Financial Sector Development in Africa: Opportunities ... - World Bank

42 Porteous
Celpay and M-PESA: these two world-leading examples frame a
decade of rapid development and accelerated deployment of mobile
financial services in Africa, 2 piggybacking on the extraordinary growth of
mobile coverage and penetration on the continent over this time. These
two models also mark, respectively, the beginning, and now the heyday,
of what we characterize here as the second generation of mobile financial
services. This name distinguishes these models from the first generation,
which started earlier, and the third generation, which is only now
starting.
Mobile telephony is no stranger to generational classification of its
technology standards: so-called 1G (first generation) wireless networks,
first launched in the 1980s, were the first commercially operating analogue
wireless networks, but were soon overtaken in the 1990s by the
rollout of “2G” networks, which had the advantage of digital switching.
As demand for data communications soared, 2G networks that had initially
offered only basic data channels such as short message service
(SMS) and unstructured supplementary service data (USSD) developed
greater capability to handle data through implementing 2.5G and 2.75G
standards. Networks with these capabilities are pervasive throughout
much of Africa today. However, the need for ever-faster transmission of
data for Internet browsing led to the deployment of commercial 3G networks
from 2001 onward. First launched in places like Japan and the
Republic of Korea, 3G is now widely available in cities and major urban
areas in a number of African countries. The leading edge of mobile technology
has now moved on to 4G standards, with even faster streaming
speeds, although it has been deployed so far only in limited places such
as Korea and certain U.S. cities. 3
The Generations of Mobile Payments
The technological evolution described earlier provides the context for the
evolution of mobile financial services laid out in this chapter. While
mobile financial services have grown up in the wake of the spread of
mobile phones and the growth of their capabilities, the generations we
describe here are primarily based on the business models of the providers
rather than on technology. Hence, to maintain the distinction between
technology and business model, we will use the conventional acronyms
“2G” or “3G” where necessary only to refer to the technology standard,
but we will specify “second generation” or “third generation” to refer to
the evolution of mobile financial services. This lens provides the best way