Perspectives 2019 2020 Public Sector

Citi Perspectives 45 Mowali has the potential to drive down the price of services offered to lower-income customers with its pan African footprint allowing for economies of scale and a cost-recovery commercial model. It could shape the future of the mobile money ecosystem in the region by creating a common mobile money acceptance brand with the potential to connect fintechs, banks, merchants and other ecosystem players to nearly 400 million mobile money accounts across Africa. The ambition of Mowali is to build on this success, helping Africans to gain access to best-in-class digital financial services through the convenience of their phone (Source: GSMA — Mowali) Each of these models is different in terms of the paths followed, the rules agreed, the business models chosen and the technologies that connect participants. The one thing they all have in common is that they represent a multi layered approach to interoperability. Rather than a third-party aggregator facilitating transactions or an uncoordinated array of bilateral contracts setting terms between pairs of providers, providers chose to balance competition and collaboration to make digital payments more widely accepted, convenient and useful for customers. (Source: CGAP) These developments put the ecosystem firmly in the scaling phase — with plenty of room to grow and develop further use cases to service different markets as needed. The use cases range from facilitating the disbursement of loans to agriculture and commodity based industries, to micro-insurance, to micro lending. Access to consumer and small business credit has been a problem that traditional banks have been unable to so efficiently and effectively solve. A remarkable example of how digital finance solves this problem, is Safaricom’s Fuliza product in a mature market like Kenya. The proposition has evolved away from purely sending money, to creating stickiness by providing additive value. In early 2019, Safaricom launched the “Fuliza” product — a Big Data and AI- driven proposition that essentially calibrates a credit score and potential loan limit for willing borrowers. In its first six months of operation, this platform lent out Shs81billion (approximately USD785 million) to 10.2 million customers (roughly half of the MPESA subscriber base). Safaricom’s Fuliza disburses about 12 overdrafts per second. This example shows how maturing propositions will evolve into full scale digital banks, whether or not they are recognized or licensed as such. In that sense, while the rest of Africa is scaling the payments proposition away from cash, it is clear that the future is wide open to a properly recognized digital bank. In a market where the regulatory regime has the provision of capital, the ownership of the client relationship (the digital wallet) and the ownership of various risks clearly stacked towards the issuer of the instrument, it is only a matter of time before these entities simply own the tacitly unspoken path towards being truly digital banks. Sources and References: Source 1: The long-run poverty and gender impacts of mobile money 2016. Tavneet Suri and William Jack 2016 Source 2: UNSGSA Igniting SDG Progress Through Digital Financial Inclusion, UNSGSA, Better Than Cash Alliance, UNCDF, and the World Bank 2018 Source 3: Citi GPS Report — Bank X — the New New Banks 2019 Source 4: IFC Partnership for Financial Inclusion: Interoperability Rules 2014 Source 5: CGAP East African Interoperability: Dispatches from the Home of M-Pesa Source 6: Business Daily: Pesa Link moves Sh81 billion in first 17 months 2018 Source 7: GSMA: Unlocking mobile money interoperability and merchant payments across Africa through Mowali Source 8: GSMA Mobile Economy Reports — Sub saharan Africa and West Africa 2018 Dustin Ling Public Sector Banking, Global Development Organizations, Citi Esther Chibesa Treasury and Trade Solutions, Sub Saharan Africa Payments and Receivables, Citi