Mobile Money in Frontier Markets: the Revolution Continues

Mobile Money in Frontier Markets: the Revolution Continues

What is mobile money?

For over a decade, mobile money has enhanced financial inclusion by allowing anyone with a mobile phone to securely save, spend and transfer money, including the unbanked. In the frontier markets, services typically operate via a network of agents (such as small shops and kiosks) that take in cash deposits and give out cash withdrawals, as requested via a customer’s mobile wallet account. As smartphones have replaced basic phones, functions have expanded to not only allow payment of salaries, electricity, rent and other invoices but also for companies to offer small loans and other financial services.

Mobile money’s biggest impact is in developing countries where there is a high rate of mobile phone ownership but lack of access to formal banking services. A recent World Bank report commented that “mobile phones and the availability of new digital technologies are at the forefront of this change, helping to draw more and more people into the formal economy, potentially mitigating gender and income inequality and stimulating development in areas ranging from farming to education”.

Key trends

At the end of 2018, the GSM Association’s State of the Industry Report on Mobile Money estimated there to be approximately 866 million registered mobile money customers in the world, representing a 20% increase from the end of 2017.

Following a decade of remarkable growth, the GSMA noted four key trends in the current market:

  1. An enhanced customer experience – 2018 saw a dramatic increase in smartphone adoption allowing access to a wider range of financial products
  2. Diversification of the financial services landscape – fintechs and tech giants have entered the payments space
  3. Increasingly complex regulation – taxation, KYC requirements, cross-border remittances, national financial inclusion strategies and data protection dominate the mobile money regulatory landscape
  4. Expansion of the mobile money value proposition – many providers are now seeking to strengthen their value proposition with a ‘payments as a platform’ model

The African technology revolution

World Bank highlights Sub-Saharan Africa as a “trailblazer in the use of mobile money to conduct digital transactions”. The region now has more mobile money accounts than anywhere else in the world with about 396 million registered users at the end of 2018, a 14% increase from 2017.

Michelmores has been involved in the dramatic rise of African mobile money from its early days. In 2008, we advised Manocap, managers of the Sierra Investment Fund (a private equity fund whose backers include CDC, the British Government’s development finance institution) on one of the first African mobile money investments, Splash Mobile Money, Sierra Leone’s first mobile payment system.

Meanwhile, at a similar period in time on the eastern side of the continent, one of the biggest success stories, M-Pesa, was conceived in Kenya and “revolutionized the way Kenyans manage money” according to The World Bank. Now, 96% of households outside the Kenyan capital, Nairobi, have at least one M-Pesa account. This has had a number of positive social impacts, including helping empower women financially, boosting start-ups and encouraging personal savings.

M-Pesa has since been launched in six other African markets, including Tanzania, Egypt and Ghana but as the Financial Times remarked last month, “it has not all been plain sailing. Launches in countries including India, Afghanistan, Romania, Albania and South Africa failed to work and the service was closed down.”

In South Africa, MTN is now planning to relaunch its mobile money service early this year (which it had decommissioned in 2016). The service, called MoMo, aims to improve financial inclusion in a country where about 11 million South Africans remain unbanked and 50% of the adult population remains thinly served, according to Felix Kamenga, Chief Officer of Mobile Financial Services at MTN South Africa.

To this extent, MTN’s experience in Zambia has been inspiring. Komba Malukutila, Chief FinTech Officer of MTN Zambia, commented to us:

“MTN partnered with the Zambian Government in the fight for financial inclusion for all and we have seen that it is indeed a catalyst for economic growth in the country. Mobile money continues to be a key driver lifting the country out of poverty and drawing over 2 million Zambians into mainstream economic activity, harnessing their contributions to society. We can now offer affordable, instant, and reliable transactions, savings, loans, and even insurance opportunities in rural villages and urban neighbourhoods where no traditional banking services exist.”

Unlocking future growth

Whilst there is a steady uptake in mobile money adoption in many African countries, such as Kenya and Zambia, the GSMA highlights the significant opportunity to unlock growth and increase financial inclusion in the continent’s mobile money sleeping giants: Nigeria, Ethiopia and Egypt. In these countries, restrictive regulatory frameworks historically meant few providers were able to offer mobile money services. In 2018, however, reforms were introduced in Nigeria and Egypt, whilst Ethiopia has begun to pursue an ambitious financial inclusion strategy of its own.


In Nigeria, the country’s central bank recently brought in new rules that The Economist noted will allow telecoms firms, supermarkets, courier companies and others to become “payment-service banks”, with a licence to take deposits, make payments and issue debit cards. As 60% of the population do not currently have bank accounts, there is clear potential for widespread adoption of mobile money in the near future.

