Dusty Tanzania Market Shows Next Step in Mobile Banking

By Christopher Spillane

Oct. 28 (Bloomberg) – Like millions of Africans, Sebastian Adam uses M-Pesa, a service that lets him pay bills with his mobile phone. With his wife pregnant, Adam decided it was time to start saving -- and to earn interest on the money he saves -- so he switched to a newer offering called M-Pawa.

Introduced in May by carrier Vodacom Group Ltd., M-Pawa is effectively a bank account that Adam can access with his phone. He deposits cash and earns about 5 percent interest on any balance he carries. And he can build up a credit history that someday might help him secure a loan.

“I’m using it for the future benefits,” said Adam, who works in a market stall in Dar es Salaam that sells mobile phones and related tech gear. “I’m having a child, so it’ll be for school fees.”

Vodacom says M-Pawa users have doubled in the past three months to about 900,000 customers. The enhanced banking service, which Vodacom introduced in May, keeps the company a step ahead as it faces growing competition in mobile payments from local rivals and the threat of new digital wallet services from the likes of Apple Inc. and Google Inc.

M-Pawa marks an evolution of M-Pesa, which was pioneered seven years ago in Kenya by Safaricom Ltd., a sister company owned by Vodafone Group Plc. Vodacom, which has 32.5 million subscribers in South Africa but just 27.1 million elsewhere on the continent, is counting on M-Pawa to help it expand outside its home base.

M-Pawa offers an alternative for customers without a formal source of income, who are typically shunned by banks, according to Vodacom Tanzania Managing Director Rene Meza. Opening an M-Pawa account requires only an M-Pesa account, a phone and an identity card, while banks demand pay stubs or some other proof of salary.

Colored Posters

“We serve a segment that banks aren’t interested in,” said Meza. “Without M-Pesa and M-Pawa, they wouldn’t be part of the financial services world.”

When Adam gets anything more than a few dollars of cash, he goes to a stall plastered in bright red, green and yellow -- the signature colors of the country’s three mobile-phone companies. The 29-year-old hands his bills to a Wakala -- Swahili for agent -- who gives him a code that he punches into his phone. The wireless carrier texts the agent to confirm the transaction.

To offer M-Pawa, Vodacom joined forces with the Commercial Bank of Africa Ltd., which provides the banking license for the service. Vodacom gets a share of any interest paid on loans to its customers.

Credit Risk

The bank and the wireless carrier look at a customer’s phone records to assess risk and establish a credit limit, according to Jeremy Ngunze, chief executive officer of CBA Kenya.

“This is significant in markets where credit rating is nascent or largely non-existent,” Ngunze said. “The key is driving efficiency through automation and bringing down costs while making it possible to transact in amounts that would not be profitable in formal banking.”

Bharti Airtel Ltd., Tanzania’s second-largest carrier, has a similar service that lets subscribers transfer money and pay electric and cable TV bills through what it calls Airtel Money. Tigo, the third-largest operator, owned by Millicom International Cellular SA, offers an M-Pesa-like service called Tigo Pesa, which has 3.5 million users.

Leapfrogging Cards

The company last month introduced Tigo Wekeza -- wekeza means invest in Swahili -- allowing Tigo Pesa customers to receive as much as 9 percent interest paid quarterly.

“Tanzania has leapfrogged the need for credit cards and debit cards,” said Diego Gutierrez, general manager of Tigo Tanzania. “Mobile financial services are becoming an essential part of people’s lives. It’s a mainstream product.”

With the increasing competition, phones are used for about half of all cash transfers for bill payment in Tanzania, versus none six years ago, according to the GSM Association, a trade group of mobile carriers. About 17 percent of Tanzanians bank with a formal financial institution, the country’s central bank says, while more than a third of households have one or more mobile money users, GSMA estimates.

Dala Dala

Vodacom says that leaves plenty of room for expansion. Almost a quarter of bills are paid by individuals who carry cash, according to GSMA. And 12 percent are delivered using couriers on dala dala -- minibus taxis –- who collect customers’ cash and then stand in line to pay their bills.

With 70,000 agents that can accept cash for M-Pesa and M-Pawa accounts, there’s no shortage of alternatives to paying someone to cram onto an overcrowded dala dala with your money. Adam, who used to stash his savings at his home, is hoping to reap the benefits.

“I’m planning to save for my children,” Adam said from behind the metal bars that protect him from thieves in Buguruni market, where handcarts, motorcycles and legions of pedestrians jostle for position in the narrow streets. “I want my child to be educated so that they can have a secure future. Like a doctor or a politician.”