5 May 2017

Africa: Nous Sommes Une Banque - Orange Wants to Make the Transition to Becoming a Bank in France but Hello Group Will Do It in Africa

London — Mobile operators seeking to create new business models for themselves are looking at business revenue streams where there are synergies with existing business. In Safaricom's last results mPesa accounted for 21% of its total revenues. Orange has announced it will become a mobile only bank in France but Hello Group plans to do it in Africa. Russell Southwood spoke to its founder and CEO Nadir Khamissa about its plans.

Orange in January 2017 announced that it will create a mobile only bank called Orange Bank in France and maybe later in Spain and Belgium. The plan's objective is to reach 400 million euros of revenues in financial services in 2018. The bank will be launched in partnership with Groupama through its branches and those of its subsidiary Gan. Orange has taken a 65% stake in Groupama. Against a backdrop of falling voice revenues and falling data prices, this is one of the big beasts' answers to what does the new business model look like for mobile operators?

With Cell C, Hello Group has created an MVNO like product target at niche diaspora markets across Africa and the world:"It combines our ability to sell into communities with Cell C's domestic abilities (to deliver a network)." It has built a R1 bn business with 1.4 million subscribers.

"In 2013 we realized our customers have a problem of financial inclusion and that there was a big business case for P2P payments. We started to talk to a bank and launched Hello Paisa in 2015. We're a small company competing enormous companies but we put significant resources in. We now have offices in 7 countries and 400,000 customers." It has offices in London, Dubai and South Africa and is licensed across the EU and in many African countries.

"We're sending money from the Gulf region into Africa. We have direct relationships with MNOs, banks supermarkets and post offices." Fort example, customers can walk into a post office in their network, give a Hello Paisa transaction number and KYC proof of identity and they will make payment. The average transaction is just over R2,000.

The vast majority of these customers are from Southern Africa:"Zimbabwe is the big outlier. There are a large number of Zimbabweans and its diaspora community is three times as big as other communities". Most users are in their late 20s and are mainly male except for customers from Zimbabwe.

"Economic migrants are the basis of it. So it's a lot of Africa, quite a bit of Asia and people sending money to India... There is an opportunity for us to become a digital bank. We are potentially acquiring a small bank and that's where we want to go with this. A lot of people have said you're crazy, it's an elephants' graveyard. Vodacom and MTN have had a hard time with it. But we have a proven ability to execute and deliver."

So how long will it take to do the bank acquisition?:"The speed of regulation in Africa is not the same as in the UK and the USA. Realistically it will take between 12-24 months."

The software for the Hello Paisa platform has all been written in-house and operates on Android and USSD with its own switch for micro-payments. However, for bulk payments it uses SWIFT:"We can transfer money in 1.2 seconds. There are no resellers or distribution agents. We have 500 employees and we're signing up clients every day. Know-Your-Customer (KYC) requires them to be employees. We have our own team of sales guys in each city."

Against average remittance fees of 10-12% it charges an average fee of 5%:"We selected Africa because it was the highest priced remittance destination in the world." Hello Paisa's formal competitors are the big brands like Moneygram and Western Union but much more the informal Hawala money transfer system:"We're taking people who have used these informal channels and helping them use an electronic channel where they have full transparency with tremendous cost savings."

It already has 12 of its own Hello stores and is opening another 10 stores. At the lower end, it's got 20 containers that do pay-outs in Malawi, Zimbabwe and Mozambique and that number will rose to 100 containers:"We want to see how it works. It's a business model built from the street. The target market will be the same for the bank."

So what's it like connecting with the mobile operators? Whilst it can deliver to say an MTN Money user, there is not full interoperability:"There are a lot of mobile operators playing hardball. They pick 2-3 aggregators and will not deal with many money transfer companies directly. This introduces a layer of inefficiency. It works for cross-border but not for domestic as there's not a similar level of margin. We pay quite a lot to terminate. Also if you're dealing with an international remittance someone like MTN Ghana has no competitive issue."

So what does he think of the Orange move to become a bank?:"I can't really comment because I'm not familiar with it. But in terms of the broader picture, GSM is a 20 year old technology and the risk that telcos have - and they are painfully aware of it - is that they could become like the US railroads of the 19th century. I like the MTN digital strategy. They are trying to create digital content. They are investing in e-commerce start-ups and hiring senior bankers. There's definitely value there".

"It's not easy for them (the mobile operators) because they come from the culture of a large organization. The GSM distribution model is to outsource. They like a walled garden user base. With OTT apps their structural advantage reduces dramatically. They have to compete directly without the oligopolistic advantage."

"The mobile financial services space is very hotly contested. I had lunch with Dr Edward George of Ecobank (at the Africa Tech Summit in London). They are doing mind-bending things. They have an app that gives you bank access across 33 African countries. They are partnering with Total (for its petrol stations) to act as branches to do withdrawals and payments. The Fintech revolution is real. What we've built has gained significant traction."

"What Hello hopes to build is Mobile 2.0. We want to create the equivalent of Ali Pay, We Chat Wallet or Pay TM. These are companies that have built a digital ecosystem and this is why we have a portfolio of companies including the MVNO type product, payments and distribution. The vision is to create an app that gives low income Africans an ecosystem that solves a problem."


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