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‘90% of mobile money services worldwide are unprofitable'


Less than 10% of mobile money services worldwide are profitable, according to one of the creators of Kenya’s M-Pesa system Susie Lonie.

In 2005, while employed by the UK’s Vodafone Group, Lonie was part of a team that developed and ran M-Pesa as a pilot project in Kenya for the country’s biggest mobile operator Safaricom.

In 2007, she was then part of a Vodafone team that developed Safaricom’s mobile money system for national launch in Kenya that year.

Since then, M-Pesa has taken off in Kenya, with around half a trillion transactions made for the year-ending June 2012 while over $2.8 billion in deposits have been recorded, said Lonie at the TM Forum Africa Summit held in Johannesburg on Tuesday.

Africa has also taken rapidly to mobile money, as about half of the 191 global deployments of the system are present on the continent, Lonie said.

However, Lonie -- who currently is the associate principal consultant for Consult Hyperion -- said that Kenya is the “poster child” of mobile money worldwide, and that of all the deployments of the system globally, very few of these services have had financial success.

“There aren’t that many services that are that successful,” Lonie said in a presentation she made on Tuesday at the TM Forum Africa Summit.

“And out of that 191, maybe not even 10% of them are either successful or clearly on the road to becoming successful, by which I mean breaking even and looking like becoming profitable,” she added.

Reasons for mobile money offerings not taking off in other global markets are varied, said Lonie.

But chief among them are that telecom firms and banks are ‘overconfident’ about entering the space and therefore don’t commit a high level of resources towards implementing mobile money offerings, Lonie explained.

She added that a lot of systems have also been built too hastily and that a lack of experience among telcos and banks is another reason for failure.

However, weak consumer propositions, whereby demand is not strong enough in a market for mobile money, is another key reason for the failure of the service in these markets, Lonie remarked.

But she said that opportunities for profitable mobile money operations exist if telcos and banks look to address some of these problems.

That is, Lonie three key ingredients to success could include having a strong mobile money team, a big budget and a compelling consumer proposition.

“All this is only worth the effort if you’re selling something that people want to buy,” said Lonie.

In Kenya, mobile money has been the “killer app” it is because it helped Kenyans send money more easily, said Lonie.

Prior to 2007 and the introduction of M-Pesa, she said methods for the unbanked in Kenya to send money were expensive, high risk and ‘generally unsatisfactory’.

“You’ve got to be solving a problem for customers to want your service,” Lonie said.

Lonie, though, said that merchant payments could also hold the key for more global mobile money deployments to become profitable.

“Mobile money is not being used in retail outlets; it’s amazing; there’s no market where that has been launched as the easy way to buy stuff in shops.

“We want retail payments in stores: not just because we get more money and make more transactions that way, but there’s huge number of benefits,” said Lonie.

She explained that merchants could become agents and help address a key problem that is, at times, faced in mobile money systems: a lack of liquidity.

But getting mobile money to be used by retail merchants has had its challenges in places such as Kenya, where Safaricom has been battling to get its three-year-old ‘Lipa na M-Pesa’ initiative off the ground, according to Lonie.

She said an important factor holding back the take-up of mobile money among merchants is that traditional electronic payment systems, which were mainly designed for the West over 50 years ago, are not translating well for mobile money use in retail stores in places such as Africa today.

A key to then addressing this issue could involve developing technology to allow merchants to transact with a number of mobile money schemes from a single POS (point of sale) device that is integrated with back office systems.

Lonie said the mobile money payments in shops need to work in the same way as any other payment system, such as those from Visa and Mastercard.

And Lonie’s colleague, the head of mobile money at Consult Hyperion Paul Makin, at the TM Forum event said that Hyperion is working on technology to make interoperability a reality and to simplify the four party payment model, which involves a series of switches

Makin said that the reliance on payment switches may not be needed for mobile payments in retail stores and his firm is piloting technology, which also uses near field communication (NFC), to simplify the electronic payment process.

“We think we can do a lot better because we think this whole area is the key to profitability, and ubiquity for the other 90% of mobile money schemes,” said Makin.


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