Africa’s mobile money markets: the 3 stages of maturity

Like the economies in the region, mobile money markets in Sub-Saharan Africa (SSA) are at various stages of development. Mohamed Dabo reports

Mobile money deployment across SSA has experienced a 39% growth annually over the past decade, according to data from global consulting firm Ernst & Young (EY).

Both transaction volume and value are seeing double-digit growth.

But even as the value of mobile money transactions reached 6.4% of SSA’s GDP in 2018, this still falls far short of the 20.4%share of GDP currently held by credit cards in the European Union (EU) in 2018.

The growth potential of mobile money in SSA remains huge for investors who know where and how to place their bets.

Mobile money markets in the region are constantly evolving in what is a dynamic environment.

The three phases of development

The emerging phase

In regions where mobile money is still in the early stages – for example, in Cote d’Ivoire and Senegal – the market tends to be characterised by a high proportion of cash in or cash out payments that always involve an agent.

This drives up the cost per transaction for providers and limits a scheme’s profitability.

Investors that move into these markets will need deep local knowledge to understand how to drive customer adoption. They must be prepared to take risks and have deep pockets to support losses during the first phase.

Players with this combination of characteristics may include local banks, telcos and well-funded start-ups. Others may be challenged and should reconsider investment in this environment, or at least seek local expertise before making a move.

The growth phase

Markets in the growth stage, such as Mozambique, experience fast consumer adoption and increasing competition between providers.

At this point, the share of transactions within a scheme typically grows, increasing its profitability as transactions in the same network have essentially zero marginal cost.

Investing in schemes at this stage, and within large addressable markets, can yield large returns, but choosing the right scheme can be challenging.

Investors will need to have a strong knowledge of market characteristics as well as an appetite for risk.

The mature phase

Kenya is the best example of a mature mobile money market. Here, penetration is above 100% due to many customers holding multiple SIM cards.

M-Pesa controls more than 80% of the Kenyan market, showcasing the “winner takes all” dynamics of mobile money. High adoption of the scheme sees it morph into a quasi-currency, and most transactions are “within-network.”

Adjacent services within the ecosystem of prominent schemes gain traction, presenting smaller opportunities for investment.

Start-ups can use existing infrastructure – for example, remittance providers can offer mobile money payouts or interoperability across schemes, e.g. smoothly transferring money from Orange to M-Pesa.

Investment into schemes at this point is not always possible but, if so, is usually a more conservative play, with modern risk and return prospects.

Exploring the state of mobile money in Africa