Following the phenomenal success of Kenya’s 10-year-old M-Pesa programme, mobile money and mobile banking initiatives have begun popping up across the African continent. Beginning as a simple and secure way to transfer small amounts of money, mobile money programmes have evolved to offering subscribers a full suite of financial services, including savings, bill payment, investment and insurance.

Kenya has become a market of reference for mobile financial services and value of this is clear, as African economies as a whole suffer from low financial inclusion – particularly for those that reside outside of urban centres. Without access to a physical bank branch or the necessary legal paperwork, a large part of the continent’s population lacks the ability to participate in basic financial transactions, such as saving for the future, applying for credit to start or expand a business, or taking out an insurance policy.

The low rate of banking penetration has led to broader problems, both on a macroeconomic level and in terms of household financial security. The existence of a predominately cash-based system can often lead to greater financial insecurity among individuals, and keeps significant amounts of currency in circulation outside of the control and influence of the nation’s monetary authorities. It is in response to these concerns that M-Pesa and other mobile money schemes in Africa are flourishing. In sub-Saharan Africa there are 84.1m active mobile money accounts in use, with the MENA region accounting for an additional 10.7m users. The rest of the world accounts for another 40m.

However, the explosion of mobile phones in Africa over the past decade – the usage of which has more than tripled in markets such as Nigeria and Kenya – allows African lenders and telecoms companies to provide customers with a range of financial services, from agricultural insurance and government bonds to microcredit loans. Most importantly, mobile money programmes are specifically designed to function on basic mobile phone technology, which means that growth has not been impeded by Africa’s relatively low level of smartphone penetration.

Uneven Performance

Still, while mobile banking has flourished throughout Africa, the products, services and performance quality vary widely from one country to the next. More sophisticated mobile platforms, as in Kenya and Ghana, have gone beyond simply transferring money and now offer a mobile alternative to other traditional banking products, including credit and investment services. Kenyans use their phones to pay for goods and bills, make deposits and withdraw cash from agents, buy insurance policies, pay for public transport and transfer funds to relatives. The mobile product offerings in less established markets, such as Côte d’Ivoire, however, are generally limited to money transfers and bill payments.

Several factors have contributed to the uneven distribution of mobile money services across Africa. These include exogenous factors like economic instability or civil and political unrest, as well as sector-specific issues, such as the ability of policymakers to enable mobile money to expand, or the role of banks and telecoms companies in driving growth.

Telecoms Driven

While telecoms companies and banks have both benefitted from the rise of mobile money, the rewards have not always been shared equally. Banks have the knowledge and expertise – and in most cases the exclusive regulatory ability – to provide savings, investment and credit products. Meanwhile, telecoms firms have the technology and customer base necessary to disseminate those products. The role those two partners play can vary significantly. In Kenya, for example, the mobile banking revolution was built by the telecoms industry. There, Safaricom, the country’s largest mobile network operator and long-time holder of a majority of the GSM market, launched M-Pesa following the issuance of a letter of non-objection by the Central Bank of Kenya, in effect giving the operator permission to begin mobile money operations. The service saw an impressive uptake in the years that followed, and the company’s annual transaction volumes now equal approximately one-third of the country’s GDP of $63bn.

As the industry has matured, however, traditional banks have been moving into the segment and increasing competition. A number of other telecoms operators, including Essar Telecom (YuCash), Orange (Orange Money) and Bharti AirTel (AirTel Money), have introduced similar products – as have operators in several other countries around the continent – which has increased competition, pushed prices down and boosted subscriber participation.

Equity Bank, Kenya’s biggest bank, is now taking on the mobile money operators. It launched its telecoms unit, Equitel, after getting a licence in April 2014 from the Communications Authority to act as a mobile virtual network operator using AirTel’s network. At the July 2015 launch James Mwangi, group managing director and CEO, said, “We will be leveraging on the bank’s presence across the region to roll out Equitel.”

Bank Led

In Nigeria the development of mobile money followed a different trajectory. Regulators barred telecoms firms from developing their own mobile money programmes and provided licensed banks with the exclusive rights. However, banks found collaboration with telecoms firms essential, as establishing secure mobile technology requires either significant infrastructure investment or reliance on long-term partnerships with telecoms operators.

Although mobile money presented a valuable opportunity for Nigerian banks to expand their reach, it proved to be a laborious and capital-intensive process. As a result, mobile money programmes saw much slower growth at the outset, and transaction volumes lagged behind Kenya. Transactions over the first half of 2016 were roughly $1.2bn, for example, one-30th that of estimated volume in Kenya. However, that figure has been increasing recently. At year-end 2015 total transactions had reached $1.4bn, an increase of 28% from the previous year. It is evident mobile money will come to dominate the sector in Africa. Banks will continue to favour technology-fuelled growth, such as mobile money services, as the lowest-cost mechanism for service delivery. This is because, by and large, rolling out ATMs and branches can be expensive.


