Digital payments have become a preferred mode of payments in many parts of the world, and the West African region is no exception.
In fact, the growth of digital payment in this region is higher than most of the other regions.
But how all did happen? In this blog, we will study the digital payment and mobile finance in the West African region – It’s opportunities, advantages, challenges, and all-important stats. So, let’s begin!
The surge of mobile adoption in West Africa
As per the West Africa mobile economy report presented by GSMA, it shows that the mobile adoption in the West Africa region has almost doubled from 28% at the start of this decade to 47% in 2017.
This is exactly what reflects in the West Africa mobile revenue as shown in the graph below.
By the end of the year 2017, there were a total of 176 million unique subscribers in the region.
This number is estimated to go up to 248 million subscribers by the year 2025, which will be 54% of the total population.
Similarly, the total number of mobile internet subscribers has also doubled during four years, taking the full figure to 78 million. This figure is almost half of the total mobile subscribers in the region.
If we talk specifically about mobile money, then the live mobile money services in the region have doubled from 25 to 57 from 2011 to 2016.
This increase in the number of services has helped the region to reach more than 90 million registered accounts in the year 2016, which is almost equal to the total number of mobile broadband connections and thrice the number of Facebook users in the region.
The number of registered accounts serves as a good indicator of the rapid growth of mobile money.
However, the total number of active accounts serves as a more meaningful metric to measure the rate at which people are adopting mobile money services.
This rapid growth has boosted financial inclusion, mainly via mobile money. With enabling regulations and expanding agent networks, now there are 13 times more active mobile money agents than the total number of ATMs and bank branches in the West African region.
Paga, which is a leading mobile money service in Nigeria, has a network of almost 15,000 agents.
The rapid increase in the account activity has encouraged the providers in the region to come up with products and services such as international remittance, bill payments, and school fee payments.
Orange, a telecom company, catering to 130 million customers across 20 countries in Africa and the Middle East, is one such company which is keen on leveraging the growth of digital payment infrastructure in the region.
Mobile money is rapidly becoming essential for Orange. And Orange money is the main reason behind it since its revenue grew by a whopping 60% last year.
Orange is looking to leverage more on mobile money by doubling its investment in 4G networks that will boost the connectivity for 37 million Orange money users.
Customers moving towards sophisticated products
Earlier, the mobile money in West Africa was only seen with the spectacle of peer-to-peer transfers, payment platforms for services and products, international remittance, and complex financial products.
However, according to the GSMA report, it has evolved far beyond that.
Customers in West Africa are now rapidly adopting more sophisticated alternatives such as bill payments and international remittances.
That’s why the providers must work with the partners to digitize the everyday payment experience such as payment for government services, payment for goods & services at merchants, utility bill payments, and even the bulk disbursements.
The key for the providers is to come up with products which offer digital payment solutions to customers along with fitting well in the overall market context.
For example, in Ivory Coast, mobile money providers partnered with the government to come up with school registration fees solution, which became an instant success.
Another example is of Orange, as we discussed earlier how mobile money has become an essential element for this telecom giant.
Orange money also launched international money in July 2013 among the countries viz. Senegal, Mali, and Ivory Coast.
This became an instant success too, with transaction volume roughly doubling every six months.
After the completion of 18 months after the launch, it has already reached an impressive 24.7% of the total value of remittances among the three countries.
Not only this, today, West Africa has the highest share of international remittances globally.
By the end of 2016, the number of live international remittances corridors increased to 23 across 10 countries of the region. In all of it, the mobile money was used for both sending and receiving channel.
The GSMA research also shows that the cost of sending international remittance via mobile money has lowered and become cheaper than the traditional money transfer operators (MTO).
In fact, the cost of sending a foreign remittance through mobile money in West Africa is 60% cheaper than MTO.
Country-wise case study
Now let’s see one by one how mobile money has emerged in some of the major West African countries.
The first signs of digital payment in Benin were seen at the end of December 2014. According to the BCEAO data, the total number of electronic wallets increased up to 1097,021 from 364,154 at the end of December 2013.
There has been an enormous surge in the transaction carried out by the mobile financial services from $ 4.8 million in 2013 to $33.4 million in 2014.
Other widely used services that fall under the digital payment category is person-to-person transfer, and the telephone recharges.
Reforms that were aimed at increasing investment and improving the business climate has resulted in the consolidated economic growth in the year 2015.
There’s already an emergence of the issuance of electronic money in Benin.
However, the diversification in the use of electronic wallets will be the key to increase the interest in Benin’s population, which will, in turn, result in financial inclusion.
Like Benin, Burkina Faso has also witnessed a surge in mobile payment in the year of 2013.
At that time, the two operators handled the transactions viz. Telmob and Airtel Burkina, which were both owned by the ONATEL.
The total mobile banking transactions for the year 2014 amounted to CFAF 392 billion, which was around 6.2% of the GDP.
The transactions in market payments, bill payments, government payments, and wages constitute 6% of the total sales. These are the processes which participate in financial inclusion.
By the end of December 2014, the total active service points were 5,768. This figure represents the direct jobs generated by mobile payment.
Mobile payments had started in 2008 with Orange being the first operator to implement it in Ivory Coast, which was quickly followed by MTN in the next year.
