The stereotypes that surround Africa’s track record of innovations—or as some would argue, the lack of them—may well outnumber those dismissive people who still call it “the third world.” What with all the breathless foreign correspondents reporting stories of civil wars, famine, despotic rulers, genocide and ravages of the AIDS epidemic, you’d be hard pressed to find any media missive that not only represents a ray of hope, but also showcases Africa as a leading light in some powerful, positive way.
But that’s exactly the case in the world of payments, of all places. That’s right: Africa is setting a pace for mobile payments adoption that has lessons to teach for may western countries, including the U.S.
And while that statement might make some Silicon Valley hotshots or well-heeled bankers laugh until cappuccino squirts out their noses, they might want to look under their noses instead. For proof of Africa’s payments ascendancy now stands as well-documented fact (even if it doesn’t make headlines).
Still nascent in Africa, mobile money services have spread like wildfire for more than a decade across Kenya, Nigeria and a growing number of African countries. M-Pesa, the most well-known of Africa’s mobile money services, boasts more than 30 million active users in 10 countries, who use their smartphones to make international as well as domestic account transfers, and to make and take loans, as well as to receive health benefits.
Still nascent in Africa, mobile money services have been spread like wildfire for more than a decade across Kenya, Nigeria and a growing number of nations. M-Pesa, the most well-known of Africa’s mobile money services, boasts more than 30 million active users in 10 countries, who use their smartphones to make international as well as domestic account transfers, and to make and take loans, as well as to receive health benefits. “In East Africa, mobile money has become a viable replacement for traditional banking services for a large part of the population,” says Ibrahim Zaaimi, analyst for Infomineo.
Today, more than 40 percent of the adult population in countries like Kenya, Tanzania, and Uganda are utilizing mobile money on an active basis, according to Infomineo’s comparatively conservative estimates. “The large popularity doesn’t stop in East Africa either,” Zaaimi says, adding that increased adoption of these services has swept across West Africa and sub-Saharan Africa.
It’s little surprise, then, that a mobile payment service has taken hold here, with more than half a billion mobile subscribers in sub-Saharan Africa by the end of this decade. That comes despite the fact that but only a small percentage of people on the continent have laptops or stable wireless Internet access—and, less than one-quarter of East Africans (24 percent) have traditional bank accounts. Indeed, mobile money accounts have long since overtaken regular bank accounts: At least 35 percent of East Africans use their phones—and only their phones—for transactions. Ahead-of-the-curve Kenya boasts roughly six out of 10 people with mobile money accounts. “The combination of these two factors allowed mobile banking in East and West Africa, where these two factors are accentuated,” Zaaimi says.
And, while the United States may diverge widely from most African markets in its embrace of traditional banking and WiFi access, things will change at a rapid clip. The fast-growing dependence on mobile devices and the increasing scope and financial power of the millennial “smartphone” generation should make U.S. financial executives take notice of this trend. What’s more, this shift goes much deeper than just making payments by phone rather than branch or ATM. It also allows greater outreach to consumers, including those who are traditionally underbanked—a significant social innovation in the financial sphere.
According to a November 2016 research paper by Jay Rosengard, adjunct lecturer in public policy at the Harvard Kennedy School of Government, mobile banking “has transformed how Kenyans manage their money… This growth has allowed Kenya to zoom past other countries when it comes to financial inclusion.”
Indeed, M-Pesa specifically has been lauded for its social value in providing new venues to small businesses and playing a major role in reducing poverty in Africa. Case in point: M-Pesa users were able to handle major hits to their income, such as a bad harvest or a job loss, without having to reduce household consumption, by using the service to get funded by friends and family, according to a 2014 study. (Kenyans without M-Pesa had to curb their spending by an average 7 percent in comparison, the same study found.)
Of course, the current mobile money offerings in Africa are not without their challenges, according to Uttam Nayak, senior vice president for digital products for Visa of Central Europe, Middle East & Africa.
“The performance of mobile money [in Africa] is talked of aggressively and fondly, but the reality on the ground is slightly different,” Nayak says.
Existing services work best for depositing money into an account, drawing value out and making person-to-person payments, Nayak notes. But these services tend to lack a good option for making one-time payments to merchants. “It’s a number one global payment need. People still need to buy groceries.”
Also, M-Pesa and similar services require payer and payee to work off the same platform, which offers little interoperability to outsiders. Visa recently commissioned an electronic payments study from Moody’s Analytics, and the card company is working on its own mobile payment service to target this region. Meanwhile, the Kenya Bankers Association announced in February that it would launch a competing m-payment service.
But given the differences in infrastructure, culture, financial systems and regulation here in the States, can the U.S. banking market learn anything from the mobile money movement trajectory of Africa? Many industry insiders believe so.
“Mobile payment has been hot in Africa for 10 years now,” says Paul Schaus, president of CCG Analytics. “But you can make the argument that [mobile payment] that worked in those countries can work here: That’s why services like Venmo are successful here.”
Schaus points out that aside from the changing demographics and technological savvy in the overall U.S. market, a growing population of immigrants and foreign exchange students—already exposed to such services in their country of origin—will drive demand, even if it’s for an inexpensive option to send money back home.
“If I want to send money to Kenya [from the States], I’m not going the traditional route,” Schaus says. “There are still limits and controls here, but the walls are coming down.”
Nayak says that “mobile payment is seen as the future everywhere, and different form features are being explored. Africa has massive gap in acceptance on [the point of sale]… and more people want in-app payments.”
But, he adds, “We still need to watch these emerging markets.” To that end, this headline-worthy story is still developing. Stay tuned for details.
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Karen Epper Hoffman has written about banking and technology issues for nearly a quarter century. She lives in Olympia, Washington.