Mobile operators and emerging fintech opportunity

Fintech has become more prominent in recent years, partly due to the impact of the Covid-19 (coronavirus) pandemic on digital services.

As more consumers take a digital-first approach to many lifestyle services, for example shopping and entertainment, and new services and applications become mainstream, for example the metaverse and Web, fintech will be an important tool for people and businesses to fulfill transactions in a digital environment.

This reality, unsurprisingly, is attracting innovation and significant amounts of investment into the fintech space. For example, 2021 was a bumper year for fintech companies, with KPMG figures placing total investments at US$225 billion.

Although investor sentiment fell in 2022, mainly due to the deteriorating global political and macroeconomic environment, the fundamentals of growth including high demand, digital-centric lifestyles and enabling regulations remain strong.

In this context, mobile operators around the world are waking up to the fintech opportunity, as well as the challenge from the growing number of fintech start-ups pouring into the space (it is estimated that there are now more than 26,000 fintech companies around the world).

In many ways, the fintech opportunity today mirrors the digital content opportunity of a decade ago. As then, the argument now is whether operators should bother to compete with more nimble start-ups.

Unlike a decade ago, however, operators no longer have the luxury of strong revenue growth from core services and largely underpenetrated markets.

Consequently, the imperative to diversify service offerings is now stronger than ever and fintech represents low-hanging fruit for operators to capitalise on.

Of course, operators are not entirely new players in the fintech ecosystem. Several operators in Africa and other developing regions have been offering a variety of mobile financial services (MFS) through mobile money for the better part of the last two decades.

The latest GSMA Mobile Money State of the Industry Report shows total transactions value reached US$1 trillion in 2021, with Africa accounting for more than 70 per cent of the figure.

However, a question which often arises, and for which there are different views, is whether mobile money can be competitive with other fintech services, and drive profitability for providers and impact for consumers.

The GSMA Intelligence team at MWC23 explored this topic extensively in meetings, keynote sessions and other forums with various industry stakeholders.

In all conversations, one recurring theme stood out: mobile money is no longer just about providing basic financial services to the underserved, it is now a mainstream financial service in markets where it is offered.

For example, Chris Meng, VP of Huawei’s Northern Africa Carrier Business, talked about the vendor’s one-stop platform, which powers Ethio Telecom’s Telebirr and Safaricom’s m-Pesa, and provides flexibility for operators to add new applications and services on a mobile wallet base.

Frehiwot Tamru, CEO of Ethio Telecom, disclosed that Telebirr reached 29 million customers in less than two years after launch, with products such as merchant payments and micro-credit, and Sitoyo Lopokoiyit, MD of m-Pesa Africa, highlighted his company’s consumer products for 59 million users, as well as its solutions for 730,000 businesses and 59,000 developers.

So, what did we learn at MWC23? A lot. Here are a few takeaways:

•    The MFS landscape is evolving – MFS has been through three phases. The first, which started before 2010, was characterised by basic money transfer and cash-in cash-out (CICO) services.

Here, mobile money helped to reduce the financial exclusion gap in low- and middle-income countries.

The second phase between 2010 and 2020 saw fintech start-ups come up with solutions to integrate MFS into peoples’ lives, enabling digital payments for a wide of range of digital services including e-commerce and online gaming.

The third phase, which picked up at the start of this decade, is underpinned by the inclusion of credit services into MFS offerings.

This has the potential to open new opportunities in the consumer and SME markets for operators going forward.

•    Regulation is a key enabler – The success of MFS to date, along with its future growth, is a function of the policy and regulatory environment.

MFS has taken root in markets where operators have been allowed to lead the deployment of services, for example in Cameroon, Cote d’Ivoire, Egypt, Morocco and more recently Ethiopia, while discussions are ongoing in several others, notably Algeria, Libya and Tunisia.

Enabling regulations go beyond just permitting operators to play in this space; they enable collaborations with other ecosystem players and partners including banks, existing fintech players and various public and private institutions to implement mobile payment and credit solutions.

•    Diversification and innovation will drive future growth – There is a strong argument that mobile money service diversification and innovation, based on a business model that is agile, adaptable and collaborative, will be critical for success.

To this end, the concept of the super app, where an operator uses a one-stop app to provide access to multiple services through a single interface to create new financial solutions, is being talked about a lot more, following a number of deployments.

For example, m-Pesa’s super app enables customers to download mini-apps within the app to complete tasks like ticket booking, deliveries, shopping, licence applications, insurance, et cetera with businesses, government agencies, utilities and other companies.