One way in which telecoms authorities in certain countries – specifically Tanzania – have sought to increase the mobile market is through interoperability, which allows customers to transfer money to users of different networks.

Unlike in Kenya, where South Africa-based Vodacom has long dominated the mobile money market, Tanzania has five mobile money firms, none of which control more than 50% of the market. In a marketplace as divided as Tanzania’s this compatibility is critical to growth. The number of mobile money transactions in the country doubled between 2013 and 2015, and as of 2015 almost a third of all mobile money accounts in East Africa took place in Tanzania. Perhaps not coincidentally, the country’s central bank, the Bank of Tanzania, began to encourage operators to allow account-to-account interoperability in the same year.

As a result of the government’s efforts, the first bilateral arrangement was signed in September 2014 between Tigo and AirTel. Other firms followed suit, and Vodacom’s decision to finalise agreements with the country’s other carriers in February 2016 enabled Tanzania to become the first country in the world to achieve full interoperability.

Regulatory Flexibility

The diversity of stakeholders in the mobile money sphere, and the rapid evolution of the associated technology, can make establishing regulatory frameworks challenging for governments. “Regulation is always a problem in technology-related fields, which change so rapidly. We have some regulations in place, but we also rely on guidelines to determine where we need to intervene,” Joe Asiama, second deputy-governor at the Bank of Ghana, told OBG. “Countries with emerging mobile money industries can look to more established industries for guidance, but ultimately the domestic regulators have the difficult task of crafting the right mix of regulation and permissibility to encourage and also keep pace with the rapidly changing industry,” he added.

Increasing Sophistication

Côte d’Ivoire is one example of a market that is on the verge of significantly deepening its offerings. Mobile money was first introduced in the country in December 2008, by mobile operator Orange Côte d’Ivoire. The segment saw only a modest uptake initially, due for the most part to civil and political instability. However, in recent years performance in the segment has been increasing, and Côte d’Ivoire now ranks fifth in the percentage of adults with registered mobile money accounts in the world, and first in West Africa.

The push is now for improving the level of sophistication in terms of products. Côte d’Ivoire lacks many of the financial offerings found in more established mobile money markets. Mobile accounts are used primarily for payments and money transfers, but credit, lending and insurance services are still lacking – reflecting the low provision of private credit in the country’s financial system as a whole.

In February 2016 Orange announced it was developing microcredit and micro-savings products that it intends to fold into Orange Money – its mobile money collaboration with the International Bank for Trade and Industry in Côte d’Ivoire. Furthermore, with the issuance of an electric money management establishment licence, the telecoms giant will be able to issue, manage and distribute electronic money as well as coordinate requests from the Central Bank of Côte d’Ivoire to launch new services. The high mobile money account penetration rate bodes well for developing microcredit and micro-savings products a move that could have a positive effect throughout the economy.

Next Steps

The evolution of Côte d’Ivoire’s mobile money programmes reflects in part the accelerating development of the sector as a whole. The first generation of mobile money platforms was built on SMS technology. This provided an easy way for customers to instantly transfer money and maintain accounts. Later generations of mobile money operators began to build their platforms on unstructured supplementary service data (USSD) technology. By dialling a short series of numbers, a mobile customer can open a secure line of communication with the mobile money operator through which transactions are initiated and confirmed. USSD offered the ease and accessibility of SMS, but also provided higher levels of security and more product offerings, such as obtaining account balances, transferring funds or applying for loans without needing to access the customer’s SIM card.

While SMS and USSD are likely the most widely used mobile money systems in Africa, other technologies also exist; most notably, the Kenya-based mobile money system, M-Pesa, which relies on a technology known as SIM Toolkit (STK) and operates in conjunction with an integrated, encrypted SMS. Together, STK and encryption can be more secure than USSD alone, but it is not without its drawbacks. Chief among them is that because STK data is integrated into the customer’s SIM card, use of the service may require users to obtain a new, STK-enabled SIM card. USSD technology, however, can be used on virtually all phones, regardless of the type of SIM card used. In the increasingly competitive mobile money space, the ability for firms to quickly register new clients may give USSD the edge over STK’s enhanced security features.

Further developments may involve the investment and creation of even more sophisticated offerings, relying on smartphones and financial technology ( fintech) capabilities. Despite Africa’s heavy reliance on basic mobile phone technology, investors recognise that smartphone adoption is accelerating, especially among young, urban populations. As a result, recent major investments in the space have straddled the line between traditional mobile banking and online banking apps, accessed via internet-enabled smartphones. In the first half of 2016 UK-based Standard Chartered Bank launched its mobile and online banking platforms targeted at its 1m customers across eight African countries, including Ghana, Kenya, Nigeria and Tanzania. Similarly, in March 2016 France’s banking giant Société Générale took a stake in French fintech company TagPay, which has designed banking solutions that customers can access on either basic mobile phones or smartphones. San Francisco-based Branch International raised $9.2m in March 2016 to build an app-based loan product designed for the African market. Clearly, a full 10 years after the introduction of mobile money and mobile banking in Africa, the investment community still sees ample opportunity in Africa’s growing smartphone market.

