London — Innovation is one of those words that everyone has to say. It's always a good thing when it's disrupting others but not if it upsets your own carefully prepared apple cart. Russell Southwood looks at how innovation in Africa's banking industry compares to the continent's mobile industry and what the MNOs might do.
We have provided a steady stream of coverage looking at how Africa's mobile operators have involved themselves in innovation and start-ups, most recently: Africa's three major mobile operators now have a digital playbook - highlighting the continent's digital services sector:
The interesting thing is that almost all of this innovation is not in their core business streams. You can argue that for those who have more developed m-money revenues that there is potential innovation impact through Fintech start-ups. But almost without exception there are no start-ups seeking to explore how the traditional core mobile business model might be recast for a digital future.
For year's Africa's banking industry was stolid and unchanging and only dabbled with innovation at the edges: an unloved app here, an online product there. But the leaders in the banking industry have woken up to digital innovation. Also remember that banking is as heavily regulated as the mobile industry if not more so. The examples below give some idea of the scale of change:
* Standard Chartered is launching a digital bank in Cote d'Ivoire without any physical presence. The bank will offer digital services allowing users to make transfers and pay bills. Standard Chartered currently has retail banking operations in 10 African countries but is opening up in the West African Francophone country because without a legacy commercial banking business it hopes to start from scratch by redefining itself as a digital bank there. If successful in Côte d'Ivoire, Standard Chartered is expected to replicate the digital bank model in other major African markets including Kenya, Nigeria and Ghana.
* Kenya's Equity Bank launched its own MVNO Equitel (1.94 m subscribers in Q1, 2018) and now transacts 97% of its business outside of its bank branches. Interestingly, in Q1, 2017, Equitel was responsible for 62% of transactions and its mobile app for just 12% of transactions. A year later the Equitel share has dropped to 43% and the mobile app has gone up to 35%. FNB in South Africa also has an MVNO with over 100,000 customers.
* In June 2018 Ecobank had 2.7 million app downloads in West Africa and has launched a KYC-lite account called Xpress Cash. It has an agreement with Total & Oil Libya to use 3,000 petrol stations as Xpress Points where the customer can use a QR code to pay or withdraw money. Within a country or economic zone (for example the CFA Franc Zone in Francophone West Africa) you can also send cash using an e-token. Using this e-token the recipient can go to any Ecobank ATM and take out cash.
* On a recent visit to Nigeria I heard about the innovation plans of several leading banks that include many of the elements described above. When m-money was set up in Nigeria, the mobile operators were excluded from directly offering this service. They are now lobbying Government and the regulator to overturn this and this pressure is making banks face up to their digital future. Some have closed branches, are looking at how they can operate more ATMs and are getting more customers transacting on digital platforms.
This digital innovation in banking is beginning to change how banks think about their core business. So what might a mobile version of innovation look like? Strategically, you have several choices: buy or invest in existing start-ups; grow them in incubators; or much the hardest route, innovate internally.
You can see the glimmerings of it in some mobile operator innovation. Both Vodacom and Safaricom (with its Songa music streaming platform) have quietly adopted a "anyone-can-use-it", platform agnostic approach. Orange's Intrapreneurship Start-Up Bizao makes APIs available across mobile operators.
I have recently conducted two surveys for clients across Africa: 90% of those I have spoken to have used WhatsApp or Skype. The former is impressively clear and easy to use on a mobile phone. So if data is voice and voice and SMS revenues are becoming legacy, where might innovation for mobile operators begin? The main assumption must be that the customer wants always on data that is easy to access that is either free or cheaper than current levels (with some exceptions).
The big exception is delivering high capacity fibre to the home either by FTTH or 4G or some combination. This is a consumer product that really needs a different approach rather than being tucked under the existing mobile offer. Why not back a consumer company doing this and let it ride on an MNO infrastructure? Once you have connections to the home there are many services that might then be added.
Mobile operators desperately need Wi-Fi offload. Even with 4G, the uptake of data might quite quickly overwhelm the network and lower service speeds. There are now plentiful Wi-Fi hotspots so create a voice and data product that automatically finds the cheapest alternative access point. Get a company that makes access to Wi-Fi hot-spots easier.
Spin-off key parts of your fibre network, whether national or metronet, particularly if you are not the leading player in the market. Better to have a share in a successful network company than struggle to keep investing in more network expansion. Engineer deals with others who have other parts of the fibre jigsaw to create real competition to the dominant fibre player.
Reaching more customers: The mobile business model has a relatively high level of operating costs. This means that it has become increasingly difficult to reach new customers at the edge of the market. Forget those nice CSR projects that come and go. You need to look at having low-cost operators for low-margin markets like these. HTS satellite bandwidth should come in at a price that begins to make more possible. There are at least a dozen people operating out there who could provide data to people that might include both voice and data bundles. You're never going to there, let others do the heavy lifting and invest in the winners.
This brings us to technology. Surprisingly, there really is no magic technology that might be a major disruptor. The classic mobile business model is built around having high costs that will exclude others from entering the market. So for example, spectrum costs are kept as high as possible to limit market entrants and the CAPEX for 4G and 5G is also higher than say for Wi-Fi. Equipment vendors have built their business on this excluding, high-cost approach.
But what if MNOs thought about deconstructing that model to gain more advantage in a rapidly reconfiguring world? TV White Spaces then goes from being the equivalent of the "antichrist" to being a spectrum sharing approach that mirrors the idea of infrastructure sharing.
The Facebook open BTS might yet allow a way of putting further downward pressure on equipment vendors. At present, there's a symbiotic relationship between the MNO and those who sell network equipment (and in some cases operate it on their behalf). They both feel they need each other. What if that wasn't true? It's possible to have a small-scale start-up that is both MVNO and ISP in the current terminologies that seeks to build its data network for a substantially lower cost?
As Africa's mobile operators struggle to get on top of the digital changes, they need to think about making changes that fundamentally alter what they do. Whether this happens internally or externally is a matter of tactical choice but the strategic need is to innovate in their own backyard.
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Worldreader increases it active readers in Africa and wants to get its app on 40 million handsets through Opera
Cap Verdean and Congolese music streaming platform MUSKA launches in Cape Verde and will roll out in 5 other African countries
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