The rise of telco-led mobile money services across Africa has blurred the lines between the types of companies that can offer financial services.
Whereas banks were previously the sole custodians of most financial transactions, a wide range of non-traditional players – including fintechs and neobanks – have diversified the sector.
Telcos allow their users, as it stands, to send and receive money on a digital wallet.
The most common uses of the USSD-backed services are transactions between family members and paying utility bills.
But the entrance of the new players into the financial services sector begs the question of whether telcos will continue an advance into other areas like savings, loans, investments and insurance.
As banks face rising competition on multiple levels they risk losing market share to the new players unless they are able to improve the services they currently offer.
Situation in Africa
Africa is a global leader in mobile money services – its domestic banks are therefore under even more pressure to innovate and compete.
According to GSMA, an industry-association of mobile money operators, there were 310 live mobile money services in the world last year and 55.2% of them were in Africa.
The report found that mobile money services were more available in markets where access to financial services is low.
Mobile money has been expanding rapidly over the last decade, growing at an accelerated rate in 2020 due to Covid-19.
In 2020, mobile money accounts grew by 12.7% globally to 1.2bn with sub-Saharan Africa adding 43% of all new accounts.
Mobile money players have also slowly been creating new services.
Airtel Africa, an Indian-owned service predominantly in East and Central Africa, partnered with MoneyGram last year to receive transfers from more than 200 markets that the US-based payments company is present in.
Although this still involves the transfer of money from one party to another, it represents a move towards more complicated financial services like remittances.
Different business models
However, some experts believe that telcos are unlikely to replace banks because both service providers have markedly different business models.
“The main role of banks is to mobilise local savings to finance the local economy,” says Yves Eonnet, chairman and cofounder of Skaleet, a Paris-based company that provides core banking services to financial institutions in Africa, Latin America and Europe.
“The telcos will never play that role except if they become official banks complying with the central bank regulation. Otherwise, they will stay as limited payment and money transfer service providers.”
One of the first differences is that banks, in line with regulation, have much stricter know your customer (KYC) checks than telcos, allowing them to perform a far greater range of functions.
On the reverse side, banks struggle to roll out services in comparison to telcos, which will have networks of distributors and operators in any given country.
This is the reason why telcos have been heralded as a vehicle for financial inclusion in Africa; they can easily provide services in even the most remote locations.
The telcos will, to a certain extent, also view mobile money products as a way to push users on to mobile networks where they can charge dramatically more for other services like data and airtime.
“The cost related to mobile money services is viewed by telcos as a marketing service which is it is absolutely not by a bank,” says Hervé Manceron, CEO of Skaleet.
“In a bank, it must have a positive profit and loss (PNL)”.
Banks strike back
In fact, rather than telcos moving into banking territory there are signs that banks could move the other way.
Skaleet, for instance, has worked with banks across Africa to help them build out their own mobile money services.
The service-provider has worked with a large variety of financial institutions ranging from French banking giant Société Générale to Mauritania’s Banque Mauritanienne pour le Commerce International (BMCI).
Standard Bank, Africa’s largest lender by assets, is currently rolling out a mobile money product called Unayo that it hopes to launch in all its markets by the end of 2023.
Previously banks had used telcos to get access to wide distribution channels and telcos had partnered with banks to offer sophisticated financial services.
Industry insiders believe that future partnerships between telcos and banks will have to be based on a much clearer value-proposition than in the past.