Financial Inclusion

Potential knock-on effects of the expanding mobile money sector bode well for the broader economy as a whole. In 2014, the most recent year for which data is available, only 34.2% of sub-Saharan African adults over the age of 15 held any type of financial or banking account; however, in Kenya – an early adopter of mobile money – this number is 74.7%. The percentage of mobile accounts in Kenya and sub-Saharan Africa stands at 58.4% and 11.5%, respectively, while, the percentage of adults who saved money in the past year in Kenya stands at 76.1%, compared to sub-Saharan Africa at 59.6%. Similarly, the percentage of Kenyan adults who accessed credit from a formal financial institution (14.9%) is more than double the regional average of 6.3%.

While mobile money is not the only variable to explain Kenya’s encouraging levels of financial inclusion, it is one tool policymakers in African countries can look to in order to help bridge the gap between banked and unbanked populations. Based on mobile adoption figures in other countries, there may be ample excess demand in the mobile money market. In neighbouring Tanzania, for example, only 39.8% of adults hold an account of any type, but 32.4% hold a mobile account, indicating that the majority of the banked population has done so via mobile money. The corresponding figures for Côte d’Ivoire, which has the highest mobile money penetration in West Africa, is 34.3% and 24.3%, respectively, well above the regional average in both the UEMOA and ECOWAS zones.

In an area where the goal of accelerating development is major driver for change, widening the reach and sophistication of mobile money could pay real economic dividends. “Mobile money holds the hope of bringing those at the bottom of the pyramid into the financial system and delivering real development into their lives by giving them access to financial services,” Joe Jackson, director of business operations at Ghana-based Dalex Finance, told OBG.

Social Effects

Beyond the boost facing financial inclusion, mobile money has proven to have additional social effects in the countries and communities with high rates of mobile money penetration.

A 2016 study by the Stern School of Business at New York University asserted that in regions of insecurity in Tanzania, the usage of mobile money significantly aided in reducing the risk of crime and petty theft. The study found that in order to avoid instances of theft and other crimes associated with storing cash at home or walking short distances with cash on their person, participants were willing to pay, on average, an additional 0.8% to 1.25% in transaction fees.

Similarly, the ability to pay bills through mobile payments, rather than waiting in long queues at a bank or government office, have allowed utility operators to provide more comprehensive service. In one such example in Kenya, in an area on the outskirts of Nairobi, residents enjoy greater access to running water and proper sewage as a result of the introduction of payments on the M-Pesa platform. Mobile payments have increased the ease of paying bills, and customers who previously travelled to brick-and-mortar institutions to submit payments no longer have to do so. Consequently, the utility company experiences fewer late payments or payment defaults, and consumers have more reliable access to basic services.

Challenges & Limitations

While the rise in mobile money has successfully brought millions of Africans into the financial fold, many challenges remain ahead. First, the relatively small amounts of money that can be stored, transferred and lent via a mobile money platform make it a less-than-ideal substitute for a relationship with a traditional bank. Obtaining enough credit to fund or expand a small business, for example, is difficult to accomplish solely through mobile money products. Second, its hybrid nature can pose significant challenges for banking and telecoms regulators. While some countries, such as Kenya, have allowed telecoms companies to develop the mobile money market, others, such as Nigeria, have decided that banks should lead the charge, relying on the infrastructural support of the telecos. Furthermore, finding the right mix and implementing appropriate regulations will continue to be a challenge faced by many countries.

Additionally, the evolving security landscape will pose an ongoing threat to mobile money operators. While mobile security has come a long way since the days in which a loss of a mobile device often meant losing stored money, there is still much work to be done. As the mobile money product offerings become more robust and sophisticated, and as consumers increasingly rely on internet-enabled devices, mobile accounts and transactions will become increasingly vulnerable to hacks and cyberthreats. For this market to continue its spectacular growth, it is imperative that banks and telecoms firms do not lower investment in security technologies in the face of increased competition.


Given the ease of use of mobile money technologies and the large segment of the African populous that remains outside of the net of the financial services industry, mobile money will likely continue to post strong growth in the coming years. However, once countries come within reach of their financial inclusion goals, the growth of mobile money could slow considerably, both in terms of new registrations and total value of transactions. In the case of South Africa, where 68.8% of adults hold an account at a formal financial institution, Vodacom – the South African subsidiary of Vodafone and original developer of the M-Pesa programme in Kenya – ended M-Pesa South Africa in June 2016. Citing already high levels of financial inclusion in the country, Vodacom questioned the ability of M-Pesa to take root in South Africa the way it has elsewhere in the region.

However, it will be many years before the majority of sub-Saharan African countries are able to attain the solid levels of financial inclusivity in South Africa. This presents a great opportunity for investment in mobile money in the near to medium term. Experience in South Africa suggests, however, that expansion in the mobile money market may eventually reach its natural limit as traditional bank institutions broaden their reach.