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02 March 2024

More room for mobile money growth

By Andrew Brierly and Jonathan Dharmapalan

Fifteen years ago, the mobile phone was a status symbol for executives. Today, there are four billion mobile phone subscriptions worldwide, 75 per cent of them in emerging markets with the Middle East and Africa (MEA) representing one of the fastest growing regions.

Even more remarkably, the GSMA estimates that one billion people in emerging markets have a mobile subscription but no bank account – a number that is likely to rise in the coming years, as mobile penetration continues to expand.

As mobile services become more widely available, the industry is on the cusp of an equally significant transformation: using the handset to extend mainstream financial services to the many billions of consumers worldwide who are currently excluded from the formal economy.

Mideast and Africa takes the lead

To date, this potential has been underlined by a number of successful examples around the world. Most – but by no means all – of these successes have been in Africa, where mobile money is bringing banking services cost-effectively to a new demographic: large, dispersed and unbanked rural populations. Such capability has seen M-Pesa in Kenya become the world's most widely-adopted mobile money scheme. Launched by Safaricom in 2007, M-Pesa now has seven million users out of a population of 38 million. Kuwait's Zain launched ZAP, a competing service, in Kenya (and Tanzania) in February 2009 and boasts very high growth in its first year.

MTN, Africa's biggest operator by subscribers, has launched its mobile money service in South Africa and Uganda, with trials in a number of other African countries, and is looking to roll it out across the Middle East. Zain plans to introduce its ZAP service across all 23 countries in which it operates across MEA. France Telecom's Orange is piloting Orange Money services in Ivory Coast and expects to roll them out in Egypt, Senegal and Mali in the coming months.

But operators are not just focused on the less developed countries. Zain is partnering with Visa and the National Bank of Kuwait (NBK) to roll out payment services across the rich block of GCC countries, while etisalat has announced the introduction of mobile money services in the UAE.

Unlike the rural poor in the emerging markets, the main groups likely to embrace and benefit from mobile money in the developed world are people such as migrant workers, who typically do not have bank accounts and need means to send money back to their home country. These "unseen" groups exist in all developed countries, and are all active mobile phone users. Yet, this opportunity remains largely untapped. In addition, mobile money can be used for making payments for goods and services without the need for cash or credit cards, offering greater flexibility which is likely to appeal to the region's significant youth demographic.

Despite an improved environment, mobile money services still face challenges. One is the difficulty of achieving scalability across borders, since variations in financial regulation mean a service that works well in one market may not work in another. Outside the GCC, countries in the MEA region tend to suffer immature financial and telecommunication regulatory regimes, which make it difficult for businesses to introduce innovations. Greater global convergence of financial services regulation is important to mobile money's long-term future.

Other hurdles include concerns around fraud and privacy, with threats such as spam, malware and outright theft of personal financial information set to increase in line with the growth in mobile commerce. While mobile networks already have encryption, mobile transfers require additional tracking and logging to meet regulatory obligations.

Business and operating models

Another important consideration is the high degree of cross-industry collaboration that is needed. The value chain involves a wide array of industry participants, ranging from mobile operators to financial institutions, money transfer companies, merchants, chip makers and equipment vendors. Successful services require close co-operation among all these stakeholders – the Zain-Visa-NBK partnership is such an example.

This complex ecosystem has produced a wide variety of models, reflecting external factors such as market composition, openness of regulatory regimes, maturity of related industry sectors, and degree of co-operation within the value chain. The initial models developed for mobile money were generally divided between operator-centric and bank-driven, with the leading role in each case generally taken by the participant with the greater "ownership" of the end-customer.

For mobile operators, the value proposition of mobile money lies in the ability to up-sell value added services to customers and the extra network usage this creates. As operators worldwide migrate to 3G networks, the need to derive value from mobile data is becoming mission-critical. For their part, banks, payment networks and money transfer companies can earn commission or transaction fees from merchants and consumers. However, all participants need scale to turn a useful service into a lucrative business.

The high level of interdependence between the various participants can be seen in the emerging 'multi-consortium' model (Figure 1). Here, mobile operators collaborate as equals with a range of trusted third-parties to deploy mobile applications, thereby capitalising on the complementary strengths of different industries. With the emergence of near-field communications, enabling peer-to-peer transfer of money between handsets, this model may develop into more creative sharing agreements resembling today's co-branding contracts.

Industry participants are now focusing on the long-term profitability of mobile money applications. As communications technology becomes a critical infrastructure for delivering financial services, in-country initiatives will need to evolve into inter-operable, cross-border solutions. At the same time, advances in technology and collaboration across industries will be required to support the growth of mass-market propositions.

While we anticipate that mobile money services will continue to grow strongly, to date, the industry has only scratched the surface of this massive global opportunity. However, given the level of interest shown by the major operators in the Middle East, mobile money services are likely to become a feature of the market over the next couple of years.

Andrew Brierly is Mena Telecommunications Transaction Advisory Services Leader, while Jonathan Dharmapalan is Global Telecommunications Advisory Services Leader at Ernst & Young. Neither the authors nor the Ernst & Young will accept responsibility for loss to any person relying on this article.


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