M-payments across the globe: Africa rising
Long-term m-commerce growth is more likely to originate in developing economies, where the mobile channel is virtually the only way to access the internet than in developed markets, where m-payments are a novelty or simply yet another channel in which to pay for goods and services.
In developed markets such as Western Europe and North America m-payments are not about filling gaps in the payments ecosystem, but about adding an enhanced experience for customers. The tipping point will be based entirely on consumer behaviour, which will change only when m-payments add sufficient value and convenience so as to make their use more attractive and preferable compared to other methods.
“Value” is relative but is thought to include ease of use, cost versus other payment methods, safety and security and most importantly being commonly accepted both by merchants and the consumer market alike.
In developing markets, such as Africa or parts of Asia, m-payments have strong potential for several different reasons:
- Despite only marginal involvement by financial institutions in the regions, m-payments are often the only alternative that is available to the unbanked and underbanked,
- Developing markets tend to have good mobile penetration (and very little fixed internet or phone line availability especially in rural areas),
- M-payments do not face competition from established traditional services they way they do in developed markets, therefore open up an entirely new customer-base and demographic - provided the m-payment companies do not over-complicate the product or fail to appreciate that most devices are basic and without advanced features,
- In Asian and African markets, much of the growth of m-payments is driven by the channel being a cost-effective and sufficiently secure way to send P2P funds transfers, including cross-border remittances. This enables friends and family who have left countries to repatriate money back to their homes in an efficient, cheap manner – to recipients who are unlikely to have bank accounts.
A programme called Mobile Money for the Unbanked (MMU) was launched at the beginning of 2009, at which time there were 17 mobile money services for the unbanked around the world.
By April 2012, there were 123 services, with another 93 in the sidelines being readied for launch. McKinsey & Company estimated that 45 million unbanked people were using mobile money in 2009, which is expected to have increased to 360 million by end 2012.
M-Pesa (M for mobile, ‘pesa’ is Swahili for money) is a mobile-phone based money transfer service that originated in Kenya in April 2007. M-Pesa is widely regarded as the most successful deployment of a mobile payment service in a developing economy and one which other countries have tried to emulate. An average of Ksh150 million (€1.39 million) is transferred through M-Pesa every day, although most of this is done in small amounts of around Ksh1,500 (€13.93) per transaction.
The service is a partnership between Safaricom (in which Vodafone is a shareholder) and Vodacom and allows users to deposit, withdraw, and pay bills and transfer money (to people or corporations) easily by using SMS technology. Registration requires a national ID card or passport and an account is stored on the mobile device.
M-Pesa customers can deposit and withdraw money from a network of agents that includes airtime resellers and retail outlets acting as banking agents.
M-Pesa recorded 17 million subscribers by December 2011 in Kenya alone, and has been expanded to several other countries:
- M-Pesa in Tanzania has nine million subscribers and recently undertook a major upgrade of its system,
- In 2008 Vodafone partnered with Roshan, Afghanistan’s leading MNO, to provide M-Paisa, the local brand of the service. Launched initially to pay policemen’s salaries, the service soon uncovered that under the cash model previously used, 10% of the workforce were “ghost” officers who did not exist but whose salaries were being pocketed by others. Once the corruption was uncovered and the money was redistributed properly, salaries rose for the real policemen and the service was so successful that it has since been expanded to include merchant payments (on a limited basis), P2P transfers, loan disbursements and payments,
- In September 2010 Vodacom and Nedbank launched the service in South Africa, where it is estimated that there are more than 13 million "economically active" people without a bank account. Initial projections were to register 10 million users within three years, but a year after launch, there were only approximately 100,000 customers. The gap between expectations and actual performance has been attributed to differences in the Kenyan and South African markets, in particular the banking regulations at the time of launch,
- Branded as M-Paisa, the service was launched in India in November 2011.
On the back of the success of M-Pesa, Africa is often seen as the shining light in terms of m-banking and m-payments in developing nations, however outside of Kenya and M-Pesa, m-payment services are very rudimentary, even though it is true that they are flourishing and mobile devices have given a lifeline to many poverty-stricken Africans who wouldn’t otherwise have any access to financial services of any sort.
Despite having lagged behind the rest of the world for many years, Africa is now one of the world’s fastest-growing mobile phone markets, with active mobile subscriptions having crossed the half-billion mark in the third quarter of 2010.
In addition, although fixed telephones and computers are largely absent from households, a number of African cities have excellent 3G services.
All in all, Africa’s mobile market is very healthy, with a penetration rate that jumped from 3% in 2002 to almost 50% in 2010, and a mobile money transfer market that is expected to exceed $200 billion (8% of the continent’s GDP) by 2015, according to Pyramid Research as published by The Paypers.
Yet, there remains some under-served areas, especially in rural Africa, where mobile penetration is sub-10% and outside of P2P transfer services (as is the norm in developing regions where ex-pats send money back to friends and family) there is much room for growth of more sophisticated m-payment products throughout the continent, much of which rests on the willingness of millions of Africans to adjust to a formal banking system.
A Sybase 365 report in 2010 found that less than 10% of African consumers had any sort of formal banking, due to poverty, the lack of bricks-and-mortar accessibility and trust.
To overcome the trust issue, all m-payment companies had to do was to keep the offer simple and straightforward, and allow customers to carry out multiple types of transactions via locally established agents that can offer hands-on assistance.