Financial inclusion as a business opportunity

Financial inclusion as a business opportunity

22-10-2015 | Research

Mobile payment technology in emerging markets makes it possible to reach the unbanked in a cost-efficient way. However, it is hard to make a compelling investment case. The main reason is that mobile payments are mostly viewed as a strategic business opportunity rather than a standalone business model.

  • Elie Aloko
    Africa Equity Analyst
  • Jeroen van Oerle
    van Oerle
    Portfolio Manager
  • Patrick  Lemmens
    Portfolio Manager

Speed read

  • Financial inclusion is a business opportunity, but is not investable yet
  • It is possible to identify winners, but payments are only a small part of their business
  • Avoid banks that do not invest in technology

Mobile payments in emerging markets are marked by a battle between mobile network operators (MNO) and banks. Financial inclusion - offering money transaction services to the unbanked - has become a business opportunity, thanks to mobile payments. This technology makes it possible to reach low income individuals in a cost-efficient way. A big advantage for emerging market banks is the time and ability they have to react to the disruptive rise of mobile technology in developed markets. In many emerging markets, financial technology (fintech) does not yet have a chance to become disruptive due to a lack of internet infrastructure and smartphone penetration. But this does not imply there is no competition for banks. 

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates

Financial inclusion is not an investable trend

Despite the fact that the mobile payment market in emerging markets is growing fast, it is not evident that a compelling investment case can be made. The most important reason is that mobile payments are mostly viewed as a strategic business opportunity instead of a standalone business model. For MNOs, voice, SMS and data are the major revenue drivers while the contribution of mobile payments to revenues is still insignificant. Safaricom in Kenya is quite a unique success story with its M-Pesa payment offering which represents 25 percent of its revenues; this is one of the highest we’ve seen in emerging markets.

Payments are a good way to increase customer stickiness and reduce airtime costs by optimizing network usage, but are not a core activity. We argue it does not make sense to invest in an MNO for its mobile payments if the size of the market in terms of transaction volumes is not attractive. The same goes for banks, although the upsell opportunities resulting from a mobile payment offering are more evident in this case.

Winners can be identified, but mobile payments hardly drive their performance

To half of the MNOs, mobile payments represent less than 1 percent of revenues. For those MNOs that have a higher revenue contribution from mobile payments, the numbers are not mind blowing either. We don’t think it makes sense to invest in an MNO for its exposure to mobile payments. For banks, mobile payments are a first step into cross selling. Often mobile payments are heavily subsidized and are not used to generate additional revenues. Investment wise, banks with mobile payment solutions are interesting if their technology offering stands out from peers. Fintech is often private, too small or part of a larger consortium in which case it is not driving revenues and performance either.

Avoid incumbents offering remittance services and banks underinvesting in technology

Mobile payment technology is disrupting the global remittance market. Incumbents such as MoneyGram and Western Union have long benefited from strict regulations protecting their business model. Given that most remittance flows were cash-to-cash, there used to be little alternative. When mobile payments made their entrance the alternatives became abundant. Cash-to-cash is now being replaced by account-to-account and this has a big impact on fees.

Regulation is also changing. International cash-out remittances (where money leaves the sending country) are being allowed by more regulators than in the past. We think incumbents should be avoided. The same goes for banks that do not invest in technology in order to keep up with changing consumer demand. Many state-owned banks are far behind when it comes to technology integration. But also banks that spend millions of dollars to create their latest app without translating customer data into business optimization are losing out in the long term. Unfortunately there are no clear performance indicators available to compare the level of technology integration amongst banks, yet. For more in-depth research, please read the white paper.

Important legal information

The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.

The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.

Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is Robeco Switzerland AG, Josefstrasse 218, 8005 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult for a list of FINMA registered funds.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/Robeco Switzerland AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/Robeco Switzerland AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.

This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.

I Disagree