Headlines for March 2011

Having just returned from 2 weeks in West Africa looking at the branchless banking market, one thing became quite clear to me: most African commercial banks have a very small retail banking business. As a Reuters Africa News blog post recently wrote:

Retail banking is not a high margin business. It is one where you have to earn a little from lots of customers, know them well and serve them well – not easy when you have many millions spread over a large area who may not be worth much individually even if they are better off than they have ever been before.

But the post goes on to make reference to a report by Bain & Company indicating that the financial services industy in Africa could grow by 15% a year until 2020, with the biggest growth area coming from retail banking. So what’s changed?

Mobile banking in particular is seen as being a powerful driving force after the success of the M-PESA mobile money transfer service in Kenya and others elsewhere.

Speaking of M-PESA (when are we not, right?), there’s been some interesting discussions lately around interoperability in the Kenyan market. An article in the Business Daily bemoans the fact that a proposal has gone to the Prime Minister’s office asking the Central Bank of Kenya to “establish a form of clearing house that will process all transactions from all four mobile money platforms.” The article goes on to say:

The small print [behind this proposal] reveals that some kind of market imbalance is being hatched in the quest to level what some believe is an uneven playing field. The success [of M-PESA] did not come easy to its creators. It was a hard fought battle against regulators as well as an expensive exercise for Safaricom who had to spend million – perhaps billions – educating its agent network, and indeed the world on a previously untested product. The proposal will effectively hand M-PESA’s rivals access to over four years experience in crafting that working eco-system - at no cost.

This topic also came up at the AITEC Banking & Mobile Money COMESA conference in Nairobi last week where Paynet Groups’ CEO in Kenya Bernard Matthewman said that there were 24 bank switches and credit management systems with multiple mobile banking platforms across the country. He continued on to say:

There is efficiency to be gained by not replicating infrastructure – you reduce costs and reap greater margins. You are in a much better position to go to places with less economic activity. Competition is increasing and CEOs are recognising that critical mass and volumes are needed to compete in the retail space. They are realising that they cannot reach competitive scale on their own.

Interestingly, the article includes similar quotes from representatives from Equity Bank and Orange, but not from Safaricom. Instead, in another article from the Business Daily describing the proposal before the Prime Minister, Claire Ruto, Safaricom’s corporate affairs officer said that:

Although consumers may initially enjoy the resulting price cuts, such a move bears the risk of killing innovations in the money transfer market. This is proprietary innovation and we don’t understand why our competitors should want to ride on it yet they too have theirs.

But to finish up, let’s switch from the supply side of the discussion to the demand side. We’ve blogged a lot over the last couple months about the launch of mobile money in Haiti. But one wonders how it is actually being used by people now that it’s in the market. A grant from USAID/HIFIVE has allowed a pilot of 100 beneficiaires to receive their unconditional cash transfers through the mobile phone, supported by Mercy Corps Haiti’s Economic Recovery Team. Here’s an update from Mercy Corps about how the first mobile money disbursement went:

When Marie first attended mobile money training, she didn’t understand how the money could be on the phone and would have preferred to be given cash directly. Now that she has seen mobile money in action, she believes that buying things is ‘very easy with the phone.’

 

- Sarah Rotman