Circulating and storing money has always been a matter of trust, liquidity and perception of costs and risk. Now we are being told that the trust is as firm as the mobile in our pocket or

purse, the liquidity is ubiquitous, and the costs and risks are virtually non-existent as mobile money (MM) is effectively a free rider – or a free app – on our mobile phone.

In emerging markets, Kenya’s experience, with 23 million registered users of mobile money – predominantly of Safaricom’s M-Pesa – has convinced mobile operators that it will catch on everywhere. This would place mobile money next in line after prepaid (itself a form of MM), SMS and pre-agreed rings as the next killer app. (SMS has materialised as a key app in certain developing markets, especially where both literacy and voice tariffs are high, such as in the Philippines.)

Yet matching Kenya’s – and Safaricom’s – lead in exploiting mobile money as a widely used, profitable service has not been easy. In most countries, mobile operators’ expectations of success with MM services have been confounded by a variety of start-up barriers and challenges. In only a handful of markets has the service thrived and contributed to profitability. In Tanzania, the second best MM market in Africa, it was only in 2012 that as many households had access to MM accounts as in Kenya in 2008.

Moreover, the key issue is not how many households or individuals have mobile money accounts but whether they use them. In Côte d’Ivoire, for example, there are over five million registered mobile money customers, yet well below a fifth of these are considered active users. Elsewhere in West Africa a mobile operator has two million registered MM subscribers but only 15,000 who are active. Agents are getting individuals signed up but active usage has not generally followed

RegistRation-usage gapSo what accounts for this registration-utilisation gap? Is the barrier ease of use, service credibility, limited customer cash, or something else? In fact, what a close look at the MM utilisation process suggests is that most users experience several trial and error steps in learning to execute MM transactions and determining an appropriate MM

service provider and trusted service agent(s). The trial and error trail depicted below shows how there can be many steps – and mis-steps – between registration and utilisation:

Registration > ServiceDemo > AgentTrust > InterfaceTrial > InterfaceLearn > ServiceTrial > AgentNetwork > Agent2Trust > ServiceTrust > Utilisation

Where an experience with an agent or interface protocol or money transfer attempt goes wrong, there may be a step or two backward before another attempt is made to test the MM service. In other cases, the adoption process can be virtually seamless. However, once MM customers complete the process successfully, acquiring a new set of money management skills and behaviours, they come to appreciate the mobile money value proposition.

In a recent survey in Tanzania, 75% or more of the MM service registrants indicated that compared with alternatives they had tried, presumably ranging from storing money under the proverbial mattress, to using other MM providers, their current MM service was cheaper, quicker, easier to use, safer and more convenient. Yet, as the experience to date in many African markets indicates, the MM value proposition has to be explained, refined, adjusted to local requirements and conditions, and corroborated by users’ friends and by themselves directly, for the value proposition to take hold.

tRiggeRs of mobile money useIn turn, MM providers need to understand the determinants of mobile money knowledge and usage from the customer standpoint. Based on recent Kalba International research on the demand for mobile and broadband services, these determinants include:l The MM registration process and related agent

training and incentivisation.l Cultural and behavioural resistance to the use

of mobile money, including fear of cybercrime, money laundering, scams and non-functioning services – and, in some cases, that a mobile operator will push to convert deposits into minutes, ringtones or value-added services.

l Economic and service pricing factors, with fees often representing significant charges for

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AfricA’s mobile money storyMobile money systems in the developing world could be crucial, but there are barriers, as Kas Kalba reports

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in Kenya. (Timing was also a key to the introduction of prepaid mobile services in Mexico in 1993 at the time of the peso crisis and accompanying credit shortage.)

We look briefly at each of these contributing factors below, putting together a roster of potential explanations of why in most African countries the Kenya experience has not been replicated.

RegistRation and CampaignsRegistering customers for an MM service is the easy part, especially if agents are awarded a bonus for each registration. The result can be large numbers of registered MM ‘customers’ who have no need for mobile money, have a need but do not know how to use the service, or need it and know how to use it but are hampered from doing so by other tangible factors (lack of cash or a mobile phone that needs charging, for example) or intangible factors (eg. lack of trust). For example, in many cases MM service registrations take place without a demonstration of how the MM service(s) of interest to the new registrant are actually used, as agents are often incentivised on the basis of registrations completed rather than initial or subsequent usage.

