BD Insider: The solution to a cashless Africa?

Jesutofunmi Adedoyin -

🍔Quick Bite: From the pioneering days of M-Pesa in Kenya to the widespread adoption across the continent, mobile money has turned the idea of financial inclusion from an aspirational goal into a tangible reality. But as the industry evolves, it faces challenges and opportunities that could change its trajectory. 

The Breakdown

Mobile money might not seem like a big deal for an average literate African living in an urban city. But for an elderly woman in a rural town, miles away from the nearest bank, mobile money is nothing short of a necessity. It’s her gateway to financial services that have once eluded her. This disparity in experience highlights the profound impact mobile money has had across the continent, improving access to financial services for millions who were previously excluded.

Even a global cryptocurrency exchange platform like Binance has recognised the rapid adoption of mobile money on the continent. They’ve introduced features that allow you to buy crypto assets using mobile money in certain African countries. 

Since its inception, mobile money has become a part of Africa’s economic life, reshaping how people in rural areas and underserved communities send and receive money.

Mobile money in Africa became popular in 2007 with Safaricom's launch of M-Pesa in Kenya. What started as a simple service allowing users to send money to each other via SMS quickly became a transformative financial tool. M-Pesa’s success was driven by the need for a safer, more convenient way to transfer money, particularly in a country where a significant portion of the population was unbanked.

Following M-Pesa’s groundbreaking success, other African countries began to adopt similar services. Ghana’s MTN Mobile Money, Nigeria’s Paga, and Uganda’s Airtel Money, among others, joined the wave, each tailoring their services to fit local contexts. By 2010, mobile money had established itself as a key financial service across several African countries, supported by the rapid expansion of mobile phone ownership. Today, more than half of the world’s mobile money accounts are being held in Africa, according to GSMA Mobile Money Report. 

The current state of mobile money

As of 2023, mobile money has reached over 500 million active users across Africa, with transaction value surpassing $700 billion annually. Countries like Kenya, Ghana, and Tanzania lead in adoption rates, while Nigeria, the continent’s most populous nation, is catching up.

Key players include Safaricom’s M-Pesa, MTN Mobile Money, Airtel Money, and Orange Money. Fintech companies such as Wave in Senegal and OPay in Nigeria have also emerged as significant competitors, bringing innovation and new business models to the table. While East Africa remains the hub of mobile money activity, West Africa is seeing rapid growth, with Nigeria, Ghana, and Senegal as the main drivers.

A country-by-country comparison reveals that Kenya remains the gold standard with over 77.3 million registered mobile money accounts, while countries like Nigeria and Ethiopia are focusing on scaling up to meet the potential demand.

Impact on financial inclusion

Mobile money has been a game-changer for financial inclusion in Africa. Before its advent, accessing financial services was often difficult for those in rural areas or without formal employment. Today, mobile money allows people to save, borrow, and pay for services without needing a bank account.

In Tanzania, for instance, 44.6% of the population aged 15 years and older had a mobile money account. In Ghana, women who traditionally had limited access to financial services now make up a significant portion of mobile money users, contributing to increased economic participation. In Uganda, mobile money is helping farmers access loans and insurance products tailored to their needs.

The role of regulation

Regulation has played a crucial role in the development of mobile money in Africa. In Kenya, the government’s supportive regulatory stance allowed M-Pesa to scale quickly, while in Nigeria, a more conservative approach initially slowed growth. However, recent regulatory shifts in Nigeria, such as the introduction of Payment Service Banks (PSBs), have spurred the growth of mobile money services.

Governments across Africa increasingly target mobile money for taxation as they seek new revenue sources. This trend has sparked concerns that higher transaction fees could reduce mobile money usage, particularly among low-income users. Côte d’Ivoire, Gabon, and Kenya have introduced or increased mobile money taxes.

Ghana and Tanzania have both witnessed the drawbacks of taxing mobile money transactions. When these levies were introduced, many users reverted to cash transactions to avoid the extra charges. In response to the negative impact on mobile money usage, Tanzania removed its mobile money levy in June 2023, while Ghana reduced its electronic transaction levy in January 2023.

In Kenya, businesses started reverting to cash transactions ditching their mobile merchant payment accounts after the Kenya Revenue Authority enhanced tax compliance checks. Central banks across Africa are also increasingly involved, focusing on balancing innovation with the need to ensure financial stability and consumer protection.

Despite the visibly evident progress Africa has made with mobile money, there is still a significant gender gap in mobile money usage, with women less likely to own mobile money accounts compared to men. Regulatory hurdles, high transaction fees, and limited digital literacy also pose ongoing barriers.

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