Mobile Money: Beneficial for banks?
Mobile money presents an opportunity for banks and financial institutions to access informal markets in new ways, says Vahid Monadjem, Nomanini CEO.
Over the past decade, mobile money adoption has skyrocketed—a phenomenon that has primarily been driven by growth in sub-Saharan Africa. Indeed, since the 2007 launch of M-Pesa in Kenya, mobile technology has accelerated financial inclusion in emerging markets. This has been particularly true in sub-Saharan Africa, where mobile phones have become pervasive. Tellingly, mobile money accounts in sub-Saharan Africa have now surpassed traditional bank accounts, according to findings released by the GSMA.
Naturally, the formal banking sector has been keeping a close eye on the emergence of mobile money technology, with banks and other financial institutions responding in different ways. To date, the prevailing notion is that mobile money competes with the banking sector to its detriment, and therefore has to be treated as a threat. As a result, some banks have developed their own branded mobile money-like products. In general, however, these offerings have had little impact, with banks simply unable to gain significant reach.
Developing New Models
Arguably, mobile money presents an interesting and highly lucrative opportunity for the banking sector. A report released by MarketsandMarkets stated that the global mobile money market is expected to grow from $12.34 billion in 2014 to $78.02 billion by 2019. In addition, the GSMA has revealed that mobile money is reaching more than 411 million people globally, and is available in 85% of countries where the majority of the population lacks access to formal financial institutions. It also revealed that more than one billion transactions were processed in December 2015, which is more than double what PayPal processed globally. Even in South Africa, where mobile money adoption has been slow, it still presents a viable way of reaching the almost 30% of people who are unbanked or underbanked.
With the above in mind, it’s clear that mobile money should be an integral part of every bank’s strategy—it is merely a question of how the technology is integrated into existing services and channels.
Looking ahead, the key is for banks—and mobile money technology providers, merchants, agents—to start considering new and innovative partnership models. In many ways, this moment can be compared to the one faced by banks 60 years ago when the credit card industry began to take shape. Questions had to be answered around interoperability, profit margins and global partnerships.
Today, mobile money technology is entering a new and potentially collaborative phase with formal financial institutions—a phase in which innovation will be imperative.
Interoperability is Key
As it stands, banks are benefiting from mobile money, because mobile money operators and agents ultimately have to use banks to make deposits. Banks are then able to lend against those deposits (lending between 6–10 times the amount of cash they hold), which ultimately enables them to profit from the interest associated with the loans. Instead of mobile money ‘eating their lunch’, the technology in fact increases a bank’s cash float and boosts their ability to lend. This is particularly beneficial for banks in Africa, which have traditionally been limited by deposits. More importantly, the rapid growth and adoption of mobile money has validated the idea that you can reach large numbers of low income, unbanked or underbanked people using low cost, digital channels.
For banks and financial services players, now is the time to consider different ways of working with merchants, agents and mobile technology providers. Given their reach, access to funding and access to data, banks are in a strong position to develop interoperable mobile money networks that benefit each player within the ecosystem. Increasingly, informal merchants want to become one-stop shops – offering the widest possible range of transactions and services, and thereby attracting more customers. Without doubt, armed with financing and vast experience around the logistics of handling cash, banks can play a massive role in enabling mobile money while boosting their own bottom line.
In many emerging markets, mobile money is fueling the digitisation of cash and transactions, and it is ultimately smart partnerships that will shape the future success of this technology.
Vahid Monadjem is the Founder and CEO of Nomanini, a South African-based payments platform provider that enables transactions in the cash-based informal retail sector. Vahid is passionate about working at the intersection of technology and design in informal markets, where Nomanini’s solutions can directly impact people's lives. His vision for Nomanini is to provide platforms for transactions in emerging markets by empowering local partners to create the tools that best suit their particular environment. Vahid is a trained engineer with extensive innovation and product design experience. Before founding Nomanini, he was McKinsey & Company’s global fellow for Emerging Market Product Development. He has worked in Africa, South East Asia, North America and Europe, within a wide range of industries, including technical services, design, consumer goods, state-owned utilities, petrochemicals and telecommunications.
As the pioneering fintech platform for the informal retail ecosystem, Nomanini connects merchants and distributors to each other and global service providers, integrating payments, working capital, and data analytics to unlock the latent potential of Africa’s economy.
Nomanini turns any mobile device into a retail point-of-sale solution for informal merchants that is connected to an interoperable merchant wallet. The interoperable merchant wallet allows merchants to offer a broad range of digital banking (including cash-in/cash-out), mobile, utility and entertainment services to their customers boosting competitiveness. In turn, digital service providers rapidly increase the scale and reach of their offerings. By generating real-time insights based on transaction data, distributors using the platform gain a single view of their merchant network, ensuring inventory is where it is needed most to improve sales. Distributors can also begin to accept payments for goods electronically, eliminating the risk and inefficiency of collecting cash. With data analytics, Nomanini helps extend working capital loans to merchants via distributors allowing them to invest in inventory to grow their businesses. The increased volume of goods and services set against reduced operational friction increases the profits for all platform participants.
Headquartered in Cape Town and founded in 2011, Nomanini has partnered with Standard Bank Group.
For more information, please visit https://www.nomanini.com