How is Africa Using Their Phones to Manage Money?

How is Africa Using Their Phones to Manage Money?

Africa is the global leader in mobile money, with mobile operators embracing innovative practices that allow consumers to pay their bills through their phones and access services like loans, savings, and even insurance. Today, the majority of households depend on mobile money services for most of their daily transactions, especially because of the efficiency and safety that comes with its use.

What is mobile money?

Mobile money refers to money that is stored using the Subscriber Identity Module (SIM) as an identifier, as opposed to account numbers in the customary banking business. Mobile money includes all the various initiatives (micro-payments, informal airtime, and long distance remittance). It aims to bring financial services to the unbanked and convenience for the banked using mobile telephony technology.

Although poor infrastructure such as roads has led to the slow growth in the African financial sector, mobile money services seem to be beating this barrier. Today, millions of Africans use mobile money more than the number of people using banks today. Some of the countries where mobile money services are popular include Kenya, Somalia, Uganda, and Tanzania.

Why do they prefer mobile money services to traditional banking?

  • Banking institutions throughout Africa face many challenges including;
  • High fees and cost models that make it unaffordable for the low-income segments
  • High preference for cash over digital transactions
  • High predisposition towards cooperatives

According to McKinsey, a management consulting firm, it is for these reasons that African retail-banking penetration stands at 38%, which is half the worldwide average for rising markets of the gross domestic product.

On the other hand, McKinsey estimates that there are over 100 million active mobile financial services consumers in Africa dealing with cash transactions worth over $2.1 billion. Telecom operators across Africa have more customers compared to banks with MTN, Africa’s largest operator, having over 170 million users. They also enjoy better distribution networks with Kenya’s Safaricom, having over 130,000 mobile money agents. As a result, they can easily spread products given mobile phone diffusion, which as of 2016 stood at 74% and the ease and safety of use in contrast to the paper-heavy processes and queues of banks.

How Africa is using their phones to manage money

The unparalleled success of mobile money services in Africa over the last few years has opened new territories for a wide range of actors, especially in the East African economy. The scope of banking services offered through mobile money continues to expand every year. It promotes financial inclusion and provides unprecedented opportunities for increased revenue collection and social assistance and development programmes. That is why many fintech startups with access to greater funding and banks are trying to permeate the mobile financial services sector and pull some of these customers their way.

An affordable way of sending money to loved ones

According to research, many poor and unbanked households in Africa rely on mobile money services as a form of insurance in case of emergencies such as poor harvests, illnesses among other economic shocks. Sending money to a family or friend in need comes with costs. In most African countries, families and social networks are dispersed over large distances.

Until mobile money services, most households had to hand-deliver remittances or send them informally through friends or a commuter bus driver. This process was both expensive and fraught with delays and substantial losses due to theft. Mobile money services dramatically lower transaction costs and improve the efficiency of sending money.

Access to financial services

For many years, conventional banks backed away from providing their services to Africans, majorly due to the costs of building physical branch expansions and the risks associated with serving low-income people. As a result, small start-up businesses found it especially hard to receive credit funding as they often lacked the credit history and collateral.

Thanks to the launch and growth of mobile money services across the continent, the situation is changing. Mobile banking is now extending financial services and credit to people with limited access to traditional financial institutions, particularly entrepreneurs and under-banked people.

It is evident that mobile money is a big business in Africa and it keeps getting bigger by the day. For the future, we hope that the sector can be tweaked and fine-tuned to ensure that it leaves a big impact and grow to become as developmental as it possibly can.