Sometimes you can only recognise ahistoric period in hindsight. That’s not the case with digital financial services in Africa. Eleven years after the continent had its first mobile money transaction, it now hosts 49% of
the world’s 277 mobile money services. That spectacular growth has ushered in the
period we find ourselves in now: the “age of interoperability”.
Digital financial services across Africa, whether by government action or in partnerships between businesses, are linking together and tearing down barriers between customers. Tanzania led the way in 2014. Now there are interoperability projects in Kenya, Rwanda, Nigeria and five other countries; a project streamlining payments across eight nations in the West African Economic and Monetary Union; and one that encompasses all 16 nations in the Southern African Development Community (SADC).
The reason behind this momentum? Growing recognition that what’s good for the poor — an inclusive system of frictionless, low-cost digital payments — is good for all. The SADC payments project, for example, will not only help poor customers to transact more affordably and securely with each other, but could also help merchants to buy and sell more efficiently, all on one central platform. It can even make it easier for employers to digitise wages and trim payroll costs.
Although progress is evident, interoperability does not come easily.
The SADC payments project began with high-value interbank transfers across borders, which required uniting more than 80 banks
in the region.
Achieving interoperability for person-to-person retail payments, the next phase of the project, involves dozens more stakeholders. When one takes into account the individual regulations and government ministries relevant to each country, one can appreciate how complex interoperability is behind the scenes.
But don’t take this as proof that the task is impossible or the approach is mistaken. On the contrary, it proves that we can change the way money moves among millions of people — provided we come together, with time to do the job right.
To sustain momentum, in South Africa and beyond, governments must continue to set the stage for growth, innovation and equity. They can do this with regulations that protect customers while also allowing businesses room to innovate.
They can digitise government wages and social disbursements, which ensures that payments aren’t skimmed on their way to the recipient, and connect these digital streams to others in the ecosystem, so that the account with which someone receives their government money is the same one they use to buy food, pay bills and exchange money with friends and family.
Governments can also enable interoperability in a way that promotes competition. The Bank of Tanzania is updating its system of interoperability from bilateral agreements among its four mobile money providers to a standardised platform open to all providers, including other banks. The previous system was successful, but it catered solely to mobile wallet transactions. And systems based on bilateral agreements are challenging to scale efficiently or evenly.
The new system, called Tips (Tanzania Instant Payment System), ensure fairness. All providers, from incumbents to newcomers, have equal access to the nation’s payment scheme, as well as to the core software technology that enables it.
The private sector’s task in the age of interoperability is to collaborate by applying standards and sharing investments, with the goal of giving customers what they ultimately want: the power to transact with any person or institution in the same way they can with cash.
n the first 20 months of interoperability in Tanzania — under the old system — the number of monthly cross-platform transactions grew by 1 000%, from 174 000 to 1.74-million. Once they had the power to transact across platforms, customers took full advantage of it.
This is good for all providers and it explains why mobile money providers MTN and Orange recently joined together to create Mowali, a pan-African interoperability payments scheme announced late last year. Through Mowali, MTN and Orange are soon to connect their 100-million customers in 22 sub-Saharan African markets. Other providers can also connect to Mowali and add their customers to the network.
The theme, clearly, is collaboration. It is both the engine and the result of a vibrant digital ecosystem in Africa.
The nonprofit FinMark Trust estimates that R17-billion is sent from workers in South Africa to family in other SADC countries — four-fifths of it using informal channels. Interoperable digital payments will enable migrants to share their wages with relatives elsewhere in the region much more safely, quickly and affordably than they do now.
The benefits go well beyond remittances. Interoperability can drive financial inclusion more generally, by lowering costs for commercial providers and standardising the networks they use — both of which make it easier for new players to enter the market and compete for customers.
As volume and diversity increase on the supply side, access and opportunity increase on the customer side.
By fully embracing the age of interoperability, Africa is again establishing itself as a global leader in making digital financial services work for everyone. It has much to be proud of, including pioneering ways to ensure the poorest are reached.
But much is still to be done.
As businesses bring additional apps and services to the payment ecosystem, we
will enter a new era — the “internet of payments”, in which payments flow over the internet in real-time in the same way information does today.
Like the current era, that one will make history as well. But only if we stay strong and finish what we’ve started.
Kosta Peric is the deputy director of the Financial Services for the Poor programme at the Bill & Melinda Gates Foundation