Africa remains a hotbed of mobile innovation. Telco operators across the continent are stepping in to fill gaps left by lower levels of development in key areas, including banking and financial services.

A 2022 report estimated that just over half of Africa’s population remained unbanked. The same report found that banks across the continent are investing in digital transformation projects, with the development of mobile money services the top priority among banks surveyed.

But it is arguable that telcos are in the inside lane when it comes to developing tailored financial services products to suit a mobile-first consumer than their banking counterparts.

Take the example of mobile money, which represents a significant growth opportunity for telcos. In 2022, the value of mobile money transactions in sub-Saharan Africa reached $832-billion, with an estimated 390 million mobile money accounts in East Africa alone.

Banks also find it far more difficult to move into the telco space. Conversely, telcos more easily move into traditional banking, as can be evidenced by the ongoing telco gold rush for financial services.

Mobile money kickstarts telco financial services

This gold rush arguably started with the incredible success of M-PESA. Launched in Kenya by Vodafone and Safaricom in 2007, M-PESA quickly grew to become the most successful mobile financial service in the developing world, registering 17 million accounts in Kenya alone by 2012.

M-PESA enables unbanked customers to deposit and withdraw money, transfer funds to other users, and conduct a range of additional transactions such as airtime purchases and bill payments.

The service grew in popularity in part due to inefficiencies with Kenya’s banking sector at the time, which made it difficult and costly for citizens to access banking services and make payments or transfers.

Today, telcos across the continent are leveraging their large user bases, strong brand awareness, consumer data insights and visibility over customer behaviour to introduce a range of innovative payment, remittance, insurance and other financial services.

Challenges and risks abound

However, this gold rush for diversified revenue is not without peril.

The financial services sector is highly regulated, and while the sector lagged behind in maturity, regulators are now catching up to the needs of a modern financial ecosystem.

A telco offering loans, for example, will need to take into account a number of regulatory requirements ranging from credit scoring to risk analysis and legislation restricting the flow of funds across borders.

For a continent so reliant on remittances, this additional regulatory oversight can hamper adoption of new financial services and undermine telco profitability.

Leveraging tech providers’ expertise

For African telcos seeking to unlock new revenue streams with the introduction of financial services, the answer lies in leveraging expertise and infrastructure developed by specialist providers that keep pace with regulatory requirements while refining user experiences and back-end operational efficiencies.

For example, telcos using Itemate’s point-of-sale system can quickly and easily enable new financial services offerings through a single integration at the point of sale.

To encourage adoption of new financial services innovations, telcos can incentivise dealers to promote specific products – an insurance product or loan offer, for example – with consumers able to immediately register and start using the product with the POS acting as the enabling platform.

And as new regulations emerge, the provider can implement the necessary changes that are implemented across the telco’s customer-facing dealer networks, ensuring customers can enjoy the convenience of mobile financial services while helping telcos maintain regulatory compliance.

Africa is home to a thriving telecoms industry typified by a small group of very large, dominant telcos – such as MTN and Safaricom – and a highly competitive group of emerging telcos.

These telcos play a vital role in the continent’s economic and social development, providing essential connectivity to hundreds of millions of people that lack access to fixed broadband and fibre connectivity.

The GSMA predicts that unique mobile subscriber numbers in sub-Saharan Africa will reach 613 million by 2025, generating $154-billion in economic value.

The more dominant telcos will continue to take advantage of this growth by leveraging technology to develop innovative new revenue streams and business models. From mobile money and fintech services to small business support, entertainment and mobility, African telcos are gearing up for a new phase of diversification and growth following an era marked by market consolidation.

The emerging telco opportunity

For emerging telcos, there is enormous opportunity in refining their service offering to more closely meet customer needs. Consider, for example, that smartphone adoption is not yet at the levels seen in more developed regions.

Data indicates that more than half of the 40 to 50 million mobile phones that are shipped to Africa each quarter are feature phones.

In the fourth quarter this amounted to 22.7 million feature phones, compared to only 17.6 million smartphones.

In many consumer markets, telco customers also prefer physical over digital services. For example, purchasing scratch cards in the physical form despite the convenience of digital airtime vouchers.

To reach the scale and capacity of their more dominant peers, savvy emerging telcos should leverage their relatively small size to rapidly innovate – intrinsically understanding and meeting their customer’s products and services’ needs.

However, emerging telcos typically face a number of key challenges hampering their growth and undermining the customer experience they deliver. Based on our work with telcos across the continent over the past 15 years, these are four common growth challenges for emerging African telcos:

Challenge #1 – Inventory Management

The nature of telcos’ business models means that physical goods – mobile phones, accessories, and airtime scratch cards – often have to be moved around. If any of the goods become lost along the way, the telco suffers a direct monetary loss.

Critically, this type of stock loss can also affect the customer experience. If a box of scratch cards are lost before they could be activated, a customer may inadvertently purchase a scratch card that doesn’t work. And when they contact a service centre for support, the telco has to choose between disappointing the customer or taking a revenue hit by providing the airtime at a loss.

Implementing serialised product identifiers, with a track and trace solution, provides telcos with full visibility over the movement of goods, and ensures accountability in the event of any stock loss. This saves money and protects the customer from inadvertently purchasing illegitimate goods.

Challenge #2 – Point-of-Sale

For many emerging telcos, in-store payments are still fairly basic, providing little traceability, customer insights or stock tracking. This can hamper their ability to handle customer requests or deliver a positive customer experience.

The adoption of telco-specific point-of-sale technology can make it easier for emerging telcos to cater to customer needs. Itemate’s point-of-sale solutions are tailored to telcos, providing a one-stop shop for customer requests, KYC and payments while enabling full audit traceability, reports and insights. This gives telcos full control over their business.

Challenge #3 – SIM Recycling

Mobile number recycling – or SIM recycling – remains a major challenge for telcos, with even larger telcos recently making news headlines for indiscriminately reusing customer numbers the telcos thought were inactive.

SIM recycling happens when a telco detects a specific mobile number is dormant, and reuse that number for new subscribers. However, the nature of mobile connectivity in Africa is that customers often have multiple SIMs they use for different purposes, like phone calls and mobile money transfers for example. When a telco then recycles that number, the customer suffers not only inconvenience, but sometimes monetary losses as a number linked to their mobile money store of value is recycled.

However, with the right technology in the background, telcos can keep a more accurate record of which numbers are dormant and which ones can be recycled. This prevents customer dissatisfaction while ensuring the telco can utilise numbers optimally.

Challenge #4 – Dealer Management

A strong dealer network is essential to the growth and success of any telco. But a lack of technology can mean some telcos are left blind to the needs and activities of their dealers, which can undermine their growth.

Having the correct technology in place can give telcos visibility over key processes, customer needs and dealer activities that can inform business decisions.

By leveraging technology, telcos can drive improvements in the customer experience while ensuring they keep pace with the demands of the market, contributing to their longer-term growth and success.

Technology presents exciting opportunities for African telcos to scale into new capabilities, deliver superior customer experiences, drive greater revenue and grow their market share.

As mobile adoption grows and the mobile connectivity plays an increasingly important role in the African economy, telcos that can leverage technology to the greatest effect stand to benefit most.

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