M-Pesa Mobile Money in action.
To many, Africa is the perfect breeding ground for the technological revolution that is mobile payments. But the reality is at times in stark contrast to the aspirations of those who view the continent’s mobile technology boom as evidence of imminent improvement to the lives of Africa’s unbanked millions.
True, Kenya’s M-Pesa has led the way in transforming that country’s economy, but it is almost alone in pulling off a tricky and complex payment revolution.
The potential for mobile money is founded on sub-Saharan Africa’s more than 250 million unique mobile subscribers and the fact that an estimated 80% of its population is unbanked. But on the ground, the solutions are not always simple.
“Out of 84 countries globally, maybe four or five have mobile money success, and each one of them has a different model,” says Sajag Arora, principal consultant at KPMG in South Africa. “Unfortunately mobile money has been either been telco [telecommunications] or bank driven, although I had hoped it would be more policymaker driven, to promote financial inclusion.”
These two factors are at the crux of Africa’s mobile money conundrum: on the one hand there is intense competition between entrenched banks and mobile operators, which are looking to muscle in on the action; on the other, regulators in many countries are not yet totally clear on how to deal with the phenomenon.
Regulatory hurdles
For regulators, the challenges lie in facilitating access to basic financial services for millions, while retaining control over financial systems to combat fraud and corruption. This latter point is gaining increased prominence, given the threat of terror groups subverting financial systems in order to launder or swindle money to fund their operations.
Responses and responsiveness to the emergence of mobile payment systems, particularly those that skirt traditional bricks-and-mortar branch networks and the universal bankcard system have also been varied.
The Central Bank of Nigeria, for instance, has been especially proactive. As far back as 2010 it released a regulatory framework for mobile payment services to promote access to banking services. This was followed in September 2013 by its Payments System Vision 2020, which is concerned primarily with setting out regulatory, governance and liquidity rules to cover traditional and emerging payment systems.
The regulator states in this document that as many as 26 individual mobile money operators have been licensed in the country. Mobile payments in 2012 represented 3% of payment transactions by volume, but only 0.02% by value. This highlights the use of mobile money for small value, person-to-person flows and mobile airtime top-up.
South Africa’s Reserve Bank, by contrast, has been more muted on mobile payments. It has recognised the emergence of the platform in its Vision 2015 National Payments System Framework and Strategy, but has not come close to its Nigerian counterpart’s proactiveness.
This could be partly due to a less pressing need to drive financial inclusion through mobile payment systems, given that between 54 and 84% (depending on who did the research) of the country’s population over the age of 16 is banked.
Competing interests
The regulatory environment aside, the real battle is being fought between mobile operators, banks and third-party service providers.
Roan Murray, chief executive of mobile payment systems company Switching House, plays in the space between these companies as a provider of technology and platforms to enable mobile payments.
He suggested that the biggest challenge to driving widespread adoption of mobile payments to promote financial inclusion is myopia with regards to mobile networks, handset capabilities and banks.
“Unfortunately what happens is that mobile operators tend to use the mobile payments system to create customer loyalty or build their own subscriber base,” he said.
This approach creates a closed loop system that limits uptake and subverts the entire motivation for mobile money.
Banks, by the same token, appear stuck in the traditional mode of operating that ties customers to a bank card or conventional bank account. So, while payments can now be effected on the mobile phone, the financial services industry has not truly moved beyond its traditional banking model.
Speaking at the annual Future of Mobile Financial Services conference in Johannesburg in September this year, senior manager at Accenture Strategy Prejlin Naidoo said four key ingredients were needed to make mobile payments work.
The first is interoperability between mobile network operators, financial services providers and retailers.
“I think what people need to understand is that the banks, mobile operators and retailers all have core competencies [that collectively enable a mobile payments environment]. Unfortunately, everyone wants to play in every part of the value chain,” said Naidoo. “We are not going to be a cashless society any time in the near future, so it is important that any mobile money system has a ubiquitous cash-in/cash-out point of sale mechanism across the country.”
This seamless payments environment would then require simplicity of use to make it easier to pay with a mobile phone than with cash. Naturally, widespread adoption requires that the security of the system be beyond doubt.
“Lastly, we need versatility,” he said. “Don’t just have a mobile payments product. Build in other uses that customers may have. A mobile payment system can probably solve more problems than a plastic card can.”
The elephant in the room is undoubtedly the low penetration of smartphones, estimated to be around 15% across sub-Saharan Africa. While this in itself does not impede mobile payments systems, it definitely throws into doubt the promise of mobile app-based systems such as Apple Pay and its competitors.