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What is Mobile Money? How is Airtel Trying to Cash in on Africa's Mobile Money Boom?

Editor, TRANSFIN.
Mar 21, 2021 8:01 AM 4 min read
Editorial

In India, soaring smartphone usage and internet penetration have sparked an explosion in online payment systems. The scenario is similar in Africa, where many countries have witnessed a boom in mobile payments, from urban centres to far-flung rural areas.

On the surface, these fintech revolutions seem similar. Two developing regions with large unbanked, financially illiterate but digitally savvy populations eager to access formal credit channels. Look closely, though, and you’ll notice a key difference in India and Africa’s path to financial inclusivity.

In India, the digital payments boom has been banking-based i.e. To operate most of the popular payments apps and modes such as Google Pay or UPI, you need two things - a mobile phone and a bank account.

On the other hand, Africa’s approach has been telecom-based. It involves something called “mobile money”, where cash can be passed around without the possession of a bank account.

African countries’ enthusiastic embrace of mobile money has given rise to a dynamic online payments ecosystem - one that Airtel Africa, one of the continent’s largest telcos, is eager to cash in on.

But first...

What is Mobile Money?

It is a technology that allows people to receive, save and spend money using their mobile phones. It is akin to mobile wallets and does not need a bank account to function. Meaning, you can send or receive money as long as you have a mobile phone signal.

Mobile money is popular in developing countries in Africa, Asia and Latin America. But mainly in Sub-Saharan Africa, which accounts for two-thirds of total global mobile money transactions (as of December 2018). Major players in the sector include mPesa, EcoCash, GCash, Tigo Pesa, Airtel and many more.

 

How Does Mobile Money Work?

Such service providers store funds in a secure electronic account linked to a mobile phone number. Often, the companies providing mobile money services are the same ones that provide telecom services. To encash the digital money, users visit authorised agents.

 

The Mobile Money Boom

Now, mobile money was in vogue well before COVID-19 hit. 2019 marked the first year in which Africa saw more digital than cash transactions. But expectedly, the pandemic has accelerated fintech adoption.

Mobile money has received a boost from government policy too; in Rwanda for instance, the central bank instructed telcos to ease barriers of entry so that more people could be connected to the mobile money ecosystem during lockdown.

FYI: A major reason why India’s fintech embrace has been banking-led is probably due to the RBI’s historic reluctance to allow non-banking entities to make back-door entries into the banking sector. Even mobile wallets in India have strict KYC requirements.

There are now over 1 billion registered mobile money accounts worldwide processing over $2.34bn per day! About half of these accounts are in Africa alone. In fact, in the world’s second-largest continent more people have mobile money accounts than they do bank accounts. Given that less than half of the African population owns an active cell phone, the potential for further growth is immense.

And companies are not turning a blind eye. Which brings us to...

 

Airtel and Africa

Bharti Airtel may be fighting an uphill battle to safeguard its premier position in the Indian telecom hierarchy, but its subsidiary in Africa has been on a relentless uphill climb since it began operations there a little over a decade ago.

Airtel Africa is one of the three largest telecom operators on the continent. As of 2020, it provides voice services to 110.6 million customers and data services to 35.4 million customers. With $3.4bn in turnover in the last FY implying a 13% growth along with a solid 28% EBITDA growth, the Africa business was spun out and listed on the London and Nigerian stock exchanges.

 

Airtel’s Bet on Mobile Money

Airtel’s mobile money business in Africa is called Airtel Mobile Commerce BV (AMC BV). It has a presence in 14 countries and offers a range of services including mobile wallet deposit and withdrawals, merchant and commercial payments, benefits transfers, loans and savings, virtual credit cards and international money transfers.

As of the December quarter, AMC BV’s revenue grew 41.1% YoY to $110m and generated earnings of $54m. At 21.5 million, its customer base reflected a 29.52% YoY growth. Its mobile money ARPU increased from $1.7 to $1.8 during this period with total transaction value being $12.8bn.

The company recently signed a deal to sell a 7.5% stake in its money business to US PE firm TPG for $200m (via the Rise Fund, TPG's investing platform). It is also in talks with other potential investors for further minority holding sales totalling 25%. These developments happen as Airtel Africa looks to list its mobile money business in the next four years. This business has been valued at $2.65bn as per the TPG deal.

Interestingly, last year TPG invested $600m for a 0.93% stake in...Jio Platforms, which happens to be Airtel's largest competitor in India. While Jio and Airtel Africa have entirely different markets and the two investments came from two separate funds of TPG, the $200m infusion is likely to provide a breather for Bharti Airtel, whose business in India is embattled with stiff competition and sky-high debt.

Like Toto, Bharti Airtel must be blessing the rains down in Africa!

FIN.
 

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