Poor people, in particular, take time to reach the point of MM utility, while those with more regular money transfer needs may continue to rely on legacy means of doing so, including

the use of agents rather than mobiles. And there are ingenious techniques such as hiding the money being sent to a relative in the tyres of a bus (this is where mobiles are used to alert a relative that the money is being transferred, when the bus is scheduled to arrive, and which tyre the money has been hidden in or behind.)

Similarly, it is important to understand the nature of the advertising and marketing campaigns that have been used to stimulate MM registration and usage, as these may have contributed to the utilisation gap and may have imbued potential users with a particular sense of the MM value proposition. If, for example, the marketing campaign has emphasised the money transfer capabilities of MM when customers may be more interested in bill payment, the marketing campaign is likely to have had limited effect in inducing service use. There is also research that indicates that TV and radio campaigns may have less impact in fostering the early use of digital products and services than do family members, often the younger ones.

avoidanCe of seRviCe fees In Sub-Saharan Africa, older – and, to some degree, female – members of the population can be kept from using mobile money due to limited

individuals living on $1–$2 a day, while other times having significant savings over traditional forms of money transfer, bill payment, etc.

l Tactical behaviour by customers, such as registering for multiple MM services and accounts, direct depositing into recipients’ accounts (thereby avoiding fees and notation of active usage in some markets) or avoiding agents with long queues or those who have been absent from their service booths.

l The extent of MM connectivity provided by the operator – and the extent of point-of-sale (POS) activation by the MM provider – and whether the networks of alternative operators and MM providers are interoperable (at a level easy enough to use by the average person).

l The scale and calibre of the distribution networks, including the degree to which sufficient cash and e-float is on hand, as well as the training and incentivisation of the agents (focused on registration or usage). The quality of such networks varies not only by agent density but also by agent behaviour. The former is especially instrumental in Tanzania’s rural areas, along with a significant incidence of agent absenteeism from their posts.

l The coverage of the mobile network(s) being used and extent to which appropriate smartphones or feature phones, eg. with POS-compatible near field communication (NFC) capability, are widely available where onsite payment and certain business services are on offer.

l The nature and volume of marketing campaigns encouraging mobile money use and highlighting specific applications.

l Regulatory and standards-setting aspects, with respect to banking, privacy, security, payment services and mobile money directly.

There are also special considerations with respect to offering mobile money in rural areas, such as the prevalence of digital and print illiteracy, the challenges of powering mobile phones, the seasonality of cash availability, and the distance to the closest agent. Finally, there is, simply put, luck – or timing – which, as explained further below, played an important role in M-Pesa’s early take-off

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the experience in many African markets indicates the value proposition has to be explained and refined to local conditions.

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literacy and digital literacy. The younger segment, meanwhile, often faces other obstacles. Primary among these is the lack of cash among a group that faces unemployment, often above 50% even when their national economy may be growing at up to 8%. Accordingly, young adults may be interested in registering for MM services and may have little difficulty using them but may not have the need to transfer cash or pay bills very often.

At the same time, some MM users may be using the service without registering active usage and incurring associated fees. A notable example of such creative bypassing of fees is the practice of depositing funds directly into the account of the intended recipient rather than taking funds from the transaction initiator’s account and transferring them to the recipient. Such practices, even conducted frequently (eg. on a weekly basis), are not recorded on the account of the initiator of the deposit in some markets – only on that of the recipient.

