March 16, 2009 / 9:06 AM / 10 years ago

Emerging market telcos race for banking business

* MTN, Zain go head to head to offer mobile banking

* Client base seen soaring to close to 1 bln by 2014

* Operators to benefit from low-cost business models

By Tarmo Virki, EMEA technology correspondent

HELSINKI, March 16 (Reuters) - Two leading emerging market telecom operators are going head to head in a race to offer banking services to 1 billion clients who own cellphones but do not have old-style bank accounts.

Attracted by a low-cost business model MTN (MTNJ.J), Africa’s biggest mobile operator by subscribers, on Monday firmed up plans for a money transfer service in 21 countries, while Kuwait-based Zain (ZAIN.KW) said it is rolling out a similar product in all its African markets.

“We see enormous potential. People have been crying out for mobile banking,” Chris Gabriel, the head of Zain’s African operations, told Reuters in an interview.

Safaricom (SCOM.NR) introduced a money transfer service in Kenya in 2007 which, with more than 5 million clients, has already proved its worth.

Research firm Berg Insight expects the number of people using mobile financial services to grow on average 89 percent a year to 913 million in 2014 from just 20 million last year, with the strongest growth seen in the Asia and Africa.

“Mobile operators ... will have the opportunity to take an active part in the creation of some of tomorrow’s most important financial institutions based in Asia and Africa,” said Berg Insight analyst Marcus Persson.


With cellphone usage expanding rapidly in emerging markets to poorer and more remote areas, telecom operators have made their business models as lean as possible to be able to turn a profit from very low average bills.

“If we could apply the same kind of logic to banking and take the high cost out of the distribution network, the market opportunity and the growth opportunity would be much greater,” said Vice President Patrick McGory at telecoms software firm Amdocs DOX.N.

Mobile banking services are expected to match those of online retail banking and eventually go beyond that with technologies like near-field communications (NFC), which enables payments by just waving a phone.

Banking services gaining traction in emerging markets include money transfers from one phone to another using agents like local retailers.

According to a Pakistani microfinance bank, operating a bank branch in a Karachi slum could cost $28,000 a month while it would cost just $300 for a mobile banking agent.


Operators are also saving money when rolling out technologies from one market to another. Zain, which operates in more than 10 African countries, plans to use the same platform to open services throughout the continent.

“It’s not a major incremental investment from us. From day one it’s cash-positive,” Zain’s Gabriel said.

Gabriel said the firm works in close co-operation with banks and does not see much competition, but analysts said the situation was different from market to market.

“In some markets there is a clear competition between the two, but in some cases banks are happy to let the operators develop that market,” said analyst John Darnbrough, who wrote a report on mobile banking for research firm Informa.

According to the report, in 2013 almost 300 billion transactions worth more than $860 billion will be conducted using a mobile phone — a twelve-fold increase in gross global transaction value in just five years.

“For emerging markets there is incredible potential,” said Pam Zuercher, head of Mobile for Visa Inc (V.N).

Despite the potential in many markets, some carriers have been holding back fast and wide deployments.

“We have been very, very cautious with roll-out. Afghans don’t trust the banking system — we have to get over that hump,” said Altaf Ladak, Chief Operating Officer of Afghan operator Roshan, one of the first to open mobile money services.

Roshan started the service from its microfinance bank and is also looking for deals to distribute police and army salaries.

Zain and Roshan said they are looking at financial services not just as an additional revenue stream, but as tools to keep customers from fleeing to rivals.

“This is more important than the revenue stream,” said Roshan’s Ladak.

editing by John Stonestreet

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