Voice of the Industry

East Africa - the heart of mobile money. What is next?

Wednesday 3 July 2019 07:11 CET | Voice of the industry

Rick Groothuizen of ClickPesa outlines the status of financial digitalization in East Africa and the progress that has been made in this emerging market

Mobile money refers to digital cash and enables people to do digital payments. The East African region, with countries such as Tanzania, Uganda, Kenya and Rwanda, leads the world in the highest per capita registered and active mobile money accounts, volume of mobile money transactions and agent network. The region has the fastest growth in mobile money accounts and in each country the number of mobile money accounts surpassed the number of bank accounts.

Whereas payments by mobile phone have only emerged in the Western world since the last couple of years, the phenomenon is ongoing in the East African region since 2007. The roots of mobile money lay in Kenya with the launch of M-Pesa by Vodacom . With the lack of financial infrastructure in the region and the cost of mobile phones dropping rapidly in that same period, mobile money spread quickly through the rest of East Africa.

Mobile money has literally changed the lives of millions in East Africa in the last 12 years. In Uganda, according to FinScope, the population using mobile money grew from 7% in 2009 to 34% in 2013. In Tanzania, for the same period of time, the percentage grew from 17.3% to 39.8%. Kenya experienced even larger growth percentages.

The next phase is to go beyond the initial success of mobile money to further reduce the number of unbanked people and meet the demand for other underdeveloped financial services in the East African region. Below are three key areas outlined playing an important role in the next phase.

1. Payment interoperability in East Africa

According to CGAP, regional trade between East African countries is a substantial contributor to the economy. Over the last decade, mobile money wallet providers have been making substantial progress in enabling users to do mobile money payments between East African countries. Although cross border payments are seamless, high transaction cost remains a challenge, and research has shown that this creates a barrier for users using mobile money across borders. New financial infrastructure technology such as Mojaloop, Ripple and Stellar could lower the cost of doing cross-border payments in the region and drive digital payments across borders.

2. SMEs financial services

Although mobile money caused a revolution in the East African region and digitized payments for consumers, it has not revolutionized and digitized payments for businesses, in particular, not for SMEs. A large part of the SMEs still uses physical cash due to the fact that digital financial services are fragmented, costly and overcomplicated.

Domestically, cheque payments are still a common form for business payments, while holding accounts under a bank is expensive for SMEs due to monthly fees. Mobile money accounts are often used but mixed up with personal mobile money accounts, making accounting and reconciliation difficult. Internationally, with the growing globalization and the recent African Continental Free Trade Agreement (AfCFTA) , SMEs doing cross border payments are on the rise, which involves dealing with multiple currencies. Existing mobile money are not suited for this, forcing SMEs to open several currency bank accounts with high banking fees involved.

Innovative service offerings by financial institutions to the SME segment can simplify digital payments enabling SMEs to focus on their core business and eventually perform better by increasing productivity and profitability.

3. Extend financial digitalization

Several sectors in East Africa such as agriculture, health, transport and energy are ready to benefit from digitalization. Combining digitalization in non-financial industries with financial infrastructure such as mobile money will reach businesses and individuals which otherwise couldn’t be reached. The overall result contributes to the economic empowerment of individuals, communities and businesses.

Regulatory support

East African regulators play a vital role in moving forward on the above key areas. As new technologies emerges an open approach to regulate new technology should be applied at all times. Regulators could stimulate and allow further innovation through the creation of a required playground such as sandboxes and initiatives like Open Banking in Europe.

Technology is not the only answer – the East African region has its own unique characteristics compared to the rest of the world and models can’t easily be copied. Regulators in the region, therefore, should collaborate with each other on a larger scale by sharing best practices. This will not only enhance innovation, but it will also reduce cost and supervision in the areas of cyber-risk, anti-money laundering and consumer protection from fraud.

The next phase can only be even more fascinating. The one thing that is sure is that the potential is huge and demand for financial services will keep increasing. All East African countries share a similar goal: to become a middle-income country within 5 years and by 2050 it is estimated that the total population will be increased by 50%.

About Rick Groothuizen

Rick Groothuizen is the Managing Director of ClickPesa and co-founded the company in 2016. Before that, he ran a technology development company in Tanzania and the Netherlands. He possesses an innovative and entrepreneurial mindset combined with extensive knowledge about the payments industry in Africa and beyond. He holds a bachelor in Commercial Economics and master in Finance from the Vrije Universiteit in the Netherlands.

About ClickPesa

ClickPesa offers a platform that unifies several payments services in one platform for businesses in the East African region. It helps local businesses perform better by increasing productivity and profitability. Internationally, ClickPesa simplifies the way companies can do business in Africa. The platform connects with existing mobile wallets and bank accounts to facilitate payments.

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Keywords: Africa, emerging market, mobile money, financial inclusion, SMEs, ClickPesa, mobile wallets
Countries: World