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.
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.”
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.”
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.
Jeannette Kescenovitz, who leads development of banking-as-a-service at Finastra, joins us on the BAI Banking Strategies podcast to share her views on how BaaS might grow its presence at U.S. banks and credit unions this year.
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