With technology disruption so evident within financial services and an increasing number of mobile money and remittance platforms taking off in Africa, it is not surprising that telcos and network operators are eager to tap into the activity in developing markets. But according to remittance experts securing a foothold in mobile payments is not easy and requires a lot more than simply developing a service and evangelising the offering: it is essential to match up product/ service with the realities of target markets.

According to a GSMA 2015 State of the Industry Report on Mobile Financial Services the number of active mobile money accounts globally exceeds 130 million, with over 100 million new registered users added in 2015. The report also showed that in 2015 there were 271 active services in 93 countries.

"1 in 3 mobile connections in Sub-Saharan Africa are linked to a Mobile Money account ...even more impressive, Mobile Money penetration in East Africa exceeds 50 percent," stated GSMA.

According to statistics attributed to the Central Bank of Kenya, almost US$23-billion was transacted via mobile money transfer services providers in 2015.

An IDC report, Cross-Border Remittances: The Next Mobile Money Frontier in Africa', claims that the number of mobile money wallets now surpasses the number of bank accounts in several African countries.

The IDC quotes Leonard Kore, senior analyst for telecommunications and media at IDC East Africa as saying, ""As mobile money usage continues to overtake bank account usage in a number of African countries, IDC expects remittances (especially low-value amounts) to be increasingly channelled via mobile money rather than via bank transfers or other expensive MTO platforms. Mobile money disrupted the financial services market, and cross-border mobile money transfers have the potential to similarly disrupt the remittances market. As such, IDC warns that traditional remittance players may be next to start losing customer share in the fast-evolving mobile-money revolution."

The company also believes because of their strong brands, wide distribution networks and strong customer bases, telcos are in a prime position to digitally disrupt this market.

The challenge

Alix Murphy, senior mobile analyst at global mobile financial services provider WorldRemit, says that in markets where rapid smartphone adoption and growing subscriber demand for 3G and 4G data are still lucrative profit drivers, it could be difficult to see the benefits of investing in slow-growing products like mobile money.

Some markets, including South Africa, have proven to be challenging for would-be service providers. Murphy says the country is not the only market where the business case for mobile money has been more challenging, but says it is probably the most acute example.

"Other countries like Nigeria and Egypt may have similar levels of socio-economic disparity between high income and low income citizens, but the challenges around offering mobile money for unbanked customers in these markets also relate to regulatory constraints and lack of a level playing field for newcomers into the sector," she says.

In September MTN South Africa announced its decision to decommission its Mobile Money offering due to lack of commercial viability. The company acknowledged that the costs of providing the platform had become prohibitive, but emphasised that it did not represent a complete exit from financial services.

In May Vodacom decided to discontinue its M-Pesa money transfer service in South Africa from 30 June. CEO Shameel Joosub explained that the sustainability of the service is predicated on achieving a critical mass of users and based on its revised projections and high levels of financial inclusion in the country there is little prospect of the product achieving this in its current format in the mid-term.

Murphy said the decision shows the challenges of operating mobile money services in 'two-tier' markets where a large segment of the population has bank accounts.

"Vodafone came to exactly the same conclusion when they cut their service in South Africa earlier this year. It's no reflection on Vodafone's ability to run mobile money successfully (they are highly successful in other markets and in fact just launched a new mobile money service in Ghana earlier this year), rather just a rational strategic decision based on the market realities in South Africa," Murphy added.

She continues that it's not for a lack of due diligence at the beginning that MTN and Vodacom withdrew their mobile money services in South Africa, but rather a recognition that the model of M-Pesa and MTN's Mobile Money services does not always work in every market.

"In the early days, once mobile money started to gain serious traction among customers in countries like Kenya and elsewhere, mobile operators across Africa began to seriously examine the opportunity of offering mobile money in other markets with large unbanked populations. Particularly when the industry was still learning and building best practice in these early days, it wasn't always clear what would be the essential elements for success in the business," says Murphy.

She explains that the problem is with companies that think they can offer a mobile payment service based on the success they've seen elsewhere, without thinking strategically through every step of that business.

"Mobile money requires a lot of up-front investment and ongoing operating expenditure before seeing any profits, and not all new players understand the patient persistence that's needed to succeed. As in any other sector- including the international remittances industry, which has been plagued by lack of competition for many years - competition in this business is a healthy thing, but services that go in with a half-hearted approach can end up hurting business in the long run by reducing consumer trust in the industry."