Guess what would be the most popular way to make payments in mobile Africa, in highly developed East Africa, in the upcoming West Africa? Don’t kid yourself, it is still cash.

But the thing is that there are very few countries of the world where cash would not be the king. It is the question of what drives the digital payments that eat that cash away. In the US and EU that is definitely banks, and the payment schemes connecting them. Not in Africa.

Africa, and by Africa I mean Sub-Saharan Africa excluding South Africa (the country), is the diverse collection of countries that are very uneven in their development, but they have a few things in common: 
a) financial inclusion is still an issue, 
b) banking system is weak, and 
c) mobile operators take full responsibility for innovation and financial services. MNOs are the brick and mortar of the modern Africa.

Financial exclusion is a term to define people that only use cash to transact or save up. Cash is the number one enemy of digital economy, and the utmost hurdle. It creates friction, and to use new products and services that aim to fix the problems with healthcare, education, agriculture, commerce, travel — you need frictionless payments.

Source: FinScope Tanzania 2017

So how do you deal with cash, when you need to push for progress? You mount this cash horse and gallop into the future. That is what mobile network operators (MNOs) have done all across the continent, while the banking system was paralysed under the enormous costs for its infrastructure.

Source: EAC Payments Infrastructure Landscape, CGAP

Back in early 2000s banks simply could not move, much of population lived in rural areas not covered by most basic things like electricity, there were security dangers while traveling long way with the earnings. There were high illiteracy and innumeracy numbers, scarce official land ownership documentation, unreliable national ID documentation and credit history. That was the predisposition for the financial services in the region.

Source: GSMA, Sub-Saharan Africa Mobile Economy, 2018

As of 2017 there were 135 live mobile money services across the Sub-Sahara with 122 million active accounts. East Africa leads the way with more than half of those accounts, but other regions grow fast.

Safaricom’s M-Pesa (mobile money wallet) in Kenya has been the innovator and the challenger, the influencer and the example to all other economies in the region. The mother and the father of modern digital Africa. Kenya has led the ongoing way to convert the cash-based economy to cashless by exploiting the agent network that was first created to collect cash payments for air top-up.

Such agents were small business owners that interacted with locals, and were happy to make extra money apart from their main business. They have been given the training and the right to accept cash for uploading it to mobile money account and withdrawing from those account to get the cash to its owner. Those simple operations allowed to create an astonishing number of financial products: loans, money transfer, deposits, utility payments. With a mediation of a wallet concept. Mobile wallet.

The largest use case for mobile wallet is still P2P money transfer, but merchant payments are catching up, as well as P2G. Mobile money consistently create unique products for agriculture, clean energy, water, education, informal sector — all areas relevant to the continent’s pain points.

Moreover, African countries became truly mobile-first. Your payments, money transfers, savings (if you have them) and even loans are done through mobile wallet. Your lights and your water in rural areas can be purchased with mobile payment. There is no fancy application for the feature phone, but the payments work, and it makes daily African lives better.

Each mobile operator continues to create core products and services that design an ecosystem working for each specific market, offers solutions to local issues, and raises overall welfare of the population.

After Kenya’s experience mobile operators in Tanzania, Rwanda, Malawi, Mozambique and everywhere else on the continent started launching their mobile wallets, competing for the subscribers and for the future power of digital economy. And soon came the challenges — how to attract more subscribers, how to convert them to mobile wallet users, how to widen mobile money agent network and insure they would not sell their services to the next operator that pays. And finally there is the ultimate challenge that Tanzania set a precedent for — open mobile money ecosystem no matter which operator issues them.

You see, at some point strong player becomes too strong and too powerful, so the regulator is bound to make sure it does not become malicious to people’s welfare and country’s economy. For MNO it means ecosystem disaster, wasted investment into infrastructure, and free giveaways to your direct competitor. Not such a welcome thing.

If you were Vodacom’s subscriber and you wanted to make money transfer to your friend who is Tigo’s subscriber, you would have to go to an agent, and basically exchange one wallet to another with a fee. Interoperability meant you could send money from your wallet to your friend’s wallet with another MNO directly, ideally from your app or sim-menu.

After Tanzania set the case, countries like Uganda, Kenya, Ghana followed. At least Rwanda and Zimbabwe are expected to get into the club. However, to this day Tanzania well thought-through approach to interoperability, consumer and MNO incentives and fair competition has been the most successful on the continent. Although Ghana that launched interoperability early 2018 might take the spotlight on itself.

What about the banks? Well, it turns out that when the mobile money market has matured enough, MNOs saw more benefits in partnering with the banks, rather than risks. Across the continent operators now offer bank account opening from within the mobile wallet, or a loan that is actually given by the bank. Bank accounts in Africa started growing in numbers. But do not make a mistake here, bank accounts are accessed from within mobile wallets.

What would be the next? The regulation around mobile money will continue to evolve. Each country wants to keep its money under control, and avoid monopolies. The interoperability will continue to be pushed over MNOs. Some governments will have to find their way around making extra profit — taxes on digital transactions already appeared in a few countries.

And another next step as seen by many is the cross-border MNO interoperability, as the internal travel between the countries especially in the same regions can be quite intense. If cross-border interoperability (transfer, payment or at least cash-out) can be realised, it would be the next big thing in international payments after PayPal creation.

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Anna Kuzmina is the deputy Chief Commercial Officer at Yandex.Money, one of the leading fintech companies of Russian origin, operating both b2c and b2b financial services. Follow Anna on Youtube, Twitter, Medium, Telegram или Яндекс.Дзене.