In Africa more than anywhere else, telcos have launched a major offensive to capture the mobile banking market, venturing beyond simple money transfers and mobile payments. However, the sector’s incumbents, who are seeing large market shares and a colossal financial windfall taking from their hands, are fighting back by accelerating the pace of their digital transformation and rethinking their business models. Analysis.
By Walid Khefifi, in Tunis
Potential allies, then potential competitors, and now sworn enemies. Traditional banks have declared war on telcos who are poaching on their territory. This is one of the main conclusions of « The African Digital Banking Transformation Report 2022 » published by African Banker magazine and digital banking technology provider Backbase on May 3.
The report, which is based on a survey of more than 115 banks operating on the continent, reveals that traditional banking institutions see telecom companies as a far greater threat than the rise of fintechs. 44% of banks surveyed believe that telcos pose a serious threat to their business.
« While telcos have become real players in the banking landscape on the continent, banks are growing aware that they have somehow invited the fox into the hen house”
Financial services provided by telecom players rank second among the threats cited by banks, just behind the lack of skilled labor, but ahead of rising operational costs, lack of banking infrastructure, difficult regulatory environment and competition from fintechs and other banks!
« While telcos have become real players in the banking landscape on the continent, banks are growing aware that they have somehow invited the fox into the hen house, » says Jean-Michel Huet, partner in charge of Africa at consulting firm Bearing Point and former product manager at the Orange Group.
The banks’ concern is justified: in Africa, where the majority of the population has a phone in one pocket and cash in the other, the craze for dematerialized mobile banking solutions continues unabated. According to the latest report from the Global System Operators’ Association (GSMA), the number of mobile money accounts in Africa has grown by 17% to 621 million by the end of 2021, while the number of active accounts has increased by 12% to 184 million. Mobile money transactions on the continent grew by 40% year-on-year to $697 billion, accounting for 70% of total transactions worldwide.
Operators first simply launched mobile money services allowing for money transfers and bill payments via cell phone, with a focus on partnerships with banks. But as the appetite grows, they have become more tempted to compete head-on with traditional banking players than to collaborate with them.
The meteoric success of mobile money solutions, notably driven by Kenya’s pioneering M-Pesa, has encouraged operators to seek banking licenses to gain a free hand. These licenses allow them not to comply with regulatory requirements, but also to expand their range of financial services to include new products.
“In English-speaking African countries, regulators are giving more leeway to telcos which start with payment and money transfer solutions before expanding their financial product offers”
Taking advantage of the regulators’ desire to increase financial inclusion and decash the economy, several telcos are now aiming to offer a range of products that covers all segments of retail banking. « In English-speaking African countries, regulators are giving more leeway to telcos which start with payment and money transfer solutions before expanding their financial product offers. In French-speaking countries, regulators are less flexible but the situation is changing, » notes Paul Derreumaux, founder and honorary president of the Bank of Africa (BOA) group. For Instance, the French operator Orange in July 2020 launched a new 100% digital bank in Côte d’Ivoire, in partnership with the local bancassurance company NSIA. This bank called Orange Bank Africa (OBA) offers its customers loans starting at 5,000 CFA francs ($8) as well as savings products including an interest-bearing passbook, delivered in just a few clicks from a smartphone. It also plays on synergies with the Orange Money mobile payment solution, which was created in 2008, based on the Kenyan M-Pesa model and now has more than 60 million customers.
OBA has already attracted 800,000 customers in Côte d’Ivoire. Ten months after its launch, the digital bank has announced the granting of more than one million loans, totaling more than CFAF 45 billion (about $72 million). Building on this success, it plans to expand into Senegal, Mali and Burkina Faso and is targeting 10 million customers in five years, according to Patrick Roussel, Orange’s Executive VP mobile financial services for Africa and the Middle East.
In Kenya, Vodacom and Safaricom offer an interest-bearing current account to customers of the M-Pesa service, through which more than 50% of the country’s GDP is now channeled, as well as loans whose amounts are calculated in a few seconds based on the user’s mobile transaction history.
South Africa’s MTN and India’s Airtel, Last April, won mobile banking licenses in Nigeria, where Glo and 9Mobile are already teasing the banking giants by offering a wide range of financial products from mobile payments to savings.
“These new products are a real driver to develop customer loyalty since it is less easy to change banks than telcos”
To bypass the obstacles imposed by the regulatory authorities, some operators have found a solution that gives bankers cold sweats: buying out a well-established credit institution. This is the case of the telecommunications group Econet Wireless, which bought the Zimbabwean bank Steward Bank, before digitizing almost all of its offers.
For telcos, financial services represent a new growth driver, as their average revenue per user (ARPU) in the phone services segment (voice and SMS) tends to decrease due to increased competition from free messaging applications. « By enriching their range of services with financial products, operators are moving up the value chain. These new products also represent a real driver to develop customer loyalty, since it is less easy to change banks than telcos, » says Jean-Michel Huet.
The key success factors of the telcos’ breakthrough rest mainly in their large networks of distributors present even in the most remote places and their huge customer bases.
Traditional banks are responding to the challenges from these agile « game changers. » They are accelerating the pace of their digital transformation, capitalizing on undeniable comparative advantages such as the absence of limits on elements such as the size or frequency of transactions or the deep knowledge of the customers.
About 60% of banks surveyed in the African Banker/Backbase report describe digital transformation as the most important factor for their future, and 34% rank it among their top three priorities.
With this in mind, several banks are trying to make their way into the telcos’ territory. Kenya’s Equity Bank, for example, has boldly won one of the three mobile virtual network operator (MVNO) licenses awarded by the government to offer its own phone banking services. Through this MVNO, called Equitel, the banking group now conducts most of its transactions through mobile channels. In 2021, the number of transactions carried out via digital channels, including loans, amounted to 1.24 billion, while only 40.8 million transactions were carried out in branches and ATMs.
« Banks that have been a little slow to grasp the scope of telcos’ ambitions in financial services for several years, are now catching up”
South Africa’s Standard Bank Group has, meanwhile, rolled out its own mobile banking offer called « Unayo » (You have it) without forming partnerships with telcos. This solution is already operational in South Africa, Botswana, Malawi, Lesotho and Swaziland and is accessible on smartphones – via an application that can be downloaded from Google Play or Huawei AppGallery – as well as on the most basic cell phones, thanks to USSD technology.
« Banks that have been a little slow to grasp the scope of telcos’ ambitions in financial services for several years are now catching up by gaining agility and launching a forced digitalization of their products. Their main asset is the fact that they are the only players who can really meet the needs of a variety of customers in the credit segment, » says Paul Derreumaux.
While it is undeniable that telcos are gaining ground in financial services, the fact remains that banks have not yet said their last word in this battle of the titans, the outcome of which will determine the future of mobile banking in Africa and elsewhere…
