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This is the second of a three-part series on the importance of interoperability in the payments space. In the previous article we looked at the early history of electronic payments and how interoperability played a key role in the success of credit cards and ATMs. In this article we will take a closer look at the history and evolution of mobile money in Africa, and how it might evolve in the future. In the third article we will ‘Make the Case for Interoperability’ and lay out some of the lessons learned, and how the payments industry can apply them going forward.
Over the last 10 years mobile money has become one of the most important payment technologies across many parts of Africa.
In areas where traditional payments infrastructure such as card and ATM still have low levels of penetration, the ubiquitous nature of mobile phones has enabled a range of banking and payments transactions that are enabled through mobile devices. Today the number of mobile money accounts across Africa surpasses the number of traditional bank accounts.
Despite the popularity of mobile money, it is still a fairly immature payment technology, especially when compared to predecessors such as cards and ATMs. Banks and card schemes have worked together over the last few decades to create an interoperable ecosystem of universal acceptance. Mobile money on the other hand is still mostly siloed, with users only able to transact with a single service provider and little to no interoperability between them.
The evolution of the mobile money value chain
The first mobile money services were started by Mobile Network Operators (MNOs) that wanted to provide innovative value added services (VAS) to their service offerings.
In the beginning the MNO was therefore the end-to-end provider of the mobile money service. They controlled the entire channel and were responsible for dealing directly with the customer, onboarding them onto the network and providing the service.
While the key idea of the service was that money could be instantly transferred from one phone to another, it still needed a money-in and money-out component that allowed the users to deposit and withdraw the funds they were sending. Most essentially, these points needed to be close and convenient to the people depositing and withdrawing the money.
The MNOs therefore quickly developed their own network of mobile money agents across various regions. From this point mobile money was able to grow at a very large scale. Different types of services began to be offered, such as microloans or insurance, and different players started appearing in the space including banks, electricity providers, and fintech innovators.
As MNOs agent network grew, it became increasingly difficult to manage. Additionally, a third tier in the payments system became necessary to reach the last mile of payments – MNOs therefore began to work with small scale retailers to develop their networks further. This allowed the MNOs to expand their presence while at the same time offering small scale retailers the ability to supplement their income and attract additional footfall by offering mobile money services.
However, a system integration layer was needed. Some of the providers began using third party switching solutions, while others have built their own platforms. At the same time, as the ecosystem became more complex, distributors also began to step in. These mobile money aggregators are able to buy float in large amounts and sell it downstream to the end retailers.
Because of the lack of a standard approach in the switching space, many of the providers are still working directly with distributors to get their products to the retailers. Over time however, the switching is becoming more aggregated. A single solution will be connected to a number of different services. This gives distributors a way to buy from a single point and get access to all the different products offered by the different service providers.
The mobile money market is currently seeing a big push for the aggregation of service providers onto stable switches. Distributors can then use these to roll out their distribution options.
The Ops Layer
There is a gap in the operations layer for most mobile money and VAS service providers. Every distributor is still creating their own solution for managing call centres, generating sales reports and analytics, and providing information for the field reps to act on.
Distributors also often do not have a solution that enables them to co-ordinate the stock they are receiving and distributing across different products and service providers – this makes it difficult for the different systems to talk to each other.
It is at this layer where Nomanini plays a crucial role. Nomanini provides a platform that distributors can use to manage the products they offer including mobile top-ups, utility payments, remittances, deposits, withdrawals, account opening and microloans.
We provide a conduit for the service providers, either directly or via switches, that allows them to be available to a wide number of distributors.
This decreases complexity for distributors and retailers as they do not have to deal with a number of different platforms across different suppliers. Instead they get a single view of their entire business.
The key shift in this model is that the MNO no longer owns the channel. They are now simply one of the service providers on the channel. This means the end retailer is no longer locked-in to providing only one kind of mobile money service, allowing them to expand their service offering to end users.
The importance of interoperability
The next phase of mobile money will be one of interoperability. Once service providers accept that they don’t need to own the channel from end-to-end it creates space for them to work together and build joint infrastructure that will enable all transactions.
Enabling interoperability will create more trust with end users, as it becomes possible to send money from one network to another or across borders, users feel more confident that they will be able to access their money when they need it.
Looking ahead, it is therefore important for everyone in the mobile money ecosystem to start considering partnership and cooperation models. There is no long-term sustainability for single service platforms, but rather a future in creating a seamless interoperable ecosystem.
Nomanini believes that there should be a spirit of ‘coopetition’ among the various players in the mobile money ecosystem, similar to how banks and card schemes worked together to create a payments network that was larger than any of them individually.
Through this coopetition and increased interoperability, all the players can achieve mutually beneficial results such as better regulations, shared agent networks, and improved distribution. This will allow mobile money to fully mature as a payment technology and play a key role in the space going forward.
About Vahid Monadjem
Vahid Monadjem is co-founder and CEO of Nomanini, an Africa-focused fintech company that organises the informal trade for financial inclusion. The company enables informal retailers to provide their communities with a range of mobile and financial services. Nomanini engages existing distributors of mobile services and fast-moving consumer goods to reach retailers.
Vahid is an engineer with innovation and product design experience. Before establishing Nomanini, he was McKinsey&Company’s Global Fellow for Emerging Market Product Development. He has worked in Africa, South East Asia, North America and Europe with clients that include manufacturers, state-owned utilities, petrochemicals and telecommunications companies.
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