Competition, new rules to spur West African electronic financial services

Making financial services available and affordable to all segments of the population, especially those excluded by income level, political instability, gender, location, or education, has been a major topic over the past few years in Africa.

The availability of financial services to those who historically not had access to them -- so-called financial inclusion -- is essential for widespread economic growth, according to the African Development Bank (ADF). However, Africa has been lagging behind other continents in this area, with less than one out of four adults holding an account at a formal financial institution, according to an ADF report, "Financial Inclusion in Africa."

West African regulators, however, are trying to help to pave the way for a growing number of companies interested in offering financial products such as mobile-phone money transfer services. There are already a number of such services being offered.

"The ongoing competition will more likely help increase awareness, developing the market at scale, developing product innovation," said Estelle Lahaye, a financial sector specialist at the Consultative Group to Assist the Poor (CGAP). Housed at the World Bank Group, CGAP, a global partnership of 34 organizations seeking to advance financial inclusion, has been involved in WAEMU countries since 2012 through a sponsorship by MasterCard Foundation.

The West African central bank, BCEAO (Banque Centrale des Etats de l'Afrique de l'Ouest) is drafting updated regulations for the issuance of e-money, capitalizing on experiences of mobile banking vendors thus far. Details are still being discussed, but the new rules are expected to provide an organizing framework for financial inclusion policies and regulations to be implemented.

The BCEAO has already moved to promote financial inclusion. Last October, the BCEAO mandated banks and financial institutions to offer 19 different services for free to customers across WAEMU countries - Benin, Burkina Faso, Côte d'Ivoire, Guinea Bissau, Mali, Niger, Senegal, and Togo -- seven of which share the same currency.

New technology will also be key, however. Many people opening mobile money accounts never use them, Lahaye points out. For people who are not literate or who are not tech-savvy, current SMS-based mobile money services may prove daunting, she notes. SMS-based services, for example, require remembering certain text, phrasing and commands in order to execute transactions. 

In Senegal, Manko's Yobantel e-wallet service, based on SMS technology, has proved difficult to use for many people in the region. More than 50 percent of their clients either do not manage to use the tool or have to get help from a relative or even an agent.

Use of the Unstructured Supplementary Service Data (USSD) protocol, used by GSM mobile phones to communicate with service providers' computers, may provide an answer to this problem. USSD provides a continuous open channel between the user and the service provider.  When a USSD session is initiated, the user can communicate with the service provider in a "call and response" sequence, potentially providing a more user-friendly customer experience.

"USSD is potentially a more user-friendly and interactive tool to offer a pleasant mobile money customer journey compared," Lahaye said. "However, most mobile operators are refusing access to their USSD channel to independent providers and most of financial institutions, because it is perceived as a competitive advantage."

Though financial regulations, including e-money regulation, across the WAEMU countries are handled by BCEAO, each country has its own telecom regulatory authority. Telecom regulatory bodies and WAEMU governments should be more involved in addressing telco infrastructure issues, Lahaye said.

Nevertheless, regional regulations coordinating use of USSD might be difficult to attain. With this in mind, some players in the mobile money market have proposed an API (Application Programming Interface ) for SMS technology on which they can build new, more user-friendly services.

Up to now, mobile money distribution networks have concentrated mainly in urban areas. Deployments into rural areas have been slow, due to higher costs and less potential profit.

Studies conducted by CGAP on the need and usage of financial services in Cote d'Ivoire and Senegal show that service providers' continuous focus on traditional offerings are not customized enough to the needs of the low-income population. They provide person-to-person money transfer, airtime purchase, merchant and bill payment, but poor people need a broader range of financial products like credit, savings and insurance.

"A customer-centric approach is needed for better products and accelerate adoption," Lahaye said.