Can Mobile Money Replace The Banking System? The Case Of East Africa

Wrote this at the end of last year. Not sure how true it still stands but the title sums it all up. Also appeared on GMT+3.

The concept of mobile money, as a money transfer service, is rather simple. It builds on the analogy of sending a text message with your phone, obscuring the complexity of the processes that must happen in the background. Like all great technologies, this obscurity usually improves user experience and edges you closer to success.

The greatest success story for mobile money has been in East Africa, particularly Kenya with its mobile money service, M-Pesa. M-Pesa was launched by Safaricom (Kenya’s largest telecom operator) in 2007 (Safaricom). In less than 7 years, as of August 2013, M-Pesa transactions averaged $1.6 billion per month. In addition, M-Pesa transactions represented about twenty five percent of Kenya’s Gross Domestic Product (The Economist, 2013).

Nothing succeeds like success. Other countries and operators in East Africa followed suit and the second most successful implementation in the region is in Uganda. MTN Uganda (Uganda’s largest telecom operator) launching MTN Mobile Money in 2009. Since then, it too has grown to about 5 million subscribers who contributed to the $6 billion worth of transactions in June 2013 (The East African, 2013).

The argument for this service replacing the banking system hinges on two facts: the success of mobile money implementations, especially M-Pesa and the ever growing number of mobile subscribers, both of course in regard to banking system and its adoption. The former promises potential while the latter ensures feasibility and continuity. Its success further depends on exploiting the competitive advantage that mobile money and mobility in general offer. For the purposes of this article, we will use Uganda and Kenya as our yard stick. The reason is that their two major operators have the second largest and largest number of mobile money subscribers in the region, respectively.

In 2013, Kenya had over twenty million mobile money subscribers (Global System for Mobile Communications AssociationGSMA, 2013). This is 79% of all mobile subscribers in the country. Furthermore, of these, only 50% have bank accounts. The number of mobile money subscribers in Uganda is also much higher than that of 4.9 million bank accounts (Telegeography, 2013). Over 12 million of the approximately 18 million mobile subscribers in Uganda use mobile money (The East African). This trend can be imitated across borders, therein lies the sense that role banks becomes less important as a means of saving or safeguarding money.

Naturally, there is no mobile money without mobile. Every new customer is a mobile subscriber. Therefore for it to be a feasible banking method, it has to be sustainable which means, first and foremost, numbers. The number of mobile subscribers has to be large enough to create a large potential customer base. In East Africa, does not seem to be a problem at all. With the exception of Burundi, at least 50% of the population of the other East African countries has a phone, no matter how low end it is; approximately, 60% in Tanzania, 52% in Rwanda, 50% in Uganda and 67% in Kenya (IHub, 2013).

It is unlikely that that growth will relent. Africa is the second largest mobile market after Asia (Koetsier, 2013). Sub-Saharan Africa is the fastest growing market, having grown by 18% in the past five years (Maylie, 2013).

Given the numbers and present success, it is possible that such a system could replace traditional banking. It would offer the same advantages and possibilities that the service currently offers. There are a number of these including low cost of joining, speed, ease of use and convenience, easy accessibility, comparatively low usage costs, and trust.

It is much easier to get a mobile money account than a bank account. Every bank has charges for opening an account. This is usually in form of a direct fee or in form of a minimum balance. They will also usually charge for every transaction and a monthly account maintenance fee. These translate into rather high costs for opening an account and maintaining it which is not the case with mobile money.

Mobile money offers a quick and easy way for accessing ones finances. The queues are rarely long for withdrawals or deposits, thanks to the large number of agents spread out across. Uganda for example has over 17,000 agents (The East African, 2013). This greatly outnumbers the number of bank branches across the country, to say nothing of the queues. With the large number of mobile money agents, you can easily access your money.

Another advantage of mobile money is that even the illiterate can use it. All they need to learn to do is how to use the phone which has proven rather easy. Even my grandmother who had no formal education whatsoever knows how to use her phone to withdraw or send money. Where the bank is very formal in its dealings, it is less formal. To withdraw money for example, one must fill in forms. Unfortunately, the levels of literacy are very low especially rural areas.

