THE MELTDOWN

Winning combination for mobile financial services in Africa

Hannes van Rensburg, CEO of Fundamo, discusses consolidation in the  mobile financial services market in Africa and explores how the  relationship between operators and banks is critical to growth over the next two years.

Mobile financial services are already playing a fundamental and  profound transformational role in Africa by extending the privileges  associated with a financial identity and improving economic inclusion,  contributing to a sustainable increase in national GDP. The GSM  Association predicts mobile financial services will also create the  opportunity for 1.7 billion unbanked in developing countries with mobile phones to secure a financial identity by 2012.

Market challenges

There are two key forces at work. Firstly, the mobile financial  services market in Africa for banks, as it stands, is devoted to  customer acquisition in order to rapidly gain market share. Secondly,  the recent economic downturn has reduced the availability of capital in Africa.

The mobile financial services market is currently dominated by the  first and second largest banks. This has made it difficult for  innovative vendors and smaller mobile companies to develop the traction  required to provide a positive cash-flow business case. Furthermore,  this restraint on capital has made the establishment of mobile  financial infrastructures extremely difficult as the funding needed to start up new operations has been largely unavailable.

The value of consolidation and relationships

In order to survive, the smaller players in the market must be acquired  by the leading telecoms providers and banks to sustain their growth. In  many African markets, banks and operators are planning to grow their transaction volumes and customers by merging and consolidating.

The introduction of bank and operator consolidation allows banks to  extend their market share without the need for investment in tangible  bank branches. Instead, banks allow operators to provide a range of financial services via mobile platforms.

Consolidation makes sense to both the big and small market players. In  this environment, consolidation is crucial. However, so are  relationships. Operators and banks can create a relationship based on  mutual understanding where, put most simply, banks deliver the banking  credibility and mobile operators deliver distribution of the service.  By each contributing their own strengths, they will generate larger, more profitable markets from which they will both benefit.

Reaping the benefits

Consolidation is a major driver for many banks as they seek to tap into  the growing mobile financial services market. The provision of mobile  financial services will differentiate banks and operators from competitors and generate additional revenues for both parties.

As this market grows and matures, we expect the services to go beyond  transferring money to relatives, to more transformational services,  such as bill payments and loans. With these new mobile services, we  will also see a reduction in technology CAPEX as more flexible and  secure solutions become available for less.

The win-win business model

The introduction of consolidation and mutually beneficial relationships  will generate win-win business models and ultimately drive growth  within the African mobile financial services market. Examples of market  improvements can already be seen from the mergers between M-Pesa and  Equity Bank, and Mobile Money and Standard Bank.

In the coming months, growing mobile infrastructure and win-win  business models along with new pressures and catalysts will continue to  spur mobile financial services growth in Africa. By working together on  mutual opportunities, banks and operators will ensure that Africa  continues to lead the world in mobile financial services.