Later on, Celpaid and Moov & Wari also joined the club in 2011 and 2014 respectively. However, the market is primarily dominated by MTN and Orange.
In 2013, 6 million people were using digital payments, out of which 2.1 million were active users. The total value of the transactions amounted to was about 1200 billion FCFA.
Basic transactions such as withdrawals and deposits account for 98% of the total mobile payment transactions for the year 2013.
The Ivory Coast is witnessing multiple digital payment services such as the purchase of insurance premiums, payment of wages, and payment of remote bills.
Moreover, the clients can internationally transfer money with several countries of the West African region.
Senegal has witnessed a marked improvement in its broadband connectivity over the last ten years. It’s one of the top countries in Africa to have a high and stable internet connection.
The progression is even stronger for cell phones, where the users have increased from 12 per 100 inhabitants to almost four times, that is 47 per 100 inhabitants in the year 2014.
Similarly, there was an increase in internet users from 1% to 20.9% over the same period. The rate of formal banking in Senegal is quite low, with a reach of 5.8% on average.
However, there’s a massive disparity between urban and rural users, where the reach is 9% and 4.5% respectively.
The disparity between men and women is comparatively lower as the percentage for men and women are 6.23% and 5.45% respectively.
With a meager rate of formal banking and reliable broadband infrastructure, mobile payment offers a massive opportunity of quicker and simpler economic transactions.
Challenges in implementing mobile money services in West Africa
As discussed earlier, there’s no doubt in the fact that mobile penetration is ever increasing in the West Africa region.
However, it’s also true that as far as the usage of mobile money and financial inclusion are concerned, East Africa is way ahead of its western counterpart.
Women are less likely to have their account (either mobile money or bank/financial institution) as compared to men. And the case is the same for all the countries in the western as well as the eastern region of Africa.
The lack of reliable data on mobile penetration in West Africa is one of the biggest challenges.
Most of the existing data estimate the penetration based on sim-card ownership, individual internet usage rate, or mobile subscriptions.
However, when these parameters are taken together, they come up with conflicting results.
The International Telecommunications Union estimates that in the year 2014, the mobile subscriptions per 100 inhabitants for countries Liberia, Sierra Leone, and Ghana were 73.4, 76.7, and 114.8 respectively.
Now, this data would hint at a higher rate of mobile phone ownership. However, in contrast, the data on an individual for users of these countries was only 5.4%, 2.1%, 18.9%, respectively.
This makes us question that the sim card data and subscription overestimate the penetration as the adults in the house may own multiple sim cards or subscription.
That’s why better data is required to accurately estimate the potential market size of all the mobile money users in the Western region of Africa.
Opportunities for banks in Western Africa
Extending accessibility through online relationships
Location and working hours are two of the biggest hindrance for any financial institution.
Remote operation of the branch, on the other hand, is inefficient and costly. In such a scenario, mobile banking emerges as a suitable solution.
Banks in Nigeria have adopted it by making their payment and banking services available via social media and digital channels.
In January 2018, UBA started ‘Leo’ which allows its customers to perform all banking services like opening new accounts, confirm cheques, pay bills, apply for loans, receive instant notifications, transfer funds, and many more via Facebook Messenger.
Similarly, Ecobank launched Ecobank Xpress account, which could be opened and accessed via Ecobank’s mobile application.
This approach is now being adopted by many commercial banks which now use screen-share, video, and live chat assistance to minimize the face-to-face conversation and to offer easy and instant solutions.
Resolving issues with mobile money services
Mobile money allows its users to access their money at any time and anywhere without any need of a traditional bank relationship.
It’s a boon for the lower-income population since it provides them the financial access devoid of any complexities.
Commercial Bank of Africa partnered with the mobile network Safari.com to come up with M-Shwari in Kenya. This was a revolutionary virtual banking platform purely based on mobile.
Reducing the importance of credit rating
Financial institutes often face the challenge of not being able to serve those clients who have ambiguous incomes sources and limited credit history.
These customers are often profitable and reliable but remain out of reach. However, FIs can cash on these customers if they can work with Fintechs together.
Open banking, on the other hand, is based on a different premise which allows Fintechs to provide a complimentary service rather than competing with the FIs.
There are numerous areas on which this potential partnership can work. These areas are Risk management, KYC, mobile apps, micro-insurance, eCommerce, Social media integration, and many more.
However, to succeed, the banks and FIs must have an agile core banking solution.
West Africa has galloped its way in the past few years; however, it’s still far from the destination.
Mobile money agents act as a backbone of the industry since they are responsible for distributing and digitizing of cash.
However, it’s also true that agent activities remain a challenge as they are not accessible by most people due to several reasons like complex market contexts and lack of investment.
Moreover, altering customer behavior to enable them for more sophisticated payments is not at all an easy task.
The key lies in understanding the market context and subsequently offering suitable products that can evolve beyond the domestic payments.
However, the bottom line is that the future of digital payment and mobile finance is bright in the West African region. And in the future, we can anticipate the region to reach milestones.
In the future, we all might witness sustained investments and increased partnerships that will play a significant role in establishing mobile money as the most preferred payment platform in the region.