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Rush for Africa's digital financial services

by Mthuli Ncube

Rush for Africa's digital financial services


There are roughly 2.5bn people around the globe in lower- and middle-income countries who have no access to banking services. The potential for the expansion of digital financial services, which includes mobile banking and all electronic means of providing financial services, is clear. Africa, with a population of more than 1bn, of whom around 735m are mobile phone subscribers, is one of the key international markets for digital financial services.

There are around 203m registered nonbank mobile money accounts in the world, almost half of which are in sub-Saharan Africa, with East Africa accounting for the highest share. At least 19 African countries from across the continent have more registered mobile money accounts than bank accounts.

A number of factors such as mobile phone penetration, financial and conventional infrastructure development, population density, regulation, and the appetite of private players to pursue new initiatives have driven variation in mobile financial services.

The growth of mobile financial services
The high proportion of the African population that has no access to formal financial services has fuelled demand for mobile phones and mobile financial services. In most African countries, mobile banking is taking services to remote areas where conventional banks have been physically absent or too expensive to operate. Subscribers can now open accounts, check balances, pay bills, transfer money, and buy everyday essentials through their mobile phones.

Mobile financial services offer more opportunities for partnerships between banks and non-bank financial institutions. In many African countries, banks and multinationals are also competing to tap the market of the unbanked population. A necessary condition for the expansion of mobile banking is for regulators, especially central banks, to implement supportive regulatory regimes.

The depth of financial inclusion across Africa varies considerably. Nigeria, the most populous country and largest economy in sub-Saharan Africa, has one of the highest rates of financial inclusion, with a 60% share of the adult population using formal financial services. However, Nigeria’s regulator does not allow for multinationals to offer services directly to consumers. This is likely to be hindering market growth.

In Cameroon, only banks can offer digital financial services directly. There are 2.7m registered users, and the financial inclusion rate is 47%. However, 80% of banks’ loan portfolio is comprised of large companies rather than retail customers. These figures reveal that there is a lack of willingness on the part of banks to pursue a mass market strategy through either digital financial services or traditional means. Multinationals are now partnering with banks to offer digital services in the country.

Mobile banking supports financial inclusion
Kenya’s high rate of financial inclusion (67%) is supported by having the highest percentage (nearly 60%) of people over 15 years old who own a mobile banking account. The regulatory environment played a key role in 2007 when Safaricom, a telecommunications company, launched its M-Pesa initiative for mobile money transfers. The regulator offered Safaricom a ‘no objection’ letter that allowed the company to innovate and pilot test its service without the confines of strict regulation.


The political violence that struck Kenya in 2008 may have also contributed to the expansion of the M-Pesa service. The disruption to transport networks and shut down of formal financial services, such as ATMs, meant that M-Pesa was the only way customers could transfer money. To date M-Pesa has over 30m subscribers, making it the most successful digital financial services initiative globally.

Kenyans receive nearly 90% of their remittances through mobile phones, followed by Ugandans at nearly 70%, and Ivorians at 50%. This again is well above the average for sub-Saharan Africa (around 30%), and comparable markets including South Asia and Latin America (around 5%).

Successful development of digital financial services depends upon their ability to add value for all parties in the ‘partnership ecosystem’. Tangible value must be delivered to customers, multinationals, banks, agents, financial institutions and other companies, such as retailers or dealers.

Finding technology and business models that work for all parties is challenging, as different actors have distinct business objectives. If there is failure to add value to any partner in this system, it may result in the collapse of the digital financial services business model. However, if the right models can be found, then Africa will lead the way in the world in pioneering digital financial services.

Mthuli Ncube is head of research at global investment firm Quantum Global Group and professor of public policy at the Blavatnik School of Government, University of Oxford.