The African payments environment looks set to explode, especially in countries like Ghana, Angola and DRC. Certain conditions need to be in place but what are these factors and where exactly are the opportunity hotspots? Anna Milne talks microfinance and mobile payments with Temenos and Ixaris
Financial inclusion in Africa has been and remains the strongest microfinance market- in terms of value and diversity and innovations. Some microfinance institutions deal with just a few hundred accounts and some with 1.5 or 2m accounts.
The industry has undergone a transition, away from access to credit and towards mass market retail banking and as a result, a drive for electronic payments has ensued, to create cheaper delivery channels. Mobile and electronic channels make products much more accessible for low value accounts which have high transaction costs.
Of course this means that infrastructure needs to be in place. It’s all very well for a city to be ripe for payment and lending transformation, but if you can’t get an internet connection or even a mobile signal, you’re not going to get very established, very fast.
It helps to look at the M-PESA model as an example of ripe environmental factors for success. Developed by Vodafone, there was no question of the mobile coverage being adequate to support such a venture: the infrastructure was there.
Firstly, Central Bank of Kenya (CBK) enabled Safaricom to operate M-PESA as a payments system, outside the provisions of the banking law at the time, and equally, Safaricom worked out a model to satisfy CBK’s stipulation that customer funds be deposited in a regulated financial institution and agreed that any interest earned on deposits went to not-for-profit organisations. CBK and Safaricom had a good working relationship as well.
Secondly, there was the right amount of bank branches. There cannot be too many that demand is not enough for alternative payment services and yet if there are too few, retailers struggle with cash liquidity to pay out to transfer recipients.
Temenos’ Murray Gardiner, programme director for microfinance and community banking says the whole conundrum is how you build an institution at a community level that is self-sustaining and can make a profit on financial services to the poor.
"A lot of social money was invested solving the problem in the 80s and early 90s- investing in training, infrastructure and technology. Taking a lead from Bangladesh’s Nobel Peace Prize-winning Grameen system, commercial money began to flow into the market, whereby lending could be paid for in interest. Due to strong competition, reducing costs became a priority, hence the popularity of the M-PESA model in Kenya. Basic handsets fitted with the capability to make and take payments. They are the channel, not the bank." And so being, the phone is used to interoperate between the consumer and the bank.
The next hotbeds for microfinance growth and mobile payments
- "DRC, a huge country with an undeveloped financial system; Angola and Nigeria will be the big sub-Saharan growth economies. In a lot of countries, the banks are not trusted. Even in Nigeria with the e-ID card, the adoption of electronic payments has been very, very low
- Angola is a large country with a huge, relatively untapped population, but the infrastructure, disciplines, awareness and trust are not necessarily there- yet. "Just getting an internet connection in Anglola’s main cities can be difficult at times. Then there is the problem of regulation over the radio spectrum- it is allocated to military so you can’t get licences. And radio is a big carrier of data," says Gardiner.
- As Alex Mifsud, founder of Ixaris solutions, says: "Mobile internet adoption in Africa has been exponential. However, there hasn’t been the same increase in online payment methods. They can look but they can’t buy.
- "Middle east and North Africa will be fastest growth ecommerce. This will be followed by a wave of payment penetration and we think this form of payment is well suited to follow the wave of internet and phone penetration," says Mifsud
- Ghana- mobile internet use is set to grow 20-fold over the next five years- that’s double the growth rate of the rest of the world combined. There is a trusted regulatory environment and infrastructure in place to accommodate rapid growth.
There are start-ups in Nigeria and all over, running completely self-sustaining outfits: generator, internet connection et al. They will often have an insulated cloud-based system and they deal with customers at street level. Their rates are very high, sometimes in excess of 100% but people pay them. Retailers could cut their costs dramatically if they opted for a shared cloud system.
Mifsud says the shift towards chip and PIN is a further cost issue and the expense of card issuance is crippling. Besides this, there is not yet a card culture for paying by card in many countries in Africa and therefore it is a risk for banks to spend money issuing cards when they might not even be adopted. It is much safer to invest in electronic payments, and, given the mobile adoption rates, mobile payments.
Ixaris offers an interesting solution in the form of a virtual card- similar to an electronic wallet- that can be temporary or permanent and can also be set up in someone else’s name as a means of transferring money P2P.
A virtual card can be sent to a mobile phone via SMS, which contains the 16 digit number, expiry date and a three digit security code. Third parties are able to send money to individuals also, for example employers or the government. A joint account may be added, granting access to account holders’ chosen individuals without extra charge.
Plenty of scope then for mobile payment providers. Go forth and digitalise.