C&B Notes

African Payment & Banking Innovation

Last week we mentioned the trend of mobile phone minutes as a form of payment in Africa, and this story talks about the broader usage of mobile phones (specifically including basic, non-smartphones) to facilitate payments, especially from person to person.  This system, which piggybacks on a growing African wireless network that is much cheaper and easier to develop than a traditional wired one, is allowing Africa to more quickly build a financial infrastructure that promotes trade and overall economic development.  This innovation is teaching the developed world new ways to do traditional banking business.

Unlike in the U.S., where mobile banking demands an app (or three), a smartphone, and a high-speed Internet connection, more than 55 million Africans use basic mobile phones to transfer money from one person to another, take out insurance policies, and collect payment from government agencies.  Even at a few bucks a transaction, Africa’s so-called “mobile money” market is huge, topping $61 billion in 2012 — greater than the amount of money sent via mobile in Europe and North America combined, according to Gartner.

* * * * *

Launched in 2007 by carriers Safaricom and Vodacom (VOD), M-Pesa’s success is based on its simplicity. Customers buy credit on their mobile phone accounts to pay bills or buy products.  To transfer money to a person, merchant, or government agency, all they need is the creditor’s related phone number.  The debits are deducted directly from the mobile phone account, with no need to fuss over a bank account.  Customers give debtors their mobile number to use in settling up; when a debt payment comes in, their mobile phone account is credited.  Mobile phones have spread faster than bank branches.  Mobile money accounts outnumber bank accounts in Kenya, Tanzania, Uganda, and Madagascar.  In just one month last year — June 2012 — the value of Kenya’s mobile money transactions equaled 60 percent of the country’s gross domestic product, according to a new study by telecoms trade group GSMA.

….These systems have obvious appeal for people without bank accounts, or what the financial services industry calls the “unbanked.”  In Kenya, this represents more than 80 percent of the market.  For many Kenyans, their first mobile phone contract served to introduce them to the world of debit and credit.  With minimal banking regulations in the region, African mobile companies were able to add various retail banking services (insurance, microfinance, remittances) to the traditional pay-as-you-go contract.