Mobile Money Provides Vital Lifeline for the Unemployed

Several years ago, Juliana Shilatu couldn’t make ends meet for her family and was concerned about the future of her kids. Born and bred in the Shinyanga Region, in northern Tanzania, early life at home was not promising for Shilatu who came from an impoverished background.

“I always dreamt of a better future for myself and managed to graduate from Kolandoto College of Health Sciences, explains Shilatu. Yet many years later, Shilatu was still unemployed, and without a reliable source of income. With little prospects of formal employment and income to provide for her family, Shilatu was enticed by the opportunity of generating income as an M-Pesa agent.

“A local Vodacom manager approached me and told me that I could generate income by being an M-Pesa agent. I decided to give it a try and started with just 600 000 Tanzanian shillings”.

Overtime, Shilatu rose to prominence in her neighbourhood as an agent and eventually realised the benefits of becoming an M-Pesa agent. With her income, she has been able to better manage her monthly household expenses, such as groceries and school fees, build a house, and even purchase a car.

Shilatu’s story is not unique; she is one of many who have sought relief in the mobile money ecosystem. Despite strong economic growth and significant infrastructure achievements in the country, informal employment remains high at 94.6%  with the informal sector contributing 44.9% of GDP .

M-Pesa reaches more than 14 million monthly customers in the country and through its ecosystem of financial services, provides more than 250 000 jobs mainly as freelancers and M-Pesa agents.

As mobile money continues to accelerate financial inclusion and create jobs, regulatory frameworks that support its sustainability are imperative. It is important for government to partner with the private sector to achieve its Development Vision 2050 of leveraging digital solutions for socio-economic development. This collaboration requires a closer and honest look at mobile operator’s current operating environment and ensuring a level playing field for those offering mobile money services.

Policy and infrastructure supporting mobile money growth

Mobile money operators operate in a complex and costly environment. Unlike other online service providers, mobile money platforms have higher operating- costs. One important part of the mobile money system is the agent network.  The agents are usually small kiosks, neighbourhood shops, and grocery retailers – they serve as the link between digital financial services and everyday users. They help customers register accounts, deposit and withdraw cash, and use mobile money for their daily transactions.

Maintaining the mobile money ecosystem is costly, with providers investing in maintaining an agent network and training agents on how to prevent money laundering and follow other best business practices. However, competition within the digital financial services remains complicated.

Mobile money operators work alongside traditional banks and Over the Top (OTT) players that use existing telecoms networks without paying the same costs to build and maintain them.  OTT players abound in every sector. While telcos invest heavily in spectrum to ensure that customers can connect to the network, OTT players do not have to invest in any network to give their customers access to their services. Examples of OTT players include WhatsApp in voice messaging and communication; Netflix in video streaming; and Selcom in payments and financial services.

For example, while telcos invest in spectrum to ensure that customers can connect to the network, seamlessly OTT players such as Netflix do not have to invest in any network to give their customers access to their streaming platforms. In other words, OTT players benefit grossly from the investment in spectrum and in the investment of network resilience by telecom operators as this happens to ensure they too, can deliver their streaming service seamlessly. Customers would not be able to stream content seamlessly without the investment by telcos.

Since these providers do not invest in the underlying telecom infrastructure, they may appear cheaper to consumers, leading to the perception that mobile money operators are charging higher fees.

Banks, meanwhile, have different ways to make money. Fees from digital payments transactions are only one source of their income. As a result, banks can often match or reduce fees in ways that mobile money operators, whose business models depend primarily on transaction fees, cannot easily match. These differences give banks an advantage and create unequal competition in financial services.

Creating a level playing field

Ensuring that that everyone in the system pays a fair share for the infrastructure that supports their services is essential. This ranges from connecting via video calls to streaming your favourite series.

For instance, OTT providers that use USSD could pay fees based on the cost of maintaining and operating this infrastructure, as well as its limited ability. This approach will create a fairer market and ensure that lower consumer prices stem from real improvements and innovation, rather than from some providers avoiding infrastructure costs.

Another policy consideration is looking to create different regulations for different types of service providers based on their costs. Mobile money providers have spent heavily on building and maintaining infrastructure, so their operating costs are higher than those of OTT providers, which have lower costs. Providing special incentives or support to companies that invest in networks could keep the ecosystem strong and sustainable while still encouraging innovation. This would support the country’s goal of building a viable and sustainable digital financial system.

Mobile money operators support the government’s goal of increasing financial inclusion and using digital technology to transform people’s lives. As the digital fiancé sector grows, balanced and well-designed regulations will be important to ensure fair competition and continued progress. By addressing these challenges and creating a level playing field, the country can protect the success of the mobile money and support growth in the broader digital economy.