Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How African Mobile Money Is Outpacing Traditional Banking
Transcript
- Lucas: So there's this number that's been stuck in my head since I saw it earlier this week: mobile money transactions in sub-Saharan Africa crossed one trillion dollars in 2025. That's not a projection, that's the actual tally from the GSMA. Luna: One trillion. And that's just the formal, tracked volume. The real number is probably higher when you account for informal transfers. Lucas: Exactly. And what's interesting is that this isn't just about Kenya anymore. M-Pesa started there in 2007, and it's still the dominant player, but now you've got similar platforms in Ghana, Nigeria, Tanzania, and across West Africa. The ecosystem has matured. Luna: It's gone from being a simple person to person transfer tool to basically a full-stack financial platform. Lending, savings, insurance, even cross-border remittances. Lucas: Right. And that evolution is exactly what we're going to drill into today. Because the question I keep hearing from investors is: does this actually compete with traditional banking, or is it just a parallel system that serves the unbanked? And the answer, I think, is both. Luna: Let's start with the scale. M-Pesa alone now has over 60 million monthly active users. That's more than the entire population of Kenya. Most of those users are in Kenya, Tanzania, and the DRC, but it's spreading. Lucas: And the transaction value isn't just peer to peer. The GSMA data shows that about 40 percent of mobile money transactions are now merchant payments, bill pay, and bulk disbursements. So it's becoming a real payments infrastructure, not just a remittance corridor. Luna: What's the catalyst for that shift? Is it the agent network, the regulatory environment, or something else? Lucas: I'd say it's the agent network combined with the telco partnerships. Safaricom, which runs M-Pesa in Kenya, has over 200,000 agents. That's more than all the bank branches and ATMs in the country combined. And regulators in places like Ghana and Nigeria have been supportive, issuing payment service bank licenses that let telcos operate almost like banks. Luna: But there's a tension there. The central banks in these countries are also wary of mobile money creating a parallel financial system that could destabilize monetary policy. Remember when Kenya's central bank capped mobile loan interest rates a few years ago? Lucas: That was a big moment. And it highlights the challenge: mobile money platforms have been faster and more innovative than traditional banks, but they also operate in a regulatory gray zone. The interest rate cap on digital loans in Kenya actually reduced access to credit for a while, because the platforms pulled back. Luna: So the question becomes: can mobile money scale without creating systemic risk? And can traditional banks adapt fast enough? Lucas: That's where we see the divergence. Some banks are partnering with mobile money platforms. In Nigeria, GTBank has integrated with several fintechs. Others are trying to build their own digital wallets, but they're struggling to get the agent density. Luna: And that agent network is expensive to build. It's not just about signing people up; you need to manage liquidity, train agents, handle fraud. M-Pesa has a decade of experience doing that. Lucas: Yeah, and that's a moat. But let's look at the broader emerging market context. We've got our live data feed here, and one thing that jumps out is how Chinese tech stocks have been rallying. Alibaba is up nearly 15 percent in the past five days, Baidu up about 2.6 percent. Meanwhile, the broad emerging market ETFs like EEM and VWO are slightly down. Luna: So the market is rewarding specific stories — Chinese tech, Indian IT — while the broader EM index lags. That tells me investors are being selective, and they're looking for companies with real earnings and growth, not just EM exposure. Lucas: Exactly. And mobile money is one of those selective stories. The companies that power it — Safaricom, MTN, Airtel Africa — they're generating real cash flow and growing earnings. But they're not always in the big EM ETFs because of liquidity and listing issues. Luna: That's a good point. Most of the mobile money value is captured by the telcos, and they're often listed locally or in London, not in the big EM indices. So if you want to invest in this trend, you have to do stock picking. Lucas: Let's talk about one specific use case that's growing fast: cross-border remittances within Africa. The African Continental Free Trade Area is starting to create more trade flows, and mobile money is becoming the rails for those payments. M-Pesa launched its own cross-border service connecting Kenya, Tanzania, Rwanda, and Uganda. Luna: And that's a huge market. The World Bank says remittance flows to sub-Saharan Africa were about $54 billion in 2025. Most of that goes through traditional money transfer operators with high fees. Mobile money can undercut them significantly. Lucas: Right. The average cost of sending remittances to Africa is about 8 