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

54 Porteous
practice for handling innovation, as we will discuss below. Hence, this
factor—a regulatory environment that, if it did not promote mobile financial
services, at least did not block them—may be the most important part
of the explanation of “Why Africa?”
Emerging Limits of Second-Generation Models
In 2010, the climate appeared favorable for the continued rollout of
second-generation models of mobile financial services. M-PESA, the
poster child of this generation, continues to grow in Kenya, spurring others
who aspire to emulate its remarkable success. The deployments of
other major MNO groups, such as MTN in Uganda and Ghana, are now
reaching scale, with a million or more registered users (Bold 2010;
Rotman 2009). With more deployments planned in countries that still
lack a major mobile financial service, it is almost certain that the number
of active users of mobile money in Africa will continue to grow over the
next decade.
However, it is not certain, or even likely, that future growth will follow
Kenya’s trajectory. Various authors have mused over the “perfect storm”
of the country-level and firm-level characteristics that have led to such
success there, and they have sought to explain why the rollout of similar
models in other places—for example, across the border in Tanzania—has
been much slower (Heyer and Mas 2009). Amid all the idiosyncratic
reasons advanced, one in particular stands out: when it launched M-PESA,
Safaricom already had a dominant market share (around 75 percent) in
the prepaid voice market, and it has grown slightly since then. Except in
monopoly mobile markets (such as Ethiopia), it is rare—not just in Africa
but globally—for one MNO to have such a degree of market dominance.
Market dominance means that the benefits of launching mobile money
are not only larger for the MNO but, even more important, much larger
for the customer base. If most transactions among subscribers happen on
the same network, there are no risks and costs associated with connecting
with other payment networks.
But just as African telecommunications regulators have liberalized
mobile markets to increase competition and bring down the cost of airtime,
so market shares have fragmented. Even in small markets, it is not
uncommon to find four or even five mobile providers today, with
the market leader having no more than a third of the market. One implication
of this increasing fragmentation is that, in the absence of an interconnected
solution, successive second-generation market entrants
entering the market face diminishing returns—and, as mentioned above,