Easy mobile money: The digital coup

Mobile money has been the major driving force behind financial inclusion across Africa. But what is mobile money? How does it work? And what does it mean for our portfolios?

What is mobile money?

Mobile money, also known as a “mobile wallet”, allows individuals to store, send, receive, and spend money using their mobile phones.

The service has significantly impacted the lives of people in Africa, by becoming the largest method of digital payment across the continent.

Mobile money is successful in Africa because of the lack of banking services. For example, only 44% of adults have access to a bank account, where the mobile phone usage rate is over 100% (as a result of multiple sim devices).

How does it work?

Mobile wallets in Africa have traditionally operated off the USSD protocol (think *000# type services), enabling those without smartphones to use the product.

Mobile Network Operators (MNOs) re-purposed their extensive airtime distribution networks, allowing agents to perform basic financial services like mobile money services.

Customers can now transact across the country – affordably, safely, and instantly. MNO distribution networks far exceed the traditional banking infrastructure, and this reach gives customers the comfort that they can access their money wherever and whenever necessary.

Smartphone usage in Africa had penetrated just 44% of the population as of 2019, but is expected to reach 65% by the end of 2025. This rise in smartphone usage will make app-based digital wallets possible and drive “super-applications” in Africa.

The effect on the transaction mix

Mobile money services have evolved into fully fledged financial eco-systems, enabling consumers to access a full suite of financial services, like access to credit, insurance, instant payments, and investments.

The more popular mobile money becomes, the more the transaction mix progresses. Cash-in/cash-out accounted for 59% of the transaction mix in 2014, but has since seen a decline to 47% in 2019. We expect this trend to continue as consumers move away from cash-based transacting and toward digital transactions.

The changing transaction mix is a key driver for the transaction value growth of mobile money.

Notable mobile money operators

Safaricom’s MPESA, Airtel Money, MTN Momo, and Orange Money are some of the most successful mobile money operators in Africa.

Safaricom’s MPESA in Kenya, for example, was a pioneer of the service in 2007 and is one of the most advanced mobile money providers globally. MPESA saw transaction values of KES 22 trillion in 2021, almost twice the GDP of the country; this, compared to Ghana, where mobile money transaction accounted for 1.2x GDP, and to Uganda at 0.7x GDP.

Despite the rising transaction values in Kenya, we still predict a large opportunity- particularly in the digitisation of cash within the country. Figure 3.32 shows a significant cash preference for daily transactions, monthly bills, and school fees. Digitising these transactions is a key opportunity for mobile money providers.

We have seen similar trends across Africa, where mobile money continues to become the leading means of digital transacting.

What does this mean for the companies we invest in?

• Safaricom's MPESA offering This is the most advanced of the mobile money service providers. MPESA has significant scope to further digitise the cash economy, and continue on its strong growth trajectory.

• Airtel Money Africa Airtel Money Africa sold a portion of its mobile money business in December 2020. The deal sought to bring in strategic investors and aims to list the mobile money business separately over the medium term. The transaction crystalizes the value of mobile money within Airtel Africa, and unlocks significant value for shareholders. We believe the market continues to undervalue both Airtel Africa’s mobile telecommunications business and its mobile money offering.

• MTN Group MTN Group is in the process of a structural separation of its Fintech business in order to bring in a strategic partner and unlock the value within this business. In our view, MTN Group already trades at a significant discount to its fair value, irrespective of the opportunity within the Fintech business. We believe the market will reward MTN for its continued operational performance, while declining debt levels will allow the business to resume paying dividends in short-term.

• Sonatel's Orange Money Sonatel, a subsidiary of Orange Group, runs Orange Money across French-speaking West Africa. Sonatel and Orange Group have partnered to create a digital bank called Orange Bank Africa, which will offer digital financial services directly to Orange Money customers. Sonatel trades at a significant discount to its fair value, despite its strong mobile money offering.

Mazi is invested in MTN Group, Safaricom, MTN Nigeria, MTN Ghana, and Airtel Africa on your behalf.