The African Mobile Money Revolution

Financial systems in Africa are experiencing a revolution that is reaching beyond the boundaries of the continent to change the world and redefine financial economies.

Mobile money began in Kenya around March 2007. M-PESA, Kenya's now-legendary mobile money payment system, was originally a pilot program by the company Safaricom. The program based on the observation that Kenyan consumers were transferring mobile phone credits to one another as though it were a currency unto itself. The idea behind M-PESA was that instead of transferring credits, money can be deposited to an account connected to a mobile phone and sent or received from other users via text message and easily changed back into cash when necessary. M-PESA is now a standard way for Kenyans to make payments, and even to save. The approach has since expanded far beyond Kenya in its reach across Africa and is now a definitive part of the global economy. Mobile money may represent a partial leap-frog of traditional banking institutions.

According to the 2021 GSMA State of the Industry Report on Mobile Money, Africa accounts for 562 million registered accounts, representing a growth of 12% from the 2020 report. For context, the world population of mobile money users are only about 5% (that is, out of the global population of 7.79 billion people, only 1.2 billion were mobile users in 2020). African consumers added the most users to this total with 43% of all newer accounts being from Africa. However, the momentum in East Africa driving most of Africa's growth is only beginning to manifest in West and Southern Africa, where adoption has been relatively slower for mobile money providers.

Africa has been the primary driver behind the global growth of mobile money. Overall, buying and selling activity using mobile money across Africa is highly popular. Mobile money accounts for 456 billion US dollars of spending, making Africa second in the world, behind South Asia in terms of recorded mobile economic activity.

Why has mobile money been such an economic phenomenon in Africa, and even more so than has been the case in developed nations? Sub-Saharan Africa outpaces other regions when it comes to mobile money, in part because mobile systems in developed countries must out-compete dominant commercial banks and other formal institutions in the financial industry. On the other hand, commercial banks in most African countries are relatively scarce, and where they persist, their reach is often limited to the minority economic elite. Most Africans traditionally use informal financial systems to save and generate economic activity. In large part for this reason, mobile money has grown significantly in Africa with little to no competition for most of its first decade. Newer contenders for supremacy in the mobile money industry include mobile money systems created by mobile phone network operators such as MTN and Orange.

There are already social impacts being attributed to mobile money in Africa. Research suggests that mobile money has reduced poverty in Kenya. The effects of mobile money on poverty were larger for female heads of households, suggesting a significant gender impact. That is, mobile money appears to have increased the ability of such women to withstand sudden economic shocks and to save more, and to move from farming into enterprise. Remittances are also an important aspect of mobile money that has a gender aspect as well.

Unsurprisingly, it is not uncommon for other countries to invest in studying the strategies that have made mobile money in Africa such a phenomenon. Reports suggest that M-PESA has directly inspired similar platforms in 42 countries. Mobile money is also impacting discussions in the cryptocurrency innovations that are increasingly popular in developed countries.

Today, the mobile money industry in Africa is hyper-competitive, which is excellent for consumers as it keeps prices relatively low, and monopolies few. Even commercial banks have been persuaded by the stratospheric success of mobile money to integrate their systems with mobile money platforms in a bid to attract the next generation of consumers. Over time, this may result in a more representative customer base in African banking, although this will take time. For now, sub-Saharan Africa is in an unusual position where mobile network providers have more financial access to the economy than commercial banks in many cases.

The 2020 global pandemic has entrenched Africa's position in leading the mobile money phenomenon as people have turned to digital services more than ever before to pay for their essential goods and services. Although it may be too early to tell what the impact of the global crisis has been on mobile money systems, the industry is currently expected to emerge stronger as a whole. Mobile money has served as a significant buffer for companies against the health crisis from a revenue standpoint. The continent remains comfortably in the driver's seat of the mobile money global economy. Much of what remains are socioeconomic systems that enable the next generation of new applications and Africans to take the mobile money revolution to the next level in Africa--and the world.