In over 15 years of covering the telecoms sector in emerging markets, it has always been clear to us at Developing Telecoms that the issues encountered in these regions must be addressed with pioneering solutions that factor in the circumstances surrounding them.
An approach that succeeded in developed markets will likely be unviable in emerging markets, whether this is due to a technological issue such as a lack of legacy architecture, or a more fundamental reality – and the shortfall of financial inclusion in many emerging markets definitely falls into the latter category.
The electronic banking model we’re familiar with from developed economies runs into a roadblock when the economy of a market is almost entirely cash-based. Businesses and individuals are keen to ensure their money is protected and their transactions are secure, but if nobody has a bank account and the infrastructure doesn’t exist to provide them, another solution must emerge – and if you’re reading this site, you probably know how well mobile financial services have filled this niche.
Africa has been a particular beneficiary of mobile financial services, but their impact has been felt worldwide, enabling financial inclusion like never before by taking advantage of the ubiquity of mobile phones. Services such as Safaricom’s trailblazing M-PESA have underlined how mobile devices can play an essential role in enabling societal functions that developed markets take for granted. M-PESA is the largest MFS service in Kenya, a country that has long been at the forefront of the development and adoption of mobile finance.
In a sign of the technology’s importance to the wider telecoms industry, the GSMA has announced that for the first time ever, FinTech is one of the four key focus areas for Mobile World Congress 2022. The industry body notes that during 2020, transactions worth US$503 billion were conducted via mobile phones, with the global fintech market forecast to reach US$190 billion by 2026.
The growth path for fintech in emerging markets was already established, but the pandemic has proven an unanticipated accelerator. With society increasingly reliant on connectivity to accomplish vital activities such as banking, robust and mature services such as M-PESA can be relied on to provide secure access to financial services.
M-PESA’s initial trial in 2005 demonstrated that a new model of banking could swiftly gain traction in emerging markets by facilitating financial inclusion through widespread technology. The service launched commercially in 2007 and now generates as much revenue for Safaricom as its voice offering. A complete service, M-PESA can easily be deployed in other countries and regions, and indeed has seen significant success in other markets including Tanzania, Afghanistan, Mozambique, Lesotho and Egypt.
It is of course Kenya where M-PESA has made the greatest impact, in terms of both proving the concept of mobile banking as well as establishing a service that can generate profits for operators while at the same time improving the lives of its users. Having overcome the hurdle of establishing a network of agents, M-PESA remains the largest mobile financial service in Kenya. At launch in 2007, the service offered simple services including cash withdrawals, money transfers and airtime top-ups, before adding utilities payments in 2009 followed by international money transfers in 2011.
The following year, Safaricom introduced the M-Shwari virtual savings and loans service, with Lipana M-PESA added the following year to allow users to pay for goods and services. In 2013, Safaricom awarded Huawei the contract to replace its first generation M-PESA platform and migrate the service to Kenya – or, in the words of Safaricom CEO Peter Ndegwa, to “bring it home.” Despite thevast impact that M-PESA has had on Kenyan society, establishing the country as a pioneer of mobile financial services, the service had never been domestically located and previously operated out of Germany. Huawei’s applications and infrastructure allowed M-PESA to run from Kenya – an important step both in terms of enabling greater efficiencies, but also demonstrating that operators in Africa are ready and able to operate their own offerings, suited to their own markets.
This has led to growth in digital payments as the service is able to empower businesses and drive retail and trade across multiple sectors in Kenya. One of the most transformational projects that Safaricom has worked on is Fuliza, which Peter describes as the first truly digital overdraft service, allowing M-PESA users to complete transactions even if they have insufficient funds in their accounts.
Safaricom’s data showed that over 1 million transactions were being cancelled daily due to users having insufficient funds, resulting in inconvenience to customers who has to postpone their needs. This led to the development of Fuliza as a proposition – working together with Huawei, Safaricom was able to develop credit scoring capabilities and contextual lending. This allows Fuliza customers to enable an overdraft facility immediately if their transaction is declined due to insufficient credit – they don’t even need to leave the transaction page. This has led to a 56% reduction in transactions being terminated due to insufficient funds, and Fuliza’s repayment rate sits at 98%.
Mobile money has unquestionably transformed Kenyan society, and Peter notes that being able to offer an overdraft facility has been a major factor in this – particularly during the Covid-19 pandemic. Since March 2020, M-PESA has experienced major growth as it played a vital role in ensuring the continuity of the Kenyan economy.
With curfews and travel bans in place, Fuliza in particular provided a lifeline to Kenyans unable to leave their homes and work by affording them leeway to make essential payments outside of a cash-based ecosystem. After being introduced in 2019, by the end of 2020 Fuliza attained an authorised subscriber rate of 50%, with annual revenue for its first two years exceeding US$100 million. This demonstrates not just the appetite in emerging markets for reliable financial and lending services, but also the value that such services can deliver to operators if they are tailored correctly to their target market.