Could mobile money become bigger than bank accounts?

Fewer than 20pc of adults in the West African nation have a bank account and 26-year-old Mr Diagne says the charges for using his are too high anyway, so he keeps at least 40,000 CFA francs (€61) in his mobile money account for transactions.

He said he goes to a nearby sales point for Orange Money – one of five operators of mobile money services in Senegal – and hands over cash. The vendor credits his account with mobile money which he can then use to top up his phone, carry cash in a ‘digital wallet’, pay his utility bills or transfer funds to other subscribers.

“It is like having cash on you but safer because you don’t have to carry the actual money on you all the time,” said Mr Diagne.

He has heard that users in Kenya can do much more with mobile money such as pay for groceries, buy a bus ticket, pay a taxi fare and even receive payments from clients. He would like the same, but those options are not yet available in Senegal.

Millions

Since the launch of M-Pesa by Kenya’s Safaricom in 2007, operators have rolled out mobile money services in several African countries to cater for millions of people who lack affordable bank accounts.

Operators, regulators and experts alike are excited by the service’s possibilities but, apart from in a handful of sub-Saharan African countries such as Kenya, Uganda and Tanzania, the spread of mobile money has been slow.

Industry players say a fragmented and tough regulatory environment is holding the industry back. Experts say another obstacle is that users often lack the technological skills needed to use the service.

Consulting firm McKinsey said in a February report that mobile money had failed to catch on quickly even in areas of Africa where relatively few people have bank accounts.

“This is partly the result of uncertainty about whether Kenya – where M-Pesa has become one of the few mobile-money success stories – is unique or the potential for mobile payments in other markets is similarly robust,” it said.

At the end of last year, there were more mobile money accounts than bank accounts in nine developing countries mostly in sub-Saharan Africa, mobile industry lobby group GSMA said.

About 61 million active mobile money customers were using the service globally, up from 37 million in 2012, GSMA said. The potential is vast: 2.5 billion people in developing countries lack access to banking services, yet one billion of them have a phone that would allow them to use the mobile money service.

In Kenya, M-Pesa has 13 million active customers. Transactions grew 22pc and contributed €226m, or nearly a quarter of Safaricom’s revenue in the year to March 2014.

French telecom operator Orange, which runs Orange Money, has seen significant growth with about 10 million customers worldwide, most of them in the West African CFA franc zone.

Thierry Millet, vice-president for Orange Mobile Payments and Contactless, said the total value of mobile money transactions made on its networks topped €2bn last year and is expected to exceed €4bn in 2014.

In Uganda, South Africa telecoms giant MTN launched its own mobile money in 2008. As much as a fifth of the country’s economic transactions are done through MTN mobile money solutions.

For mobile money to grow faster, regulators must encourage investments while guaranteeing fair competition, and assuring customers that systems are secure and their money is safe.

Pieter de Villiers, founder and CEO of Clickatell, a mobile messaging and transaction services company, said Safaricom was successful with M-Pesa because it had a dominant share of the Kenyan mobile market and operated with little regulation at its launch.

Operators now entering the market face tougher regulations, which differ according to country and region. While in the West Africa franc zone, the central bank introduced regulations as early as 2006 to enable the launch of services, the neighbouring Central Africa franc zone trailed behind.

“Regulation is coercive in the Central Africa region as far as mobile money is concerned,” said Karl Toriola, head of MTN Cameroon, which launched a mobile money service in 2010.

While operators in West Africa can conduct transfers with multiple banks and international partners, this is not the case in Central Africa, which groups Cameroon, Congo Republic, Chad, Central African Republic, Gabon and Equatorial Guinea.

The central bank there is more cautious, Mr Toriola said.

Other challenges include keeping the service simple and reliable while educating users how to use it.

As the sector grows, making profits for operators, authorities are moving to increase taxes on transactions. Kenya imposed a 10pc cost of transfer tax on M-Pesa in 2012. Ugandan and Tanzanian authorities have also mooted plans to introduce taxes, raising concerns that these will stymie the industry.

Michael Joseph, director of mobile money at Britain’s Vodafone, which owns 40pc of Safaricom, said regulators should be measured in their approach.

“It must be remembered that the average transaction is somewhere in the region of €2 to €4 and as such we deal with high-volume, low-value transactions,” Mr Joseph said.

Mr de Villiers of Clickatell said a false step by regulators could discourage mass adoption of the service by making small transactions unattractive. “If you don’t have regulatory stability, investors in this new opportunity will stay away and the big players such as telcos and banks will be ambivalent,” he said.

An area where regulators must show leadership is interoperability between rival systems to allow money transfers regardless of the operator. “Lack of interoperability is holding back everybody,” he said.

There are currently about 250 mobile money services in over 80 countries, half of them in sub-Saharan Africa, the GMSA said.

Almost none is interoperable so electronic money can be moved only on the same network. A GSMA committee developing guidelines for interoperability. Tests have already taken place in Tanzania and other markets will follow soon. Operators are confident that despite the slow uptake, the industry will grow.

“Within the next five years, mobile money will gather momentum and it’ll be very difficult for an alternative system to slow it down or challenge its development,” Orange’s Thierry Millet said.