Revolutionizing Banking in Sub-Saharan Africa, One Click at a Time

Mobile banking has become increasingly popular in the United States with the rise of Apple Pay, Google Plaso, and mobile services from big banks. But in many developing countries, mobile banking has already gone so much further. Developments in African countries in particular have proven that mobile banking can be more than just a supplement to the traditional banking system.

In 2007, mobile network Vodacom launched M-Pesa in Kenya, a branchless mobile transfer and microfinancing service, where users could deposit, transfer, and withdraw funds simply by interacting with an SMS-based app. Mobile banking has since taken various sub-Saharan African countries by storm. Today, parrot programs such as Paga, EcoCash, Airtel Money, and Orange Money—the list goes on—have cropped up throughout the continent, backed by hundreds of thousands of agents.

Mobile banking has taken particular hold in Kenya. According to a Communications Commission of Kenya report, 83 percent of 31 million mobile users in Kenya used mobile banking services in 2013. By 2014, twice as many Kenyans banked using mobile apps than those using traditional bank accounts.

Moreover, mobile banking has enabled more people to be involved in the formal  financial system. In an interview with Global Envision, Sitoyo Lopokoiyit, head of Strategy for Financial Services at Safaricom, noted, “financial inclusion is reported to be at 80 percent in Kenya. When you remove mobile money, it drops to 23 percent.”

As of 2014, mobile-money accounts outnumbered bank accounts in Cameroon, the Democratic Republic of Congo, Gabon, Kenya, Madagascar, Tanzania, Uganda, Zambia and Zimbabwe. In the 2015 Gates Annual Letter, Bill Gates predicted, “by 2030, 2 billion people who don’t have a bank account today will be storing money and making payment with their phones. And by then, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit to insurance.”

So why has mobile banking penetrated sub-Saharan African societies at almost all levels while it lags behind in other places?

First of all, the ease of transactions in mobile banking has introduced huge savings on transaction fees and has overcome the problem of sparse brick-and-mortar bank branches. With fewer transactions needed to manage money, transaction fees are much lower in mobile banking than at bank branches. According to a 2012 IMF study on mobile banking in the Philippines, fees on remittances via banks averaged 2.5-10 percent, while that same transaction on a mobile platform had an average fee of just 1 percent. Moreover, people no longer need to travel to bank branches to manage their finances.

And with these savings, mobile banking users are able to make more long-term investments: women in Nairobi reported being able to send their children to better schools and to build more durable homes to face natural disasters.

Mobile banking could potentially lead to better governance; it has solved the issue of corruption in economies that transact and deal in cash: Soon after a local variant of M-Pesa launched in Afghanistan in 2008 to pay policemen’s salaries, the Afghan National Police found that under the previous payment model, 10 percent of its workforce consisted of ghost police officers whose “wages” had been pocketed by other policemen. Every cash transaction through M-Pesa has an electronic leg that is captured and monitored by Safaricom, which runs its own bank-grade anti-money laundering system. Even Safaricom cannot profit from M-Pesa: mobile funds in Kenya are not held by the carrier but deposited across several regulated commercial banks.

Thanks to the capabilities of mobile banking, workers who migrate from rural to urban areas can also send remittances home, and rid time lags and possible theft. Under its “Send Money Home” commercial, M-Pesa encouraged Kenyans to use the program to do just that. By expanding the flow and ease of urban-to-rural remittances, mobile banking could potentially mitigate the rural-urban income gap over time.

Yet the benefits of mobile banking are not necessarily felt across developing economies in sub-Saharan Africa. Mobile banking regulations are less strict in Kenya, which has allowed their spread throughout the country. Mobile carriers such as Vodacom and Airtel are more readily available and trusted, so users are more willing to handle their finances through them.

The success of mobile banking also depends on the existing banking system. The Kenyan banking sector is not robust enough to mount substantial competition against mobile banking systems. On the other hand, because banks are so established in India and the barriers to entry so high, only incumbent banks can offer mobile banking services.

“I feel like a caveman who’s just been handed a Bic lighter,” wrote journalist Charles Graeber upon using M-Pesa for the first time. With the right amount of monitoring, the only way is up.