Lastly, and possibility the miracle of mobile money, there is a growing trust for the service. The sheer number of users is evidence enough for this. Technologies that users are weary of do not register such numbers no matter how well they are marketed.

In spite of the potential that such a change has, there are some issues of concern with mobile money. These would be inherited by the fully-fledged banking system. Not least among them is fraud. In 2012, it came to light that MTN had lost 10 billion Uganda Shillings (about $4 million) through fraud. Although no customers were affected and measures have been tightened to ensure that nothing of the sort ever happens (at least not on such a large scale), it is worrisome.

In addition, such a system heavily relies on network reliability especially in rural areas and also reliability in the face of the growing number of users and transactions. MTN Uganda struggles every now and then to cope with the large number of transactions on its platform leading to outages. Needless to say, when this happens on a large scale, the results can be catastrophic.

The issues with the mobile money platform aside, there are core banking services and roles that would be difficult to replicate unless the telecoms diverted from their core business and went into banking. For example, large scale loans. Although mobile money has been used for loan and credit schemes, it has been for small to medium scale enterprises. Even then, these have been done in collaboration with established financial institutions with mobile money serving only as an enabler or go between.

In fact, it would be impossible for the telecoms to do most of the banking considering that they themselves keep their mobile money accounts with the banks. The middle ground has been achieved in integrating some banking functionality in mobile money as opposed to attempting to replace the banking system. The mobile banking offered by most telecoms is only a bridge to accessing some services offered by the bank, for example bank deposits, withdrawals and balance inquiry. Others include Auto Teller Machine (ATM) integration that allows subscribers to withdraw money from ATMs, and bank integrations that allow you to withdraw your mobile money from a bank as opposed to a mobile money agent.

Whereas mobile money has potential to replace banking system, it can only do so more convincingly for personal banking and perhaps SMEs (Small to Medium scale Enterprises). More complex banking needs required especially by large business would remain unhandled.

The even greater success story for mobile money is to be found in its integration with various banking systems and business process. In areas like online transactions (ecommerce), mobile money is the only realistic option. The Credit Card is still a long way away from most of Africa, and Visa Debit Cards are only a handful, leaving a huge gap that is being filled with online mobile money payment solutions like PesaPal in Kenya and JPesa in Uganda.


Reading: After reading all these reports and articles, it’s difficult to read anything else!

Sources and References

1. GSM Association – GSMA (August, 2013), MMU releases infographic on the Kenyan experience with mobile money. Retrieved from,,financial-inclusion.pdf

2. IHub (October, 2013), Mobile Phone Penetration vs Mobile Money vs Electricity Penetration in Kenya. Retrieved from

3. IHub (July, 2013), Mobile Statistics in East Africa. Retrieved from,

4. IHub (August, 2013), Mobile Stats in East Africa Infographic. Retrieved from

5. Jidenma, N. (November 2013), The real mobile revolution: Africa’s smartphone future. Retrieved from

6. Koetsier, J. (December, 2013), African mobile penetration hits 80% (and is growing faster than anywhere else). Retrieved from

7. KopoKopo website (2013), The Kenyan Mobile Money Ecosystem. Retrieved from

8. Maylie, D. (November, 2013), Sub-Saharan Africa’s Mobile-Phone Growth Faces Challenges. Retrieved from

9. Payments Africa (November, 2013), MTN Uganda Launches Mobile Money ATM Cash Out Service. Retrieved from

10. Safaricom, Safaricom, MPESa timeline. Retrieved from

11. TeleGeography (March, 2014), Mobile money users overtake traditional bank accounts. Retrieved from

12. The East African (November, 2013), New BoU rules to cut fraud in mobile money. Retrieved from

13. The East African (May, 2013), Uganda mobile money users hit 9m. Retrieved from

14. The Economist (May, 2013), Why does Kenya lead the world in mobile money? Retrieved from

15. World Bank, Population. Retrieved from

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