Global Themes /
Sub Sahara Africa

2020s Vision: In Africa, telcos will make the best banks

    Tracy Kivunyu
    Tracy Kivunyu

    Equity Research Analyst, Telecoms

    Tellimer Research
    8 December 2019
    Published byTellimer Research

    Sub-Saharan Africa leading the innovation in money

    According to data from the Global Findex 2017 report, global bank penetration was at 67%, compared with Sub-Saharan Africa (SSA) at 33%. However, when looking at digital banking via mobile phones (mobile money), SSA leads globally with 396mn registered accounts – 46% of global accounts according to data from GSMA.

    An enabler of financial inclusion

    For countries with lower income per capita, the telco-led mobile money model has proven a useful tool for enabling financial inclusion, due to the lower operating costs and fees related to banking by mobile phone versus via traditional banking channels. In fact, a study done by the Melinda Gates Foundation showed that setting up a mobile agent costs 2% to 4% of the cost of a branch cashier.

    To take advantage of the lower operating costs, banks in SSA have moved to partnering with mobile network operators (MNOs) to provide financial services. However, because the telco platform is not accessible to the bank, MNOs have a stronger advantage in providing access to financial services in an enabling regulatory environment. 

    Although the traditional 'mobile money' model includes partnering with a bank – which incurs credit risk to deploy financial services – we have also seen models where MNOs own a bank license (EcoCash, Orange Bank). We think that this model will result in the strongest retail financial institutions for the following reasons:

    1. Stronger credit scoring: MNOs have access not only to financial service data, but also consumption in terms of airtime purchases, transfers and payments. In Kenya, banks such as KCB and CBA as well as mobile lending apps such as Tala have leveraged on Safaricom’s customer transaction history to determine lending capabilities for customers.

    2. Lower units per customer: Due to the lower unit cost of operating a mobile wallet versus a branch, MNOs can disburse loans and take deposits of a lower unit value. Customer loans can be as low as US$10 loaned over a short period (1 month).

    3. Higher opportunities for cross-selling: The ability to offer a payments platform alongside lending offers an avenue to increase the velocity of transactions via mobile money, hence generating more revenue for telcos in transaction fees and lower cash-out commissions to agents.

    4. Larger customer size: With SIM penetration at 74% (unique mobile subscribers at 44%), MNOs have a larger base of subscribers to roll out services to compared with traditional banks.

    Read our full 2020s Vision: 20 themes for the next decade report.