At the time, M-Pesa was groundbreaking. The concept itself was new and mobile connectivity was still nascent in Kenya. Just 27% of the adult population had a mobile phone before M-Pesa was launched, most of whom were in cities. Another 28% had access to someone else’s phone. By 2019, more than half the population had a mobile, partly because M-Pesa helped drive demand.

Now telecom operators in emerging markets aim to offer the unbanked much more than cash-in, cash-out money transfer. Orange, for example, launched its Orange Bank Africa in Côte d’Ivoire in July 2020 in partnership with South African financial services group NSIA. Financial World spoke to Jean-Louis Menann-Kouamé, chief executive of Orange Bank Africa.

“Our main service so far is Tik Tak, which provides access to loans of between $10 and $200 in local currencies,” says Menann-Kouamé. Tik Tak credit is instant, done fully via mobiles, and has a tenor of one to three months.

“One of the major issues in our market is that there is a lot of informal SME activity,” he says. “Supporting SMEs and micro-SMEs is one of the many important issues we have to address as a bank. We’ll increase the credit available over time to $500. After that, we want to go to $1,000, or $1,500. We think amounts like that will be a good support for SMEs.”

USSD stands for “unstructured supplementary service data”. It matters because – unlike an SMS text – it allows communication between phones and the mobile operator’s computers in real time and in two directions, but, just like an SMS, it does so without requiring internet access. That gives the mobile operator a lot of information about the end-user and supports much richer services. Orange Bank, for example, aims to provide tailored financial services, such as basing the tenor of a loan on how a customer’s income fluctuates with the time of year. Many people in sub-Saharan Africa have to manage peaks and troughs in income. That sort of widespread economic uncertainty is another reason why being a telecom operator with a USSD channel helps in mobile banking.

Only around 20% of people in sub-Saharan Africa currently use the internet. That is partly because there is limited broadband connectivity and partly because what is available can be expensive. But, as of end 2019, around 45% of the population did have mobile services. Anyone with a mobile can get simple data services via the USSD channel and they don’t have to pay to go online. Orange Bank Africa is making use of that capability to offer apps – say, for checking balances. A telco bank can also ensure excellent connectivity, which could be in stark contrast to spotty and expensive broadband in some regions. Being part of a telecom group such as Orange also helps the bank deliver new technology quickly, Menann-Kouamé says.

But limited internet connectivity may create an advantage for telecom banks in Africa. For example, telco mobile money providers already have a large customer base, so acquisition costs for users of banking products should be low. Just as importantly, the network operator has the best data access.

The USSD channel means operators can offer data services that attract broad networks of users and generate customer insights. Orange, for example, supports a business-to-consumer and consumer-to-business platform called My Store that is accessible without a smart phone. Amazon has yet to launch e-commerce in Africa, for a number of reasons, and Jumia, the Amazon of Africa, is refocusing on a marketplace model and offers a USSD channel.

Mobile money itself is not a particularly lucrative business. It demands scale to be viable, which is why the model seen in Kenya has not always been replicated successfully. But customer acquisition costs for mobile money are low – as usage spreads quickly by word of mouth – and users are loyal to the telecom provider because the service meets a real need. So, supporting mobile money means more stable network revenues for operators. Digital banking could follow the same model, but with better margins.

But what many people in developing markets actually want from mobile financial services, at least in the near term, is remittances. According to the World Bank, sending remittances costs an average of 6.7% of the amount sent. Does Orange Bank do better?

“For Orange Money, at the end of 2019, the average amount sent within the countries of the West African Economic Union was approximatively $100. For that, the transfer cost is $2, more or less 2%, and the average cost of withdrawal was 2.2%,” says Menann-Kouamé. “So, sending money from Abidjan to Dakar [with Orange] costs less than with traditional money transfer operators. The charges there can top 4.2% for withdrawal alone.”

Menann-Kouamé says that for the France-Côte d’Ivoire route, which has been live since 2017, the average amount received, as of end 2019, was €100 – with the same cost structure as within Africa. It is the same pricing if you transfer from France to Côte d’Ivoire or Côte d’Ivoire to Mali. “Either way, it is still less expensive than 6.7%,” he says.

Users of Revolut, who are charged at the interbank exchange rate, might feel that is high, but Orange offers a different service to a different user base. First, Orange Bank customers don’t need internet access. Second, it supports currency pairs that Revolut does not. Third, it has agents on the ground who can pay out in cash.

Orange Bank Africa has plans to expand quickly beyond remittances and credit. NSIA Group is a 25% shareholder and one of its activities is insurance. “We’re working on launching insurance products in 2021," says Menann-Kouamé.

Expanding the business also means expanding access to the products and, just like Facebook and Google, Orange Bank Africa has an eye to getting more people online. It aims do that very directly. “We hope that by the end of 2021 we’ll offer credit for smartphones,” says Menann-Kouamé.