What lessons can we learn from East Africa’s mobile money developments?

With more than one billion consumers, Africa is a continent of rising influence and potential.

In East Africa, specifically in Kenya, mobile money has boosted the economy, revolutionized retail, and changed how people shop and pay for goods and services. Nine out of ten adults now have a mobile money account, whereas a few years ago the bulk of the population had no access to formal financial services or even a traditional bank account.

At 85% penetration, mobile phones have become an important element of daily life. While text messaging is most popular, mobile commerce – at 43 percent penetration of mobile users – is redefining the way Kenyans perform transactions leading to a notable shift in shopping trends. They are paying for everything from school fees to electricity bills via their mobile phones.
Mobile money transactions now amount to a nearly a third of GDP, and mobile money is re-shaping the banking and telecommunications markets, putting Kenya at the forefront of the mobile money boom in Africa.

A recent report by the Central Bank of Kenya shows that mobile money service providers moved close to 2 trillion Kenyan shillings (about US$23-billion) via 733-million transactions in the last year, alone. That was up from 579-million transactions worth 1.5-trillion shillings in 2012.

The Communications Commission of Kenya said recently that there are more than 25 million mobile financial service subscribers in Kenya. Safaricom, owner of domestic mobile-based money transfer service M-Pesa, and Kenya’s largest mobile operator, has about 20 million of the country’s mobile money users.

Through mobile money services, Kenya is meeting a long-standing challenge for many African countries: providing financial services to the large population that does not have traditional bank accounts. The so-called “unbanked”, those Africans who do not have bank accounts or have to travel long distances to access retail bank outlets, are increasingly using mobile financial services to buy goods, pay utility bills, and send and receive money.

The rise in the use of mobile money in the region has also been fueled by the increasing availability and use of mobile phones, both in urban and rural areas.

What mobile money has done for Kenya, it can do in other parts of the continent and emerging markets, as well. Now mobile operators and banks in other parts of the region are competing aggressively to provide mobile money services and have much to learn from the Kenyan experience. Both Tanzania and Uganda – among other rapidly advancing African nations – are strong candidates to follow the Kenyan model. Tanzanian phone use is estimated at 91 percent, with Uganda’s at 92 percent penetration.

Mobile companies and financial services groups wanting to develop mobile money solutions in other regions in the world would be wise to take a few pages from East Africa’s play book.

Here are a few essential lessons that can be learned from East Africa’s mobile money developments, which give entrepreneurs and financial businesses in other burgeoning markets the fundamental steps towards experiencing similar success:

1. Financial companies should closely collaborate with regulatory bodies, ensuring that the latter comply with the former’s demands in terms of service, technology, delivery and access. Regulators have the power to make or break the success of a mobile money services company.
2. When entering a new market, mobile money operators should bring agents on board gradually, but well-paced: too many agents too quickly will lead them all to compete for a small segment of the market, and they will not earn enough money to stay in the game. If they are brought in too slowly, end users will get frustrated with the lack of agents offering the service.
3. The product and its systems must be easy to use and easy to understand. Customer registration and provisioning must be quick and simple. Customer service must be top-notch, courteous, and efficient.
4. The key is providing access—access to inclusion, and access that allows people in rural areas to participate in the same transactions as easily as those who live in cities.
5. Suppliers must earn their customer’s trust, particularly that of the less sophisticated users who will be suspicious of such services from the outset. They must know that their hard-earned funds are secure. It is recommended to build as extensive transparency as possible into the product to show them as clearly as possible that their funds are being taken care of by a reputable company with their interests at heart.
6. Finally, services should be kept free for end-users.

Following these guidelines helped Kenya achieve the success they have experienced with mobile money, thus far. However, it is important for those who want to provide mobile money services in other developing regions to keep in mind that, despite the apparent similarities with East Africa, every market is different. For example, the demographics of India are not the same as in Kenya; the rate of middle-class growth and the mentality of the people are not exactly the same in any two regions. Mobile money service providers must do their research on the various target audiences in each country and market their products and services there accordingly.

There is no reason why the mobile money success experienced in East Africa cannot be replicated in other developing markets that are standing at the same starting point Kenya stood at in 2006. By taking these aforementioned lessons and implementing the basic groundwork in other regions, similar success can be achieved throughout the world. It is a huge challenge, but without a doubt, it will reap huge rewards.

Image: Development Planning Unit University College London via Flickr.