MFS Growth Trend Gaining Steam

BMI View:  There is massive growth potential for mobile financial services (MFS) across the developing and developed world, facilitated by the near ubiquitous penetration of mobile handsets. While these platforms will take different forms depending on the market, we see future opportunities for mobile operators in the cross-border remittance space and highlight a number of companies exposed to the MFS trend.

There are large unbanked populations of over 70% in many emerging markets, while mobile phones are nearly ubiquitous, with penetration frequently surpassing the 100% mark. Operators are able to capitalise on this opportunity by offering basic mobile wallets, accessible from featurephones via SMS, which allow users to carry out money transfers, check balances and pay bills without needing to visit a bank branch. Instead, a more convenient system of agents is used, as developing markets tend to have low bank branch penetration, due to the high costs associated with operations. These platforms have advantages over the traditional cash-based systems as they are more secure and cheaper to use, with a growing number of operators looking to introduce their own platforms to capitalise on this opportunity.

In developed markets, the majority of adults already have an account at a formal financial institution and therefore, the opportunities in MFS are different. Mostly, this trend takes the form of mobile banking applications linked to smartphones, enabling customers to access their accounts to perform a variety of online banking transactions. Another area of growth triggered by the mass proliferation of smartphones in mature telecoms markets is near-field communication technology (NFC), as well as the use of mobile commerce applications to buy goods online. Emerging markets have not yet reached that level of sophistication as 3G/4G penetration remains in the minority.

Unbanked Regions Seeing Growth In Mobile Money
Bank Account Penetration (%) & MFS Usage (%), 2012
Source: World Bank

MFS Growth Trend Gaining Steam

BMI View:  There is massive growth potential for mobile financial services (MFS) across the developing and developed world, facilitated by the near ubiquitous penetration of mobile handsets. While these platforms will take different forms depending on the market, we see future opportunities for mobile operators in the cross-border remittance space and highlight a number of companies exposed to the MFS trend.

There are large unbanked populations of over 70% in many emerging markets, while mobile phones are nearly ubiquitous, with penetration frequently surpassing the 100% mark. Operators are able to capitalise on this opportunity by offering basic mobile wallets, accessible from featurephones via SMS, which allow users to carry out money transfers, check balances and pay bills without needing to visit a bank branch. Instead, a more convenient system of agents is used, as developing markets tend to have low bank branch penetration, due to the high costs associated with operations. These platforms have advantages over the traditional cash-based systems as they are more secure and cheaper to use, with a growing number of operators looking to introduce their own platforms to capitalise on this opportunity.

Unbanked Regions Seeing Growth In Mobile Money
Bank Account Penetration (%) & MFS Usage (%), 2012
Source: World Bank

In developed markets, the majority of adults already have an account at a formal financial institution and therefore, the opportunities in MFS are different. Mostly, this trend takes the form of mobile banking applications linked to smartphones, enabling customers to access their accounts to perform a variety of online banking transactions. Another area of growth triggered by the mass proliferation of smartphones in mature telecoms markets is near-field communication technology (NFC), as well as the use of mobile commerce applications to buy goods online. Emerging markets have not yet reached that level of sophistication as 3G/4G penetration remains in the minority.

One of the largest future opportunities in the MFS space include cross-border mobile remittances, enabling faster, more secure money transfers between immigrants in the US sending money back to family and friends in Mexico, for example. Where operators have a multinational presence, this can be achieved without the need for partnerships with transfer agents such as Western Union or MoneyGram and we believe these companies may be at risk from the rise in mobile-based remittances. In Africa, for example, TigoOrangeAirtelMTN and Safaricom have all launched their own international transfer services. A study from the World Bank and its Send Africa Money initiative show that at the end of 2013, mobile remittances were the cheapest method of transferring USD200 to Africa. Companies such as Orange, which has operations in developed markets could stand to benefit the most from this, as it will be able to facilitate remittances from the UK and France to emerging markets in Africa, Eastern Europe and the Middle East.

Mobile The Cheapest, Fastest, Most Secure Solution

Average Cost Of Transferring USD200 By Product Type (%), 2013

Mobile The Cheapest, Fastest, Most Secure Solution
Average Cost Of Transferring USD200 By Product Type (%), 2013

Companies To Watch

Kenya is touted as the most successful example of MFS in the world, with Safaricom reporting impressive uptake of its M-Pesa service. Aside from providing an additional revenue stream for the company, it also builds customer loyalty and has gained a dominant market share of around 70.7% as of 2013. Despite the regulator attempting to address this lack of competition by implementing policies designed to reduce its position, the M-Pesa brand is too strong and we do not see the likelihood of this coming down without regulatory efforts to make the service available to its rivals. Another company benefiting from the rise in MFS is UK-based Monitise, a software developer with a mobile banking focus. While other financial services software providers such as FIS and Fiserv also create mobile banking platforms, Monitise's sole focus on mobile banking has seen impressive growth over the past year, resulting in it outperforming the competition.

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