What should be kept in mind is that the service fees associated with MM services can be burdensome for low-income MM users. They can represent 50% of the daily living costs of someone at the poverty level, not to mention a large percent of the amount being transferred. Moreover, the unemployed often have a surplus of the commodity that MM services help others save – time. Yet obviously this type of impediment has not kept the population in Kenya from using M-Pesa widely; so what other factors explain why mobile money has not taken off elsewhere as it has in Kenya?

m-pesa’s speCial CiRCumstanCesIn understanding the Kenyan experience, it is important to recall the high costs of sending money by other methods that prevailed prior to M-Pesa’s introduction in 2007. These cost differences are still present in other countries – and continue to serve as a driver of MM use – yet not to the same degree as before. For example, international money transfer services, which imposed the highest fees, now generally charge half or less of what they charged before.

The success of M-Pesa in Kenya has been based in large part on the market dominance of Safaricom, which provides on-net connection to more than 60% of the country’s mobile subscribers. Correspondingly, Safaricom has a network of 80,000 M-Pesa agents whereas in Côte d’Ivoire, for example, the two largest operators combined (MTN and Orange) operate with 3,000 agents. In most African markets subscriber shares of the main operators are usually more equivalent – in some cases there are as many as ten operators, resulting in a highly fragmented situation. Even when there is interoperability across the networks, many MM users are not aware of this or do not know how to execute MM transactions across networks.

More generally, mobile-based innovations have often diffused more widely where there is a dominant operator – such as Docomo in Japan (i-mode services), Telcel/America Movil in Mexico (prepaid mobile service) and Safaricom in Kenya (M-Pesa). By implication, the high degree of on-net connectivity can also be an important ingredient in assuring the scalability of MM as well as its profitability, which, as indicated earlier, has been limited to a very small number of markets, notably those of Kenya and the Philippines.

Moreover, most other African countries have not experienced the civil strife that encouraged Kenyans to use M-Pesa for money transfer and storage in 2008 when MM service was initiated in Kenya. Suddenly, the mattress and back pocket were not as trustworthy storage places as had been traditionally assumed, as houses were subject to break-ins and individuals to being stopped on the street.

The storage functions of MM are often overlooked yet were fundamental to M-Pesa’s diffusion in Kenya. Money transfer was, of course, the prevailing official app of M-Pesa, as this incurred a fee, followed by bulk payments, which were popular with workers who otherwise stood in long lines at the end of the week waiting for their paychecks. Safaricom concentrated its early marketing efforts on young males with regular income, located in Nairobi and other major cities, as they were regular initiators of money transfers, according to its research. Being young they also caught on quickly to mobile phone data functions and were less likely to be glued to traditional money transfer networks.

Finally, M-Pesa’s success in Kenya is also often ascribed to regulatory flexibility and the waiving or non-existence of banking laws that prevent mobile operators from managing deposit accounts. In fact, there may have been some flexibility in the early years when M-Pesa was first introduced. Today, however, Safaricom is not the depository for the M-Pesa MM accounts. All the money rests with authorised banking institutions, with Safaricom in effect offering ancillary services.

RepliCating m-pesa — the downsidesFollowing the Kenya model, multi-country mobile operators such as MTN and Orange introduced mobile money as largely a single-purpose (money transfer) service in other markets. The expectation was that the M-Pesa success model would be replicated elsewhere at even a larger scale, as MM diffused across multiple markets. Yet money transfer has generated limited short-term demand in many of these markets, presumably for a combination of legacy, cultural, connectivity and other reasons, as suggested above.

It is only now, in some countries five years after the initial MM service launch, that MM agent networks (much narrower ones than those of Safaricom) are being re-geared towards bill

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payment, for which there appears to be a greater local appetite. If paying an electricity bill requires going to a limited number of offices of the utility company and standing in line for an hour or more, it is no surprise that bill payment can become a driver of MM services. On the other hand, if bills can be paid by mail, most grid users have checking accounts, and there is an effective postal system (a factor that varies considerably across Sub-Saharan Africa), then MM may not provide as attractive a solution.

