Mobile payments and the banking sector (part II)

In the last part of this article, we explored the functions of Mobile Money and how affordable and convenient it is to transact using this service.

In the last part of this article, we explored the functions of Mobile Money and how affordable and convenient it is to transact using this service.

But despite the successes of Mobile Money, are mobile payment solutions or Telcos competing with banks? In my view, Telcos are actually complementing bank efforts in helping to reach segments of the economy they traditionally cannot reach alone for reasons of high cost to serve or business model limitations.

The very core business model banks operate and know how to do best has traditionally not provided universal access in places where structures are still informal and disparate, creating accessibility barriers.

Mobile payment solutions from Telcos are complimentary because mobile operators are not deposit takers, so banks remain the repository benefiting from any money loaded on Mobile Wallets.

This in the long run should support an efficient interest rate regime. The argument is as more and more affordable funds are mobilised into the banking system through Mobile Money, more loanable funds become available at a cheaper cost (interest rate).

Mobile Money affords financial institutions the means to reach the general population with services such as micro loans and savings, insurance and access to many banking services right from their phones.

Thus Mobile Money brings a ready market to the doorsteps of Banks for universal financial intermediation, savings mobilisation and service innovations.

The name of the game going forward is expanded partnership with Banks and other Aggregators that should not be averse to competition. The supposed “creative tension” spurs innovations for the good of all.

If Financial Institutions and Telcos can collaborate more in developing products and services that take cognizance of the peculiar characteristics of our market, Africa will be better for it.

This takes us beyond mobile payments into the exciting but less developed mobile financial services space, a future none of us can resist.

In their pioneering works, the celebrated Peruvian Economist Hernando De Soto (The Mystery of Capital, 2000 and The Other Path, 1986) and CK Prahalad’s The Fortune at the Bottom of the Pyramid (2004) both argue so powerfully in their own different ways how the so called informal sector if well harnessed can drive the economies of developing countries.

Hernando for instance calls all the informally held capital and assets “dead capital” because they cannot be leveraged to produce growth.

They are in forms that cannot be “seen” or “recognised” because they lack the trade-able valuation, adequate legal basis or title right. How much value will a Bank put on an acre of a vegetable farm owned in the remotest part of the Western Province?

Prahalad however, offers a solution pointing out that there can be strong business models for serving the Bottom of the pyramid segment. They can be profitable by aggregating scale even if the profit margin per customer is very slim and ordinarily not attractive in conventional business sense.

Yet with the sheer millions/billions of low-income population, designing the right business models to tap into the “Bottom of the Pyramid” opportunities may be worthwhile.

Mobile Money in Africa and in Rwanda is one practical example in how ICT-led business models can support both doing business and doing good at the same time.

In the space of ICT, Mobile Money is leading the way. Through Mobile Money, national savings agenda can be pushed as it is already happening, with more money being put into mobile wallets than they are withdrawn.

Most of our subscribers deem Mobile Money as a safe store of value. In working with Banks, SACCOs and Micro Finance Institutions, this provides the basis to pull the millions of our population into other services such as interest bearing savings and taking micro loans to support their businesses.

This way the small-holder farmer who may currently not be known or ever recognised by any Bank can begin to access formal banking services without visiting any office or meeting the stringent requirements for accessing banking services.

It is possible through a simple credit rating system that can fairly assess the credit worthiness of Subscribers based on their historical usage behaviour of Mobile Money and other services.

Is it a very risky venture to embark upon? Let’s think again. Why is it possible for Telcos to advance airtime to Prepaid customers whenever they are in need and yet the pay back rate is more than 99% without a single Credit Officer chasing anyone? Food for thought!

The writer is the CEO, MTN Rwanda

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