Given the potential of mobile money, fintechs’ aggressive pricing strategy is likely to reach its limits

(Agence Ecofin) – Buoyed by the Covid-19 era, fintechs specializing in money transfers and withdrawals have really stirred up the mobile money market in recent months. They are essential, especially due to an aggressive pricing policy in urban markets. But Mobile Money, which is beginning to adapt to this new competition, has even greater room for improvement. we are tech tell us why

In the last ten years, mobile money has developed significantly in Africa. They were fewer than 80 services launched across the continent in 2012. In 2021, their number had reached 173 for 621 million registered accounts and $36.7 billion in financial transaction volume, a 23% increase from 2020. Even the value of transferred financial transactions out of mobile money grew 39% year over year to $701.4 billion. It is the growing health of the sector over the years that has led to the rapid emergence of new players that are fintechs.

In the past five years, financial start-ups have experienced strong momentum on the continent. The number of entities specializing in payments, transfers and withdrawals of funds has grown, as has the volume of funding mobilized. Some have been able to gradually strengthen their position in their home market or develop in several territories.

In 2020, smartphones accounted for less than half of all cellular connections.

Today, the financial market in Africa is witnessing growing competition between mobile money and fintech operators. A struggle that promises to be long and that reflects the confrontation of two economic models with their strengths and weaknesses.

The investment

Since the launch of mobile money in Africa in 2007, telecom operators have made significant investments. Millions of dollars have been mobilized over the years to expand and modernize the cellular network without which financial services are inaccessible, deploy a network of agents to manage financial operations, develop software, databases and systems, provide efficient and secure financial services, to ensure the effectiveness of financial transactions both mobile and online for those who have finally made the switch to digital.

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Unlike mobile operators, fintechs who do not need to build a telecom network and maintain it regularly.

On the fintech side, the investments made so far have been significant, although they can be considered smaller compared to mobile money. In fact, just like telecom operators, fintechs have invested in developing IT systems to support their business. They have also invested in a network of agents and partnerships. However, in contrast to mobile operators, fintechs, who do not have to build a telecommunications network and have to maintain it regularly, have more leeway. However, operations conducted online require investments in large connectivity capacities for real-time monitoring of financial operations.

Offers

Fintechs have proliferated by identifying underserved needs or new markets associated with new uses such as microcredit. For Said Bourjij, expert in finance and development (French-speaking Africa and Mediterranean) and managing director of Epargne Sans Frontière, ” Fintech has two distinctive features: it relies on digital mastery, but above all it places the customer at the center of its models by trying to respond to its new uses. The dynamics of offerings are strong there, but none of them aims to cover all areas of the financial sector. “.

For its part, mobile money has evolved over time. It has nothing to envy to fintechs as it can hold its own against them by offering consumers solutions of similar value.

Aside from sending and withdrawing funds, they have been able to add a variety of options to their service including merchant payment, bill payment, international wire transfer, micro savings, micro credit etc and even offer it all on a very functional digital platform.

This can be seen with services like Safaricom’s M-Pesa, Orange Money or even MTN MoMo in certain countries. Aside from sending and withdrawing funds, they have been able to add a variety of options to their service including merchant payment, bill payment, international wire transfer, micro savings, micro credit etc and even offer it all on a very functional digital platform. It is this combination of offers and digital that explains the strength of M-Pesa, which has become the main driver of Safaricom Kenya’s financial growth in 2021. M-Pesa accounted for 38.3% of the telecom operator’s estimated $2.5 billion in annual revenue.

Access to Services

According to the Global Telephone Operators Association (GSMA), the mobile internet penetration rate in sub-Saharan Africa was 28% in 2020, compared to a mobile penetration rate of 46%.

In his report ” Mobile Economy Sub-Saharan Africa 2021 ‘ the association explains that of the 1084 million people identified in the region, 303 million (28%) were connected, 206 million were not covered at all by a mobile network (19%) and 575 million people (53%) there lived areas covered by mobile broadband networks but not yet using mobile internet services. Also according to the GSMA, smartphones accounted for less than half of all cellular connections. In contrast, sub-Saharan Africa had the highest percentage of cellular connections using basic phones. That is 45% of all mobile phone connections.

Mobile money operators, on the other hand, have their mobile financial services accessible both in the city and in villages thanks to the USSD technology that they offer in parallel with digital. An asset that guarantees an edge over the digital competition.

Rural populations in sub-Saharan Africa were 60% less likely to use mobile internet than those in urban areas. Consequently, fintechs, whose services are essentially accessible via the internet, can only meet the needs of the population in urban areas. Mobile money operators, on the other hand, have their mobile financial services accessible both in the city and in villages thanks to the USSD technology that they offer in parallel with digital. An asset that guarantees an edge over the digital competition.

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45% of the market remains inaccessible to fintechs.

Due to its accessibility through the USSD, the ” Mobile money is acting as a catalyst for a wide range of other services that could help solve major socio-economic and environmental problems, such as: “, supports GSMA.

The rates

Mobile money operators and fintechs are already fighting with almost the same offerings, although they do not yet fully address the same market niches. She is also aware of the missed opportunities at the rural level that certain fintechs have made price wars a key axis in their conquest of the urban market. A strategy that mobile money operators regret, but which ultimately helped create value for consumers. In some countries like Senegal or Côte d’Ivoire, it is undeniable that fintech actions have caused the prices of mobile money services to fall.

She is also aware of the missed opportunities at the rural level that certain fintechs have made price wars a key axis in their conquest of the urban market.

In 2020, the GSMA, already concerned that this aggressive pricing strategy would become widespread by fintechs, urged mobile money players to diversify their revenue models to become more resilient and no longer primarily dependent on the fees paid by customers to be. As of June 2020, providers surveyed for the Global Mobile Money Adoption Survey indicated that an average of 87% of their revenue comes from fees paid by customers.

The association believed that this heavy reliance on this cost category would result in increased exposure to short-term shocks that might materialize in the future. She argued that in ” In addition to protecting mobile money service providers from short-term demand shocks, diversification into higher value-added segments may also prove beneficial for users as services can be offered at more competitive prices. “.

The regulatory framework

In some markets, the current regulatory framework has forced telecom operators to separate their mobile operations from their mobile money operations. The new subsidiaries are thus subject to a strict legal framework issued by the central banks of the countries or economic regions in which they operate. Depending on the type of services offered, legal pre-conditions have been defined, including obtaining an operating license that clearly defines the scope of the operation. The same goes for fintechs who want to offer the same types of services. In the Economic and Monetary Union of West Africa (UEMOA), the BCEAO makes no compromises. For mobile money operators, this separation of mobile and financial activities offers an opportunity to follow the same operational strategy as fintechs and get rid of the costs of maintaining the telecom network. Focus solely on service and fight for innovation and added value to lead.

As competition between the various players in the mobile money and fintech space intensifies and their economic models collide with their strengths and weaknesses, the GSMA is pleased with the impact these divergent interactions are having on the development of financial inclusion for African populations. The association also encourages these various players in the mobile and online finance sectors to become more engaged with consumers, whose choice alone determines their profitability.

Muriel Edjo

Muriel Edjo


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