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Matsvimbo Dida :  Financial Inclusion Matters

Not long ago, when holding your phone, what came to mind was either one of your relatives has thought of you and phoned, or has sent a message. Nowadays, our mind rushes to think, “Who has sent me money!!” Mobile payments have become so ubiquitous that it is no longer a symbol of status.The provider of mobile payments may be a mobile network operator (MNO), a commercial bank or a third party. Mobile phones are becoming “mobile wallets” for storing monetary value commonly referred to as “e-money”. Mobile phones are also being used for transferring funds to another individual or business. Some customers deposit money onto their mobile phone accounts for security reasons without the intention of transferring it to anyone else. Given the rise in thefts, consumers have turned to e-wallets for security either where banks are not represented, for ease and convenience of transacting or for fear of bank charges. As such, a mobile wallet has the same value to the customer as a low-balance bank account.

Gone are the days when banks used to have the monopoly of conducting fund remittances, bill payments, savings and insurance through bancassurance. These services are now on mobile phones. The penetration of MNOs into the banking space was not viewed with permanence by the banks who then realised that there was no law to protect them from the attack from MNOs. In fact, internationally, MNOs are claiming significant chunks from the banking industries.

Zimbabwe is a country which has long tasted wholesale transactions and is operating more at a retail platform. Successful banking strategies would be found in this category of small value transactions where a bank would be defending its territory from mobile network operators.

Lessons from Kenya

In Kenya, Safaricom, (a Mobile Network Operator) developed a mobile money transfer and payment product in 2007 called M-pesa which became the first mobile money deployment to reach scale. By the end of 2009, more than 70 percent of households in Kenya and, more importantly, more than 50 percent of the poor, unbanked, and rural populations were using M-pesa. By June 2010, 70 percent of all financial transactions in Kenya were done using M-pesa. M-pesa network is estimated to be 20 times fold the number of existing bank branches in Kenya and the country has 60 percent of its adult population who are unbanked and exposed to this network. About 25 percent of Kenya’s GDP is processed via M-pesa due to its near universality.

In Zimbabwe, the penetration of financial products provided by mobile network operators was slower than in Kenya. Researches point to the issue of cut-throat pricing of the products by MNOs, an issue which draws us to skimming pricing strategies and/ or cost-structure. The cost structure of an organisation’s product includes cost of capital financing.

Infrastructure support and

financial products cost structure

If you do not own a plough, you may not determine the price for tillage, so goes the saying. The billing tariffs of mobile phone products (voice calls, SMS, data) have been topical though there have been some reduction in the recent past. International experts have always stated that high cost of data in Africa has adversely impacted on organisations ability to engage on the continent. The tariffs by MNOs are critical to the banking industry when it comes to pricing of mobile banking products. As already known, mobile banking products are a “sandwich”, they bear pricing from both the bank and the mobile network operator although when customers are charged, they just call them bank charges just because the bank is the one collecting. It is critical for governments to be in control of infrastructural support by either investing in it or legislating on it. This ensures that mobile banking products reach the poor and the unbanked at affordable prices, and therefore promote financial inclusion.

Financial inclusion requires strong infrastructural support in order to reach the unbanked in the remote areas. There are many ways to reach this segment. Firstly, a bank can introduce a mobile banking unit which goes to the remote centres regularly on specified days. A bank can also introduce agent banking where it enters into an arrangement with a third party to provide certain banking services. The third party can be an individual or an existing business with a wide branch network. Thirdly, a financial institution can access those in remote areas through use of mobile money. In the first two scenarios, infrastructure would include both road network and data network connectivity while in the third scenario it mainly refers to data network connectivity.

We will discuss ICT infrastructure in this issue which is predicated on data network connectivity. The infrastructure is divided into two, the front-end and back-end infrastructure. Front-end infrastructure subsumes client access points such as POS terminals in shops, ATM machines, retail agents and so on. Back-end infrastructure refers to those systems at the service provider side which the customer may not be privy to such as retail payments switches, cash distribution networks, RTGS system itself, automated clearing houses, network base-stations, network cabling, and so on.

The cost of ICT is quiet significant due to the requisite hardware, softwares, licensing, maintenance of network base-stations (boosters) and so on. An institution may require structured borrowings to finance such costs which are then added to the cost of financial services provided by the institution. Your next cash-in or cash-out on your mobile wallet. . .or call, even to a doctor will certainly be carrying a portion of these costs! This pushes up the cost of mobile money transactions, much to the detriment of financial inclusion as the unbanked then resist utilising the services.

In Zimbabwe, the Government had to push for infrastructure sharing among MNOs. This move ignited some heated debate which according to researches, was more on the timing than proposed sharing model. The authorities were aware of infrastructural developments by MNOs and legislation was coming too well after some corporate commitments were done. Agreeably, it defeats the country’s economic sense to find two or three network boosters in some forest or some remote mountain making noise with their backs against each other using imported fuels or imported electricity when the country’s exports have long fallen and when one of them could do the job and thereby releasing energy to other productive sectors for national benefit.

The issue of delayed legislation is quiet common in Africa, especially on the side of ICT. This is because of the dynamic technological revolutions which will be happening in the private sector at faster rates than legislation, resulting in legislation in most cases being crafted around the models by innovators. Most African countries admitted during a “Connected Africa Forum” held in South Africa in 2012 where the writer attended, that they delayed and some were considering the legislations specific to mobile banking products provided through MNOs.

Interoperability

One of the major challenges facing mobile banking is the need for interoperability such that service providers within the same sector can recognise each other in their systems so that customers can transact freely regardless of point of purchase/transacting. Banks have negotiated interoperability with a number of merchants/service providers for the convenience of use of bank accounts by their customers, including with MNOs. In the case of mobile banking, service providers often want to recoup the substantial investments in developing services and related infrastructure before interoperating their systems with others. In some countries, governments come out with legislation guarding against exclusivity by service providers. This is in order to protect consumers. In Zimbabwe, consumers were saved from exclusivity of agents by a directive from the authorities. Exclusivity of agents is where an agent can only service one organisation and cannot enter into contracts to service any other organisation.

The future of mobile

network operators

While MNOs have put their tentacles in the banking sector, their future is greater than current the displayed scope. They weld so much potential to change the way we live. They are already taking part in health, agriculture and are sniffing into education, libraries etc. In the year 2015, a number of smartphone-connected medical devices came into the mainstream. Most notably, Apple released a watch that, using a heart-rate sensor and accelerometer, can keep track of vital signs, activity, and lifestyles. Please note that this article was written in private capacity of the writer and the views have nothing to do with any institution which the writer may be associated with.

The writer is contactable on [email protected]