An Ocean Apart – Trends in Telecoms on both sides of the Indian Ocean

Fraud & Revenue Assurance
Author: Nitin Madhavan Regional Business Development Manager
Date: 12th April 2017
Categories: Technology, Data, Financial, Telecoms, Revenue Assurance, Fraud protection, Optimus, Neural Technologies, Big Data, Revenue Management, Digital Transformation, Digital Integration

After over a decade of business development, consultancy and sales in the Indian and African communications markets, Neural Technologies’ Regional Business Development Manager, Nitin Madhavan, knows a thing or two about operating on both sides of the Indian Ocean. In this article, he shares with us his insights on these fascinating and fast-moving markets.

The wireless communications market in Africa and India has really advanced over the past couple of years and we have seen operators launching new services as well as strengthening existing services. Whilst some areas still have low mobile phone penetration rates, the mobile market has evolved beyond the initial ‘land grab’ phase in most African countries and across India. The more established companies are looking at revenue improvements, making their offering more competitive and increasing their services.

One of the most important services in this region is mobile money and money transfer, with the likes of M-PESA, which was launched in Africa in 2007, and Immediate Payment Services (IMPS) launched by NPCI in 2010. The mobile money market in these countries has now grown beyond initial micropayments and simple money transfers and – certainly in India – we are transitioning towards a largely cashless society.

What’s driving mobile financial services (MFS) in India?

India has recently completed a massive demonetisation drive, following the abolition of the country’s largest currency notes in a fight against unaccounted wealth and corruption. This initiative has been a boon for India’s e-payment providers. Paytm reported a three-times surge in new users -- tacking on over 14 million new accounts in November alone, while Oxigen Wallet’s daily average users increased by 167% since demonetisation began.[1] It has also offered up the opportunity for telcos to open banks, offering competitive interest rates and allowing people to deposit cash and use their telephones to make payments for everything from shopping, to cabs, to airline flights. This new opportunity gateway has encouraged new players into the market, but has also raised concerns in the FinTech community about cybersecurity and account hacking.

Another key driver in Mobile Financial Services (MFS) is serving the unbanked and underbanked. According to the World Bank, around 2 billion adults worldwide don’t use formal financial services and more than 50% of adults in the poorest households are unbanked.  The Indian market has around 75% mobile penetration and 53.1% financial inclusion, presenting a clear opportunity for MFS.  Neural’s 2016 Telecoms Risk Management Survey showed us that Central Asia (which includes India, Pakistan and Bangladesh) saw most opportunity in the fields of allowing the unbanked to establish a credit history, at 25% and helping the World Bank’s “unbanked” initiative, at 17%.

EY’s Global Telecommunications Leader, Prashant Singhal, also points out that “for financial institutions, [there is a] threefold benefit — expansion of reach, decrease in capital expenditure due to lesser need for physical infrastructure, and lowering of transaction cost — have been the key factors promoting MFS[2].

“The cost of mobile banking channels is significantly lesser compared to traditional channels — for instance, a mobile banking transaction can be done at 10%-15% of the branch banking cost. The cost involved in financial infrastructure is also much less, US$400 for agent-enabled mobile banking as compared to US$250,000 for a traditional branch. Furthermore, for banks, the cost to serve customers declines by a staggering 96% when moving from a branch infrastructure to a mobile platform.” In emerging economies such as India, this is a very attractive prospect.

In many respects, mobile money is ‘old news’ to the African market, as Kenya’s M-PESA has championed mobile money and mobile payments for many years. Whilst other countries like Uganda, Zambia and Zimbabwe are beginning to expand, Kenya and Safaricom are leaders of the pack. The African focus now is on expanding the mobile money system and adding digitisation to improve efficiency – making previously manual processes more automated and relying more on systems, networks, processes and technology.

Why has MFS been successful in Kenya but not so elsewhere on the continent?

Whilst 350 million of the world’s unbanked live in Sub-Saharan Africa, Vodacom and MTN shut down their mobile money services in South Africa last year, and other countries have struggled.  In South Africa’s case, this is most likely because the country’s banking system is already very sophisticated and around 80% of the country’s population have some type of formal bank account[3] but these figures are lower in Kenya.

While formal inclusion for men in Kenya has risen steadily since 2006, for women, formal inclusion leapt between 2009 and 2013 driven by the spread of mobile financial services (MFSs)[4]. This has lessened women’s exclusive reliance on the use of informal services. Compared to men, however, women still have lower access to formal prudentially regulated services such as banks (35% for women compared to 50% for men). Formal inclusion and exclusion also differs across the regions within Kenya. Formal inclusion is over 70% in most parts of the country, with formal inclusion in the western and coastal regions slightly lower. The northern parts of the country continue to face higher levels of exclusion, up to about 52%[5].

Getting a new license for MFS in South Africa is now difficult thanks to their formal regulatory framework. Mobile money proponents I have spoken to cite that the South African regime is harder to navigate for new entrants.

What about India?

In India, a special dispensation for non-banks or e-money providers is available, known as an NBFC (Non Banking Financial Entity) for example, Airtel has started its own bank, which is known as a ‘payment bank’. These payment banks generally get a quicker license owing to the capital investments and various other factors when compared to a full-fledged license to start a bank, speeding up the process and making it a more attractive prospect for telco operators.

However, with great power comes great responsibility, and regulators in both regions are getting tougher on the telcos. The public sector has become more involved and operators on both sides of the ocean are beginning to find themselves facing huge fines for any money laundering or illicit activity conducted on their networks. Should they fall foul of fraudsters repeatedly, their licenses have the potential to be revoked.

For me, the positives of this transition towards less cash and a more ‘mobile’ payment society outweigh the risks. By taking money from paper to wireless, many of the previously unbanked populations in the rural communities of India and Africa will now be able to move and store money more easily and more safely than ever before. The majority of the population whose transactions are monitored and protected are good, honest folk and this increased visibility in transactions both in-country and across borders will help the countries in which they operate to trade more freely with the West. In order to trade with the USA and EU, countries must be able to show that they are on top of any potential crime (money laundering) and terrorism threats within their borders. The data available to telcos makes them one of the best positioned to spot terrorism and crime and help law enforcement to stop these threats, enabling greater trust and better trading potential.

How will the IoT affect the market?

The growth of the IoT has the ability to take mobile money a stage further and integrate more areas of daily life for people within these two markets.  Mobile money in emerging regions will be the catalyst for creating smart cities, transferring vast amounts of data over networks without requiring human-to-human or human-to-computer interaction[6]. Once these smart cities emerge, their inhabitants will start to see the full potential of the IoT, as interoperability will not be limited to banks and telecoms, but spread to utilities, municipal authorities and transportation systems. Any company will be able to integrate into this payment and mobile money ecosystem and force the competition to innovate. Once an ecosystem is built, machines or devices will be able to determine the best rate and company for every aspect of daily life automatically, from electricity to groceries to healthcare.

As the Internet of Things (IoT) spreads its wings worldwide, the technological leaps made by these two regions in recent months and years will set them in good stead to take advantage of the digital future. It will be interesting to see how these two societies measure up against the UK and USA in 5 years’ time. My money would be on these currently ‘emerging’ markets overtaking the currently ‘developed’ world and setting the bar for them as we transition into the digital age.