Millicom is one of the leading telecom providers in Emerging Markets, particularly in Latin America and Africa. It brands itself as a Digital Lifestyle company that brings communication services to those left behind the digital revolution. Currently, mobile and broadband (relatively traditional segments) make up the majority of revenues, but Mobile Financial Services (MFS) is by far the most innovative segment and a potential source of future growth. 
With over 11.2 million subscribers (~17% of total Millicom subscriber base) across Latin America and Africa, the company is a leader in MFS. Millicom’s business model in this segment is to deliver financial services to unbanked small and mid-sized businesses in addition to individuals through mobile technology. The way in which the company is delivering this value is by having a best in-class infrastructure, innovative technology and local presence in each country (97% of staff is of local nationality). 
A MFS customer can simply add credit to a mobile wallet by going to a Tigo (Millicom’s brand) point of sale or a local Tigo Cash agent. Once the deposit has been made, the customer can transfer money to any other Tigo customer. Additionally, a customer can also save, borrow micro and working capital loans and access micro-insurance through the same MFS platform. 
Through MFS, customers who would not normally have access to traditional financial services can have access to national and international money transfers and payment services. This may seem like a trivial service to many of us in developed markets, but around 65% of people living in Latin America and 80% of those living in Sub-Saharan Africa do not have access to a formal or semi-formal financial institution . For these individuals, having access to mobile financial services can be extremely valuable and thanks to new technology, it is now possible. This is especially true given the increasing mobile penetration in these regions; for example, in Tanzania over 50% of the population owns a mobile phone, while only 15% of the population has a bank account .
Sounds great, right? Large underserved market, leading position, ground-breaking technology – makes us wonder what could possibly go wrong…Although I am a big supporter of using digital technology to drive inclusion at a global scale and serve the unbanked, there are a few factors that Millicom should pay attention to.
Investment. Although infrastructure is a barrier to entry, there have been an increasing number of competitors to MFS in certain countries, such as Ghana . To continue being a leader in the segment, Millicom has to continuously invest in digital innovation. It also been already doing so to a certain extent; for example, it was the first provider in the world to offer customers interoperability. However, this can involve a material financial investment, which can be a potential hindrance to further digital innovation. This is a challenge as the company is focusing on cash flow generation after a cycle of significant investment in its core segments, especially considering the relatively low margins in MFS.
Regulation. The mobile financial services sector is still relatively unregulated in countries where Millicom operates , but it is likely that central banks begin to pay more attention to these transactions and regulators begin to add limitations to the operations  . This is not necessarily negative for Millicom as it can bring clarity and stability to operations, but it can also further pressure MFS margins and limit certain transactions. Additionally, as a non-bank financial, the company has the responsibility to safeguard funds while ensuring appropriate and legal use of funds. Looking forward, the company should not only do its best to be involved in discussions with regulators, but also be focused on developing internal control processes. In my view, Millicom is currently somewhat reactive in this matter and should be doing more in terms of control development as well as leading regulatory improvements.
Macroeconomic risks. Historically, there has been economic and political volatility in many of these countries. This includes currency devaluation and regime changes as well as a negative impact in GDP growth due to fluctuating commodity prices . This can be dangerous for Millicom as it not only deters growth, but as its portfolio of services increases, credit risk can become a threat.
In a digital world, opportunities are likely to arise and companies like Millicom will undoubtedly grow. In this scenario, there is the chance to add value to customers while helping further financial inclusion. However, risks are evident and the challenge now is: how to hold MFS providers to the high standard of a financial institution while still leaving space for growth and incentives for continuous digital innovation.
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 Millicom Annual 2015 Report
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