percent. M-Pesa's cross-border fee is around 3 percent. That's a real saving for families. And it's not just about cost — it's about speed and accessibility. The money goes straight to a mobile wallet, no need for a bank account. Luna: There's also the lending side. M-Pesa's Fuliza product, which is basically an overdraft facility, has disbursed over $5 billion in loans since launch. That's credit that wouldn't have existed otherwise for most users. Lucas: And the repayment rates are surprisingly good. The average loan is small, like $10 to $50, and the repayment rate is over 95 percent. That's better than many microfinance institutions. Luna: But there's a risk of over-indebtedness, especially when people take multiple loans from different platforms. We've seen that in Kenya with the digital credit boom a few years ago. Lucas: That's real. And regulators are starting to step in. Kenya's parliament just passed a law requiring digital lenders to report to credit bureaus and cap interest rates. That's going to slow down the growth of some of the smaller players, but it might actually benefit M-Pesa, which already complies with most of those rules. Luna: So the regulatory pendulum is swinging toward more oversight, but the incumbents with good compliance infrastructure will be fine. That's a pattern we see across emerging markets. Lucas: Exactly. And that's one reason we can keep doing these deep dives without advertising. Because we're not trying to sell you anything. If walking through the economy with us has made something click, and you'd like to support the work, the link is buy me a coffee dot com slash fexingo. That's it. No tiers, no perks, just knowing the show stays ad-free. Luna: And we genuinely appreciate it. It lets us pick topics like this one, which might not get covered by the mainstream finance media. Lucas: Alright, back to mobile money. So if we zoom out, what does this mean for the broader financial system in emerging markets? One school of thought says mobile money will eventually force traditional banks to become more efficient, lowering fees and improving access. Another says it'll create a two-tier system, where the wealthy use banks and everyone else uses mobile money. Luna: I think the reality is somewhere in between. In Kenya, even wealthy people use M-Pesa for day-to-day transactions. It's become almost universal. But for large loans or complex financial products, they still go to banks. Lucas: So it's less about replacement and more about layering. Mobile money handles the high-volume, low-value transactions, while banks handle the low-volume, high-value ones. That's actually quite efficient. Luna: And that layering is happening in other emerging markets too. In India, UPI has become the dominant payments rail, but banks still provide the credit. In Brazil, Pix did the same thing. So mobile money in Africa is following a similar playbook, but with a twist: the telcos are more central. Lucas: That's because the telcos already have the infrastructure and the customer base. In many African countries, mobile penetration is over 80 percent, while bank account penetration is under 40 percent. So mobile money isn't competing with banks; it's filling a gap. Luna: And that gap is where the growth is. The IMF estimates that if mobile money could increase financial inclusion by just 10 percentage points in sub-Saharan Africa, it could boost GDP per capita by 1 to 2 percent over a decade. Lucas: That's a meaningful impact. And it's not just about GDP. It's about giving people tools to manage risk, save for the future, and start businesses. That's the real story behind the numbers. Luna: So if an investor wanted to get exposure to this trend, where should they look? We mentioned Safaricom, MTN, Airtel Africa. Any others? Lucas: There's also some fintechs that are building on top of the mobile money rails. Flutterwave in Nigeria, for example, is basically a payments infrastructure company that connects mobile money to global payment networks. They're not public yet, but they've raised significant venture capital. Luna: And then there's the play on the regulators themselves. If you believe that mobile money will keep growing, then the companies that provide compliance and anti-fraud technology to mobile money platforms could be interesting. Companies like ComplyAdvantage or even some of the big data analytics firms. Lucas: Right. But those are more indirect. For most retail investors, the simplest way is still through the telco stocks. And those have been performing well. Safaricom's stock is up about 20 percent year-to-date, despite the broader EM weakness. Luna: So mobile money is one of those bright spots in emerging markets that's actually delivering growth, not just hype. And it's a reminder that the best EM stories are often local, not global. Lucas: Exactly. And that's the kind of story we'll keep digging into. Next week, we're looking at how Vietnam is becoming a semiconductor outsourcing hub — we've got a great episode lined up. Luna: Looking forward to it. Until then, keep an eye on those mobile money numbers. They're only going up.