Overall, the new bill-payment approach brings new challenges, as it requires the build-up of a network of payees that accept mobile settlements for the service to have widespread appeal. It is also unlikely to be very applicable in rural areas, where regular bills are not a fixture; for example, most households live off the power grid and do not have regular electricity bills to deal with. Safaricom, meanwhile, now offers numerous MM products, including person-to-person transfers, bill payment, onsite payment for goods and services, international transfers, credit card use and so on. It has reached a more saturated and mature phase of development, with its owner, Safaricom, starting to look for new innovations that will drive the next stage of product innovation and development. (According to one source its new orientation will be IPTV services across multiple platforms. Here, however, it will face competition from established players, notably Wananchi, a triple play provider, and MultiChoice, the satellite TV company; see ‘Safaricom looks to IPTV for new revenue stream’, Rapidtvnews, November 16, 2013.)

multiple sims, multiple mm aCCountsThere is another possible explanation for the discrepancy between MM registrations and active users. It is likely to apply to markets without a dominant mobile operator, which is to say most markets in Africa. Just as such markets often come with high levels of multi-SIM accounts (prepaid), they could well push mobile subscribers into signing up with multiple MM service providers.

Why hold multiple MM accounts if you are an MM user or potential user (apart from being enticed into registering for them by bonus-hungry agents)? There are a number of reasons, including:l To have access to different agents (for example,

one that is closer to the place of work, another to a residential location, and a third to a frequent shopping area)

l To keep personal and business transactions distinct

l To allow a third-party (friend or family member) access to one MM account but not others

l To benefit from the differing fee structures of the different MM providers (eg. Provider A charges less for international transfers while Provider B charges less for bill payments)

l To be able to switch to a second MM service if the

first one is not functioning due to network congestion, coverage, frequency limitations or for other reasons

l To benefit from the superior fee structure or promotional offers of a second MM provider after having registered with a prior one

l To have some emergency funds in one account that remains inactive (pending an emergency arising) while actively using one or more other MM accounts.There may also be multiple MM service registrations because

customers are not aware that they can transfer funds to individuals subscribing to other mobile networks or because doing so involves extra steps or extra charges. Overall, as with multi-SIM usage, multiple MM accounts would have the effect of reducing the average registrant’s use of MM services and in some cases could result in some of the registrations remaining effectively unused other than in unusual circumstances. Again, the smaller the agent networks involved, the more benefit subscribers would derive from access to multiple MM providers.

extending into RuRal aReasAs the agent network widens in a given country and extends to rural areas, seasonal factors could become increasingly significant as drivers of MM utilisation and as determinants of periodic non-utilisation. In a farming-based economy, the time when individuals register for MM service and the time they are paid and need to use the service can often be separated by more than 90 days, which is the period that some operators use in defining active MM customers.

Moreover, climate-related conditions – for example, periods of heavy rain – can affect both the work/pay cycle and the effective coverage of mobile networks, especially for networks operating at 1800 MHz as well as any 3G networks, which generally use the 2.1 GHz frequency band, and are subject to signal attenuation. (We note that Kenya has relatively little precipitation compared to most countries in Africa.)

Extending MM services into rural areas will be supported by their potential attraction as less costly compared to traditional alternatives, as banks are far and few between and money transfers can involve considerable personal displacement and significant delivery charges or transfer fees.

On the other hand, there are countervailing factors as well, given that rural incomes are generally lower, disposable income is more limited, mobile phone availability is lower, charging of phones is challenging, and monthly or other regular bill paying (eg. in areas that are off the electrical grid, with no utility bills) is quite limited. Most importantly, the distance to agents is relatively high and the impact of agents who are unexpectedly absent from their posts is even greater than in urban areas.

In short, the mobile money story is far from over in Africa. In most markets it is just beginning to unfold. In fact, there is room for new stories to emerge, including new models that depart considerably from the M-Pesa approach in Kenya. Just as the story of the mobile internet is still at an early stage in Africa, mobile money could take different – and multiple – paths as it emerges as a widespread application in different markets.

The paths will be influenced by the varying economic growth of different markets, the more uniform demographics (including a young and relatively illiterate population), differing cultural attitudes, varying mobile market structures, and legacy forms of money transfer and execution of other transactions. Much remains to be told.

Kas Kalba is CEO of Kalba International, a digital economy advisor,

which is launching a detailed study of mobile money in Africa. For more

information contact kas.kalba@kalbainternational.com

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