mobile money has diversified to include insurance, credit, and cross-border remittances. For instance, ARED primarily accepts Mobile Money for its services on its Mobile Shiriki Platform, providing convenience to customers and minimizing fraud potential. AgroCenta also uses Mobile Money in its AgroPay service, facilitating payment delivery to rural farmers. 

The Mobile Money market has diversified as it matured, with five primary archetypes of service providers identified by the authors as:

  1. MNO Dominant
  2. MNO led partnership
  3. Bank-led partnership
  4. Bank dominant
  5. Third-party (Fintech)

MNO’s continue to dominate the market, with the most successful having five to ten times as many clients as bank-led services. In some markets, regulations protect banks with respect to deposit services, however MNO’s have built their success on three factors: 1) near complete distribution networks; 2) large customer bases/strong market concentration; 3) superior customer experience. Distribution main advantage for MNO’s. In Kenya, Safaricom has 130,000 agents where users can get cash, while the leading banks (where agency banking is successful), have only approximately 15,000 agents. Next, MNO’s have vast numbers of customers. Mobile phone usage is at approximately 80%, which is twice the rate of bank penetration. Finally, superior client experience both in terms of ease-of-use, merchant experience, and no-fee bill payments.

The authors argue that banks have five paths, depending on their capabilities and market locations to compete in the MFS landscape.

  1. Go it alone.
  2. Build a digital bank.
  3. Partner with a Fintec
  4. Partner with non-Telco
  5. Partner with a MNO

Each of the paths is viable, depending on the bank’s situation. The authors argue that the only non-viable option is “business as usual.” Although banks and insurance companies have until recently dominated the financial services markets, MNOs and fintechs have been making significant inroads into these markets, particularly in the African retail and SME segments. MNO led innovations have expanded financial inclusion in Africa, placing banks in a position where they must develop digital financial services to retain their leading roles not just in payments and deposits, but across the full spectrum of financial services.

We agree with the sentiments expressed in this article, as they mirror our own opinion that solutions should be problem oriented. To remain relevant to in MFS markets banks should develop customer-centric solutions, or risk being eclipsed by players who understand the markets better. We welcome the potential benefits of banking institutions providing better and more inclusive financial services that will expand financial access and inclusion.