Faced with the potential of Mobile Money, Fintech companies’ bold pricing strategy must find its limits

(Agence Ecofin) – In recent months, buoyed by the Covid 19 period, financial technology companies specializing in money transfers and withdrawals have seriously shaken up the mobile financial services market. They are basically necessary through a strict pricing policy in urban markets. But Mobile Money, which is starting to adapt to this new competition, has more room for improvement. We are technicians Tell us why.

The past 10 years have seen a significant development in Mobile Money services in Africa. There were fewer than 80 services launched across the continent in 2012. In 2021, they numbered 173 for 621 million registered accounts and $36.7 billion in financial transactions, up 23% compared to 2020. Even the value of executed financial transactions from During Mobile Money by 39%, compared to last year, to reach $701.4 billion. It is the growing health of the sector over the years that has led to the rapid emergence of new players that are FinTech companies.

Over the past five years, financial startups have experienced strong momentum on the continent. The number of specialists in payments, transfers and withdrawals has seen an increase, as well as the volume of funds mobilized. Some have gradually managed to consolidate their position in their local market or develop in several regions.

In 2020, smartphones made up less than half of the total number of mobile connections.

Today, the financial market in Africa is witnessing increased competition between Mobile Money and financial technology operators. A battle that promises to be long and reflects the confrontation of two economic models, their strengths and their weaknesses.

investment

Since the launch of Mobile Money in Africa in 2007, telecom operators have made significant investments. Several million dollars have been mobilized over the years to expand and modernize the mobile network without which the financial service cannot be accessed, deploy a network of agents to manage financial operations, develop software, databases and order effective and secure financial services to ensure effective financial transactions both on mobile and via The Internet is for those who have finally gone digital.

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Unlike mobile network operators, fintech companies that do not have a telecom network regularly build and maintain.

In terms of fintech, the investment made so far has been significant, although it can be considered less compared to Mobile Money. In fact, just like telecom operators, fintech companies have invested in developing IT systems that support their businesses. They have also invested in a network of agents and partnerships. However, unlike mobile operators, fintech companies, which do not have a telecom network to build and maintain regularly, have more space. However, online operations require investment in significant communication capabilities for real-time monitoring of financial operations.

Offers

Fintech companies have proliferated because they have identified disadvantaged needs or new markets associated with new uses such as microcredit. For Said Bergéj, Finance and Development Expert (French-speaking Africa and the Mediterranean Basin) and Managing Director of Epargne Sans Frontière, “ Fintech has two characteristics: it relies on digital mastery, but above all, puts the customer at the heart of its models by seeking to respond to its new uses. The dynamics of the offerings are strong there, but none of them are meant to cover all parts of the financial sector. “.

For its part, Mobile Money has evolved over time. They have nothing to envy to fintech companies because they can stand up to them by offering consumers solutions of similar value.

In addition to sending and withdrawing money, they have been able to add a variety of options to their service, including merchant payment, bill payment, international transfer, micro savings, micro credit, etc. Even to offer everything on a digital platform is very practical.

This can be seen with services such as M-Pesa from Safaricom, Orange Money, or even MTN MoMo in some countries. In addition to sending and withdrawing money, they have been able to add a variety of options to their service, including merchant payment, bill payment, international transfer, micro savings, micro credit, etc. Even to offer everything on a digital platform is very practical. This combination of offering and digital explains the strength of M-Pesa, which in 2021 became the primary driver of Safaricom Kenya’s financial growth. M-Pesa accounted for 38.3% of the telecom operator’s estimated annual revenue of $2.5 billion.

Access to services

According to the Global Telephone Operators Association (GSMA), mobile internet penetration was 28% in sub-Saharan Africa in 2020 compared to mobile internet penetration of 46%.

in his report The mobile economy in sub-Saharan Africa 2021 ”, the association explains that of the 1,084 million people identified in the region, 303 million (28%) were connected, 206 million were not covered at all by the mobile network (19%) and 575 million (53%) lived in the regions Covered by mobile broadband networks but not yet using mobile internet services.Also according to the GSMA, smartphones made up less than half of the total number of mobile connections.In contrast, Sub-Saharan Africa had the highest percentage of mobile connections on basic phones That’s 45% of all mobile connections.

On the other hand, mobile financial services operators, thanks to the USSD technology that they offer in parallel with digital services, can access their mobile financial services both in the city and in the villages. An asset that ensures a head start over digital competitors.

Rural people in sub-Saharan Africa were 60% less likely to use mobile internet than in urban areas. As a result, fintech companies whose services are primarily accessible via the internet can only cater to the urban population. On the other hand, mobile financial services operators, thanks to the USSD technology that they offer in parallel with digital services, can access their mobile financial services both in the city and in the villages. An asset that ensures a head start over digital competitors.

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45% of the market is still not available to fintech companies.

Through USSD accessibility, the ” Mobile Money acts as a catalyst for a wide range of other services that can contribute to solving major social, economic and environmental problems, such as access to basic services, sustaining the livelihoods of smallholder farmers and rapid distribution of cash assistance to vulnerable populations. Supports GSMA.

Reviews

Mobile financial services operators and fintech companies are already struggling with the same offerings, although they are not yet fully addressing the same market niches. Moreover, it recognizes the missed opportunities at the rural level that some fintech companies have made the price war a primary focus of their conquest of the urban market. A strategy that mobile financial services operators regret, but in the end, created value for consumers. In some countries such as Senegal or Côte d’Ivoire, it is undeniable that the work of financial companies has led to lower prices for Mobile Money services.

Moreover, it recognizes the missed opportunities at the rural level that some fintech companies have made the price war a primary focus of their conquest of the urban market.

In 2020, the GSMA, which had already feared that such an aggressive pricing strategy would be widely adopted by fintech companies, challenged Mobile Money players about the need to diversify their revenue models to become more flexible and no longer rely primarily on fees paid by customers. In June 2020, providers surveyed in the Global Mobile Money Adoption Survey reported that an average of 87% of their revenue came from fees paid by customers.

The association believes that such a heavy reliance on this category of expenditures will lead to greater vulnerability to short-term shocks that may occur in the future. She said it in In addition to protecting mobile money service providers from short-term demand shocks, diversification into higher value-added segments can be beneficial to users, by allowing services to be offered at more competitive rates. “.

Regulatory framework

In some markets, the applicable regulatory framework has forced telecom operators to separate their mobile activities from those of mobile financial services. Thus, new subsidiaries are subject to a strict legal framework enacted by the central banks of the countries or economic regions in which they operate. Depending on the types of services provided, legal prerequisites are established, including obtaining an operating license that clearly defines the scope of the operation. Ditto for fintech companies that want to provide the same types of services. In the West African Economic and Monetary Union (UEMOA), the Central Bank of West African States does not compromise on this. For Mobile Money operators, this separation of mobile and financial activities provides the opportunity to adopt the same operational strategy as fintech companies and eliminate costs related to telecom network maintenance. Just focus on service and strive for innovation and added value to become a pioneer.

Ultimately, with competition between the various players in mobile money and fintech intensifying and as their economic models conflict with their strengths and weaknesses, the GSMA is pleased with the impact of these various interactions on the development of financial inclusion for the African population. The association also encourages these various players in the online and mobile financial sector to be more committed to consumers, whose decision alone will determine their profitability.

Muriel Edjo

Muriel Edjo

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