Service providers such as Nigeria’s market leader, Paga, are well-placed to benefit from these reforms, with increasing support from impact investors who are seeking to promote financial inclusion in these markets. Indeed, Michelmores recently assisted the Global Innovation Fund with its $5m equity investment in Paga intended to drive usage of a mobile wallet and other digital financial services for their customers.

Tayo Oviosu, Founder and CEO of Paga commented to us:

“We believe that there is a major challenge in payments facing emerging markets beyond Nigeria. Our mission at Paga is to make it simple for one billion people to access and use money, and in achieving this, we are poised for global expansion by extending our operations to countries such as Ethiopia and Mexico. In the next few years, our focus will be on digitizing payments by building an ecosystem that enables simple financial services for everyone.”

And in 2019, other Nigerian providers – including Interswitch, OPay and PalmPay – raised almost $400m from venture capital investors with a view to expanding across Sub-Saharan Africa.


Ethiopia continues to offer significant potential for growth; only one in five people has a bank account, but half of all adults own a mobile phone. Mobile money platforms such as M-BIRR (who were advised by Michelmores in 2018 on an equity capital investment by DEG, the German Government’s development finance institution, and the European Investment Bank) will be increasingly attractive to investors in the coming years looking to facilitate financial inclusion across the country.

The European Investment Bank cites one example:

“The opportunity to receive social security payments by phone is making a huge difference. M-Birr clients speak of how they had to walk for hours and endure long queues to get these payments, without any guarantee that the money would be there in the end. [Now,] to withdraw cash, beneficiaries just have to go to a local agent.”

Strategic partnerships and regional interoperability

The IFC states in its Report on Digital Access: The Future of Financial Inclusion in Africa (May 2018) that “key to digital financial services [“DFS”] evolution is partnership. Interoperability is a precursor to most sophisticated services, and this is becoming increasingly common in all markets. It underpins the development of digital payments across value chains, and enables salaries and social payments to be paid digitally to recipients using a range of DFS.”

In Kenya, Safaricom and PayPal announced a partnership in April 2018 to allow M-Pesa users to make mobile money transfers between PayPal and M-Pesa accounts. The new service allows M-Pesa’s users to transact online with PayPal, highlighting the wide ranging utility of mobile money services.

In other developments, in November 2018, Orange and MTN launched a joint venture, Mowali, to enable customers to send money across networks in 22 Sub-Saharan markets.

Meanwhile, the Financial Times reports that Visa is working with MFS Africa, a pan-African mobile money hub, to enable people with mobile wallets in Africa to pay for international online services. Dare Okoudjou, founder and chief executive of MFS Africa, said the partnership would enable users to extend their transactions outside Africa: “Now you can receive money from the US and make a payment in France… Any kid with a mobile wallet in Kigali should now have enough to deal with the rest of the world”.

Potential challenges


Despite the industry’s rapid growth, concerns have intensified regarding the introduction of taxes on mobile money transactions throughout Sub-Saharan Africa and beyond. For example, the GSMA report notes that the introduction of a 1% tax on mobile money deposits, withdrawals, transfers and payments by the Ugandan government in July 2018 made mobile money transactions more expensive for a significant number of users: “The new tax had an almost immediate negative effect: the value of peer-to-peer transactions declined by 50 per cent within two months of implementation while the value of all transactions dropped by around 25 per cent. Around 100,000 agents saw their earnings decline by 35 to 40 per cent, and around 30,000 agents went out of business completely.”  Consequently, some customers have reverted to using cash or agency banking whilst others are transferring smaller amounts via mobile money.

Therefore, whilst governments across Africa are attempting to collect more tax revenue, new transactional taxes risk stalling progress on digitization and financial inclusion.


With innovation comes the challenge of ensuring appropriate and balanced regulation. Governments are grappling with the desire to encourage investment in new technology whilst ensuring adequate and proportionate regulation and consumer protection in areas such as cyber-security, anti-money laundering and countering the financing of terrorism. Further, if regional interoperability is to work, how can regulations be harmonised across a continent with diverse regimes?

For this reason, many jurisdictions are adopting ‘regulatory sandboxes’ (testing grounds for new fintech business models that are not protected by current regulation) to help them develop appropriate regulations for emerging mobile money businesses, allowing regulators to identify risks and provide supervision for a temporary period, without stifling innovation.

What is next for mobile money in Africa?

In its Report on Digital Access, the IFC notes that “the launch phase of this new industry can be considered complete with hundreds of established services, many of which are profitable. We are now moving into a new phase of development, with emerging technologies and widescale integration between digital financial services and other financial services providing a wealth of new opportunities”.

Whilst challenges remain, mobile money is likely to continue to be a key vehicle of structural change in Africa and other frontier markets, helping to create jobs and alleviate poverty by providing affordable and accessible financial services to all.