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. 

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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.


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