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Rise of Mobile Cash Transfer Service
Nov 05, 2009 (Business Daily/All Africa Global Media via COMTEX) --
Mobile telephony is a big business in Africa today.
It is amazing how M-commerce has quickly hit the market with a bang.
In less than a decade, the small gadget has done what e-commerce was not able to achieve in eons.
It is believed that Africa has the fastest growing mobile phone market in the world today and interestingly the field is largely dominated by local service providers.
M-commerce has hit the ground running and daring to revolutionalise the way we live and clearly it is no longer business as usual.
Not all countries have fully adopted the technology though.
While countries like Kenya and South Africa are hitting a record 100 per cent penetration of mobile telephony others like Burundi, Eritrea, and Rwanda are still estimated to be at less than 30 per cent.
In Sub-Saharan Africa, it is estimated that only one in five households have access to banking or financial services.
Two years ago, over 70 per cent of Kenyan households did not have bank accounts.
The size of the unbanked market continues to grow despite the market having in excess of 40 banks.
Lack of formal financial services channels limits seamless market exchanges, increases inherent risks and limits opportunities to save and invest.
However, the ability of the cellphone to do much more than its primary role of communicating is what has made a big difference.
The money transfer services especially pioneered by Safaricom's M-pesa in Kenya heralded a revolution in the way business is done.
Another company, Zain, has introduced a similar mobile money transfer service known as Zap.
Due to the earlier entry in the market, Safaricom's M-pesa still dominates the market.
For this innovation, Safaricom has won enough accolades for such an original idea which reminds me of John Stuart Mill who once said that, "All good things which exist are the fruits of originality."
According to the Central Bank of Kenya statistics, In July 2007, there were 268,499 registered M-pesa customers and by July 2009, the number of registered customers was 7,387,980--an increase of 2,652 per cent.
In July 2007, the total value of monthly transactions was Sh1.065 billion ($14.2 million).
This figure was Sh40.176 billion ($535.6 million) in July 2009.
The rapid growth of mobile phone banking in Kenya is largely an evidence of the great need for low-cost financial services in developing countries.
No wonder some banks have been accused of pushing for gagging this momentous growth through regulations that might tilt the balance in their favour.
The Central Bank of Kenya has undertaken various strategies to enhance the oversight capacity effectively keeping abreast of innovation and technologically driven financial services.
This is quite necessary to avoid pitfalls that might crop up as the product grows.
South Africa's MTN recently announced plans to establish a bank account on mobile phones that will even come with an optional credit card.
The service will graciously be launched in other countries where MTN operates.
Indeed, the growth opportunities in M-commerce are as many as you can lay your hands on.
The most interesting aspect also is the way the way the services have been adopted by the not-so-rich in the society.
The usage has also cut across generations and as you will get a young urbanite in the cities using it so is the grandmother in the countryside.
In Kenya, M-pesa first became popular as a way for young, urban migrants to send money back to their families in the rural areas.
It is now virtually used to pay for any service from school fees, settling electricity and water bills among others.
Family bank in Kenya just recently introduced the service of repaying loans through mobile phone money transfer.
Kenya Airways has also made it possible to pay for an air ticket through the same channel.
However, as we celebrate this technology, it is critical we dig deep to identify the inherent risks.
In this field, the main risk factors may include anonymity and poor oversight.
Anonymity is the risk of not knowing a customer's actual identity, and it can be mitigated through enhanced due diligence on Know-Your-Customer.
This is the buzz word in the financial sector alongside the issue of Anti-Money Laundering policies.
Poor oversight can be mitigated by ensuring there is transparent guidelines on mobile services, open licensing, regulation of providers, and effective risk supervision by the providers.
It is prudent to go further and "legislate" the regulations that will govern the use of these money transfer services.
The pyramid schemes in Kenya is a perfect learning example of how-not-to engage in un-regulated and phony businesses.
Macharia is a Risk Management Practitioner at Panafrican Housing Financial institution, Shelter Afrique, Nairobi. Email: jkihuro@yahoo.com
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