London — Mobile money in Africa started as a workaround with people exchanging airtime as a way of sending money. Out of this small seed of an idea has come a whole ecosystem that is both bigger than the traditional banking system but also increasingly integrated into it, both nationally and globally. Russell Southwood talks to Dare Okoudjou, CEO and founder of MFS.
Mobile money start-up founder Dare Okoudjou comes from Benin but was educated in Morocco and Paris. He was a graduate of Telecom ParisTech and INSEAD. I last spoke to Okoudjou in 2012 back in the early days when MFS was selling insurance products.
Q: Where did the idea to launch MFS come from?
A: I moved from Benin to spend time in Morocco and France during my studies and I was sending money back and forth so I had personal experience of the issues involved.
I joined MTN in 2006 when it launched MTN Money. I had read and article about it and it was obvious to me. I was not hired to do that but moved into mobile money later. In 2008 the notion of MFS came to me, the idea that I could take it much bigger than was previously thought. But MTN was a big organization and it was not easy to drive innovation through it. I left MTN in 2009 and MFS started trading in 2010.
I had worked for 6 months in a start-up in New York in the late 1990s and I saw parallels in what was happening in financial services to what happened with media and telecoms.
Q: How did you figure out how to enter the market?
A: I needed to find a space in the middle of what was going to happen, focus on a few things not change what I did and wait for the killer app. So first I needed to identify the game changer for mobile money. What was not there before? There were really four game changers.
The thing was Know Your Customer (KYC). Every financial service needs this information and it's costly to get it in an analogue way. You need a salesman with paper forms and a back office to collect the forms and process them. It's expensive collecting all sorts of information in this way. So the idea was to capture this information once and then it becomes useful for financial services. That was one game changer.
The second game changer was electronic signature. The user's PIN is the signature and it can be used in a number of different ways. For example, if I want to vote, I can give you my PIN. If I found a way to separate it from just being embedded in mobile money, it would have wider applications. It would be powerful in the hands of hundreds of millions of people.
The third game changer was the ability to credit and debit outside of a single transaction. Usually these transactions are a closed loop: money sent, money received. You need to be able to create recurring payments and have them so that they can be pulled from the other side.
Q: What we in the UK call standing orders or direct debits?
A: Yes. The fourth game changer is that mobile money is nothing without mobile money agents: points to deliver cash. There are now more than 2 million mobile money agents in Sub-Saharan Africa compared to perhaps only 100,000 bank branches. Who is going to digitalize the money? Mobile networks create other possibilities. It's like ISPs doing portals where you login.
Q: So what did you do with these insights?
A: We built a platform that can take KYC information, request a PIN and offer a credit and debit account. By 2011, we were in the first phase and had developed a platform to act as a product but didn't yet have a business.
We looked for the killer app. We started with life insurance but knew we would do it differently in the future. We were in 10+ countries and had 30 million wallets but these markets were all sub-scale but they offered opportunities to connect with the mobile operators and financial institutions.
We had too many products across too many countries. We could have chosen 2-3 products across 1-2 larger markets but we needed to scale to as many countries as possible as quickly as possible.
By 2014, people in Africa were very familiar with P2P transactions and we didn't have to convince people to use them for cross-border transactions. Through the mobile operators we can terminate transactions and create ecosystems quickly. So 2015-2017 saw rapid growth in cross-border transactions (XP2).
We now have 170 million wallets in 30 countries in Sub-Saharan Africa and last year we started the process of connecting to the rest of world making connections in 50+ markets. Transactions every month are tens of millions of dollars and the average transaction is US$50-60. There are lots of repeat users: once you use it, you keep using it and people make multiple transactions every month.
The cross-border flows are not just about remittances but also cross-border trade. You can see different clusters of it in East Africa, Cote d'Ivoire for francophone Africa and a Southern Africa cluster.
Q: What's your ambition?
A: We want to reach 400 million people by 2020 and we're confident we can do that because we've also started connecting banks and money transfer agents. The aim is to reduce the cost of money transfer. Currently it's 17-20% against a global average of 7%. We think we can bring it below 10% by 2020. We're talking about 3-5% eventually. But the number one reason for using us will not be because we're cheaper but we're more convenient. We can make this a premium product but still be cheaper.
We want to build a gateway to African consumers and merchants. So if you put up a website in Rwanda we want people in Rwanda to be able to pay you and for the reverse to be true, you can pay them. We want a guy in Mozambique to be able to order from Amazon with a mobile wallet and a PIN.
Q: Which mobile operators are you working with?
A: Vodafone, MTN, Orange, Tigo, Econet, Moov and Safaricom.
Q: You recently raised US$4.5 million capital? What are you going to do with it?
A: We're going to be using it to continue the expansion: continue connecting and country implementations. We'll also spend a good chunk around compliance as we want to be able to help with the compliance of our partners. We want to automate the process of compliance.
Q: Are you profitable?
A: We're not yet profitable but we will be soon.