Internationalising Mobile Banking in Africa
Princess Puskas is an economist in the Modelling and Forecasting unit, Research and Financial Stability Department at the Central Bank of Botswana, and member of the 2022 Young African TradeExperettes Fellowship.
Digital payments have emerged as an alternative to the traditional concept of money, based on a broad set of changes caused by technological innovation, including debit and credit cards, electronic wallets, and mobile phones. The surge in new financial technologies and digital payment systems has elicited a range of responses from researchers and policy makers (including in central banks and governments) seeking to adapt these changes to their advantage. Notably, mobile money has been revolutionary for cross-border remittances in Africa. It has been, over the past decade, a major catalyst for payments growth in Africa through introducing innovative payment solutions. However, despite the increased use of mobile money and the likelihood it will have a more radical and lasting effect on African markets, there remain challenges to the adoption of mobile money across borders.
The Rise of Mobile Money in Africa
The future of mobile money payments in Africa is one of tremendous growth and opportunity. For example, the value of Africa’s mobile money transactions rose by 39% to USD 701.4 billion in 2021 up from USD 495 billion in 2020, indicating that the future of African banking is mobile. The value of African transactions made up about 70% of global transaction values, which hit over USD 1 trillion for the first time in 2021. Furthermore, there are about 140 active companies in the mobile money market on the African continent: the main ones being M-Pesa; Money Telephone Network (widely known as MTN) Money; Orange Money; Airtel Money; and Tigo-Cash. A report from McKinsey & Company projects mobile payments to increase by 7% by 2025. Revenue growth in Africa is anticipated to be almost three times faster, with financial inclusion quickly expanding, primarily driven by the adoption of mobile money and several innovative payment solutions introduced by banks and Fintech firms.
The growth in cross-border payments is expected to increase trade within Africa, and the market reach of micro, small and medium-sized enterprises (MSMEs). MSMEs are considered the backbone of economic development in most African countries as they often contribute significantly to economic growth, innovation, and employment creation. This role is particularly important in national efforts to reduce both poverty and inequality in societies. Moreover, MSMEs support economic diversification, as they cover non-farm economic activities, including among others, manufacturing, mining, commerce, and services.
Although the acceptance of mobile money and/or account-to-account payments through mobile channels for cross-border payments remains nascent, payments and settlements can be done instantly, thereby enhancing the micro and small merchant’s daily inventory financing. Additionally, mobile money payments contribute positively to growth in revenues of businesses as they enable the linking of invoices to digital transactions and provide operational efficiencies. MSMEs are also an engine for financial inclusion, especially for small businesses that do not fully participate in the formal financial system.
Orange Botswana launched its new orange money VISA card in 2013, making it the first mobile network operator to offer this kind of service, and it continues to promote both financial access and inclusion in Botswana. Moreover, it aims to support the sustainability of Botswana’s business community through tailor-made innovative solutions. It acknowledges the need for sound, reliable and affordable communications platforms that meet the needs of small companies so they can continue to make profitable business moves through the adoption of mobile money.
More recently, Kenya’s Safaricom and VISA launched the M-Pesa Global Pay virtual card to support digital payments, giving VISA an extended reach across Africa. The virtual card will enable M-Pesa customers to shop at more than 100 million merchants through VISA’s global network for the first time. VISA has also highlighted its intention to open a vast market and expand the intra-Africa payments ecosystem for businesses and customers to overcome hurdles to global trade.
These examples show that digital technologies have the potential to promote Africa's economic integration, generate inclusive, innovative and long-term economic growth, stimulate job creation, bridge the digital divide, and eradicate poverty. In essence, this would help achieve the Sustainable Development Goals (SDG) of the United Nations, particularly SDG 10c, which sets a target to reduce the transaction costs of migrant remittances to less than 3% by 2030.
Challenges
Notwithstanding the potential of mobile money to immensely contribute to various economies, MSMEs and the informal sectors face a plethora of challenges that hinder their growth, and they are not well catered for by most banks. First, the payments remain largely internal to individual African countries as there is a lack of regional regulatory harmonisation and a multi-currency regime among African countries that allows customers, businesses and governments to transact across borders using mobile money. In addition to limited access to multi-currency regimes, these countries can often be subject to large and unpredictable fluctuations in exchange rates, making goods more expensive (to purchase) or cheaper (when selling), thereby eroding the income of traders.
Second, a lack of knowledge and awareness, as well as inadequate training on the use of mobile money services hinders their adoption. Furthermore, there is often a lack of confidence on the part of customers, businesses, and governments to adequately adopt mobile banking services when they are not aware enough of the interface design, navigation, and contents of mobile applications. This can result in non-use and/or rejection of mobile money services.
Third, there are also problems of inadequate technological infrastructure and border facilities which, if solved, could help to meet the needs of large and diverse markets. For example, poor network infrastructure and coverage make it difficult for traders to communicate with their clients, suppliers or transporters. Moreover, there are additional functional and institutional challenges at some border crossings, such as the use of manual customs clearance processes, malfunctioning electronic systems and network failures due to electricity shortages. These translate to delays at border crossings, thus causing unpredictable delivery times and making it difficult to participate in time sensitive logistics chains.
Last, new technology poses a challenge to regulators to support cross-border payments in a world where they are combating money laundering, terrorist financing and fraud. Criminals commit mobile money-enabled crimes through exploiting weaknesses in regulatory compliance measures and customer identification systems.
Recommendations and Conclusion
Establishing an enabling framework to unleash the full potential of mobile money services requires robust dialogue between the public and private sectors across borders. To this end, the African Export-Import Bank (Afreximbank) partnered with African Continental Free Trade Agreement (AfCFTA) to launch the Pan-African Payment and Settlement System (PAPSS), which has been developed to boost intra-African trade by transforming and facilitating clearing and settlement for cross-border trade across Africa. Ghana’s President, His Excellency Nana Addo Dankwa Akufo-Addo, noted that PAPSS will save Africa approximately USD 5 billion annually in payment transaction costs.
Mobile networks in Africa are urged to acquire new talent and capabilities and build capacity to ensure that both customers and businesses understand and have access to effective recourse and complaint procedures for resolving errors or disputes. Meanwhile, the Africa Digital Financial Inclusion Facility (ADFI), a unique fund with a pan-African mandate, was designed to be a catalyst for digital financial inclusion across Africa. The ADFI aims to achieve its goal by intervening in digital infrastructure, digital products and innovation for widespread mobile connectivity and usage. Moreover, mobile networks are urged to invest in modern systems, processes and technologies that facilitate the provision of cross-border payment services aimed at removing barriers and connecting more people to the global economy.
African countries must formulate anti-money laundering controls and specifically establish mobile money controls to safeguard mobile money and value transfers to effectively preserve the financial integrity of mobile money transactions and enhance financial inclusion ambitions. Therefore, to open a mobile money account, customers need to provide proof of identity as all financial services providers, including mobile money providers, must comply with Know Your Customer (KYC) requirements and follow best practice. This is necessary both to ensure the commercial reliability of financial services and to comply with financial regulators’ rules on KYC, particularly for the purposes of anti-money laundering and countering the financing of terrorism policies.
Lastly, regulators (governments) should consider the costs of implementing transparency requirements for businesses that ultimately conduct low-value transactions, and guard against creating overly prescriptive or complex rules, or mandating standards and protocols for technology that are expensive or impractical in low-income areas.
These efforts would not only facilitate cross-border payments but enable cost effective and inclusive intra-African trade transactions. They would go some way towards meeting some of the challenges to the adoption of mobile money across borders.
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