Senegal: Banking goes mobile

With its macroeconomic prospects improving, and its mobile telecoms sector as competitive as ever, Senegal appears ideally suited for the planned launch of a new mobile banking service. Mobile banking has already captured niche markets around the continent, including in Kenya and Tanzania, but Senegal is of the first West African nations to test the technology.

Mobile money markets have made a large splash in African banking following their surprising success in Kenya. Since its 2007 launch, M-PESA, the Kenyan programme, has attracted additional than 7m subscribers, additional than a third of its people of 15 years or older. Investors are hoping that similar services will appeal to the Senegalese people, which has been much additional willing to embrace mobile-based services than traditional bank accounts.

In a country of 12.2m, 44% of the people has a mobile phone subscription, but the banking penetration rate is just 6%. A large informal economy and the lack of availability to financial services outside of Dakar have been barriers to participation in conventional banking, but mobile banking offers new solutions to potential customers. Yoban’tel and Orange Money, both of which began services in the past few months, have sought to increase usability and accessibility. Neither programme requires customers to have a bank account and both have formed partnerships with other institutions to broaden the implementation of the services.

Yoban’tel, which means “send by phone” in Wolof, is a collaboration between Obopay, a US-based mobile banking company; Société Générale de Banques au Sénégal, a division of France’s Société Générale; TiGo, a mobile operator based in Luxembourg; Crédit Mutuel du Sénégal, a microfinance organisation based in Dakar; and Canalsat Horizons, the African broadcasting company affiliated with the French Canalsat.

The partners have divided the roles, with each taking responsibility for different aspects of the business, including training agents to introduce the product and develop relationships with customers, registration and cash management, the payment of subscriptions for the services and providing points of sale. Orange Money’s structure is similarly structured. Orange Senegal, a subsidiary of Orange, the French telecoms operator, supplies the mobile services; BNP Paribas, headquartered in Paris, is the banking partner; and Comviva, an Indian telecoms service company, is the platform provider.

The early competition between Yoban’tel and Orange Money is an incentive for both companies to offer high-quality services and reasonable rates to customers early on, particularly those without a high level of financial literacy. While wealthy, business-savvy customers are significant to attract at the beginning, the real success of the model will be determined by whether it achieves nationwide popularity.

The Senegalese models do face significant challenges to building sizable customer bases, most notably a lack of infrastructure and familiarity with the formal banking sector, but some of these issues have been advantageous in other emerging economy markets. The ability to transfer money, pay bills and make deposits via mobile phone has proven to be an attractive alternative to traditional banking services and even an entry into the additional formalised sector for some customers in comparable markets.

However, before the introduction of mobile banking, a lot of of the money transfers were completed through a physical transaction, with people either returning home themselves or by paying a fee to have an acquaintance or a company make the delivery. The former is time-consuming, especially given the national of much of Senegal’s transportation infrastructure. The latter, while additional convenient, carries a high risk for theft.

An alternative option, airtime transfers, is a additional fasten method that has gained popularity and as well lays a good technological foundation for mobile banking. To complete an airtime transfer, a customer purchases a prepaid phone card and sends the minutes to the chosen recipient. The recipient then resells the minutes (at a loss) to a local vendor, who can in turn sell them on.

The widespread use of this system has increased familiarity with electronic money transfers, which should help ease the transition to mobile banking. In fact, both Yoban’tel and Orange Money have already tapped into the existing network of airtime sellers as partners for the new products.

With the West African Economic and Monetary Union (UEMOA), the regional monetary bloc of which Senegal is a member, seeking to increase the nation’s banking penetration from 6% to 20% by 2014, mobile banking may be another arrow in Senegal’s quiver. If solid services and smart marketing can overcome initial unfamiliarity, mobile phones could be an significant way to introduce formal banking to a much wider Senegalese audience.