Banks in Africa are threatened by the entry of telecommunication companies into banking services as their market share in that space could dwindled, a report on digital banking has revealed.

Digitisation has transformed banking, with more African banks increasing their digital services, but the rise in competition by mobile companies has disrupted the market, supported by growth in internet penetration and access to mobile phones. 

The continent's largest mobile operator, MTN, has made significant inroads in the financial services, and is in the process of setting up a bank in its biggest market, Nigeria. The firm was recently granted a licence to establish Mobile Money Payment Service Bank in Nigeria, where its mobile money service is reaping great financial rewards for the company.

MTN has been aggressively growing money services in several African countries and the offering boasts over 57 million mobile money users, according to latest operator's latest financial report.

The African Digital Transformation Report 2022 noted the entry of telcos into banking services as one of the threats to African banks. More than 100 banks participated in the survey aimed at establishing how the banks perceive and promote digital transformation.

It stated that telecom companies entering the industry to provide financial services were considered a "significantly bigger threat to banks' market share than the rise of fintechs and challenger banks".

"Telecoms companies have sought to take advantage of their huge customer bases to move into financial services in order to compensate for a falling share of the voice phone service market in the face of competition from messaging apps."

Gap in the market

In Nigeria alone, MTN Nigeria's mobile money service has attracted 9.4 million active users since launching in August 2019, the company revealed in January. The volume of transactions performed through the service rose by 167% to 137.5 million in the 2021 full financial year.

Apart from airtime purchase services, mobile money allows users to make money transfer, payments and cash withdrawal from authorised agents.

Vodacom - which has a presence in a Tanzania, the Democratic Republic of the Congo, Mozambique, Lesotho, and Kenya - operates a similar money service known as M-Pesa. 

Mobile companies have highlighted that their foray into money transfer is services is takes advantage of the continent's large population of unbanked and underserved groups. 

The growth in digital service has benefitted from mobile phone use in Sub-Saharan Africa, where there were 469 million mobile customers by the end of 2019, and the cost of communications has been falling.

"The continent's biggest telecoms companies - including Vodacom, MTN and Telkom - lowered their mobile fees, with MTN recording a 28% increase in mobile money transactions in the first half of 2020."

The report also noted the establishment of a "purely digital bank" by French telecoms company, Orange, which launched at the start of the pandemic in 2020. Orange operates in Ivory Coast, Mali, Burkina Faso, Ghana, Guinea, Liberia and Senegal, and its digital bank drew five million customers in April and May alone.