GSMA Report: Mobile money deployments set to double

Mobile money services provided by telecom operators represents a fast-win opportunity in emerging economies, both fast-tracking communications capabilities while helping to almost instantaneously establish a ‘banking system’ for millions without access to traditional bank accounts.

That analysis comes from a recently-published GSMA report on the mobile money market, which provides not just statistics but also an in-depth analysis of successful strategies for telcos, banks and third parties. The focus is on Africa and emerging Asia, where across these two huge territories there are currently 100 deployments and another 88 planned.

Although there are obvious advantages to mobile money deployments, they can be especially potent in jump-starting emerging markets, in part because there are so many more mobile phones than bank accounts active in the world today – about 3 billion mobile phones versus 1 billion bank accounts, according to Frost & Sullivan.

There are barriers, of course, and the prominent one is regulation. In areas where the logic of mobile money is unshakeable, the regulatory environment is often a challenge.

Regulation, however, can also help drive mobile money partnerships. In many emerging markets, banks will tend to have a better and longer relationship with the regulator. This means that it will be the bank that will be the leader in the conversations with the government. A bank’s typical role (in a very untypical business) is to apply for the licence and be responsible for the banking compliance issues, including the financial strength to take care of float holding and liquidity.

To make mobile money a true success, a bank needs a telco and a telco needs a bank.

Interestingly, the report provides insights into the regulator’s perspective. Although they are comfortable working with banks – generally speaking – there is also a reluctance to embrace this new model. This comes from the fact that they are being asked to regulate an operation where the bank is not running the whole process – in fact the telco is operating most of it. Therefore they are putting a lot of trust in the bank. The bank, meanwhile can also be reluctant – they are betting their reputation on a partner and the partner’s ability to operate the mobile part of mobile money – the majority of the process. It is only in enlightened regulatory environments with progressive mobile telcos like Safaricom in Kenya that success is easy and quickly won.

Comparing the core strengths of banks and telcos, the synergies are obvious.

Banks have deposit-taking licenses, ATMs, branches, staff, financial products and links to a global financial system. Telcos have a growing customer base of unbanked people, control over the SIM card and the security issues and a low-value, high-volume transaction processing system. Both have customer trust in their respective worlds and each has skills that are fundamental to developing a banking product that is accessible via mobile phones.

There are barriers to rolling out service, once the regulator has approved the scheme, mainly in infrastructure and the cost of scaling the operation. The report provides in-depth analysis of these factors and concludes that the investment is definitely in the millions, possibly into the tens of millions but generally no more.

The benefits, even once the wider economic and social ones have been factored in are entirely commercial – more customers and more revenue for both parties and – importantly – a significant reduction in churn.