The mobile payments revolution

Sub-Saharan Africa, and Kenya in particular, is a world leader in mobile payments – 12% of adults are thought to use mobile payments across the continent[i] and it is estimated that 25-40% of Kenya’s wealth passes through M-Pesa, the leading service in Kenya.[ii]

Whilst entrepreneurial spirit is an obvious factor in the success of such services across Africa, government support certainly plays a part.  Safaricom, the telco behind M-Pesa, is around 35% owned by the government, and is the country’s largest taxpayer, which helps to preserve its monopoly in Kenya.[iii] M-Pesa is easy to use (you don’t need a smartphone) and has enabled all sorts of small payments that were previously hampered by banking bureaucracy and charges.  Other services available in Kenya and elsewhere include Straight2Bank’s electronic banking wallet[iv] – Airtel is also attempting to break into the market.[v]

However, Safaricom has a de facto monopoly of the mobile payments market in Kenya – which has quite possibly been vital to its success – and critics accuse the company of abusing its position, charging high fees (up to 10%) and imposing penalties on users who call other networks.[vi]

Airtel is one rival that would certainly benefit from increased regulation in the market, enabling interoperability which would doubtless aid consumers.  The Kenyan Equity Bank is looking to break into the mobile payments market in alliance with Airtel, with a newly launched joint-venture, Equitel.  This service uses plastic SIM adaptors, which sit on top of a SIM card so that customers can switch between difference operators.  It hopes this will enable Equity Bank’s customers to transfer money more easily.  This is an interesting development, and one that threatens Safaricom – it’s a lot harder to get a banking licence than it is to enter the mobile sphere.[vii]

And Equity Bank is not alone in seeking to capitalise here, Mastercard and Ecobank have hooked up to fight back against the telcos, issuing cards and launching a payment gateway network to make it easier to make old fashioned card payments.[viii]

And that’s before taking into account the start-up scene.  The next generation of companies are looking to simplify international payments, help low-income users break into the system, and improve the online shopping experience.  Leading lights here include UK-based WorldRemit and DoPay and Singaporean Coda Payments.[ix]

And mobile payment services have found success in less obvious ways, one Kenyan business, SteamaCo, has enabled its customers to use solar micro-grids with mobile technology to send performance updates and payments using mobile payment technology.[x]

However, M-Pesa’s success is to some extent due to its monopoly – the more people use it the more useful it is.[xi]  Attempts to replicate M-Pesa’s success in the Netherlands failed because established banks wouldn’t cooperate.[xii]  To make this a global success story, a lot more work needs to be done.

References and further reading

[i] Banking in Africa: ‘We need to be innovative: mass adoption, then profit’, The Guardian, 30 June 2015, http://www.theguardian.com/global-development-professionals-network/2015/jun/30/barclays-boss-financial-inclusion-africa

[ii] Phones4Power: using mobile phones to run micro-grids in Africa, The Guardian, 19 June 2015, http://www.theguardian.com/sustainable-business/2015/jun/19/phones4power-using-mobile-phones-to-run-micro-grids-in-africa

[iii] Telecoms in Kenya: A new east Africa campaign, The Economist, 11 July 2015, http://www.economist.com/news/business/21657378-two-african-business-giants-go-head-head-over-mobile-telecoms-and-payments-new-east-africa

[iv] Standard Chartered partners with Indosat to launch Straight2Bank Wallet in Indonesia, FinExtra, 10 July 2015, http://www.finextra.com/news/announcement.aspx?pressreleaseid=60427

[v] Telecoms in Kenya: A new east Africa campaign, The Economist, 11 July 2015, http://www.economist.com/news/business/21657378-two-african-business-giants-go-head-head-over-mobile-telecoms-and-payments-new-east-africa

[vi] Telecoms in Kenya: A new east Africa campaign, The Economist, 11 July 2015, http://www.economist.com/news/business/21657378-two-african-business-giants-go-head-head-over-mobile-telecoms-and-payments-new-east-africa

[vii] Telecoms in Kenya: A new east Africa campaign, The Economist, 11 July 2015, http://www.economist.com/news/business/21657378-two-african-business-giants-go-head-head-over-mobile-telecoms-and-payments-new-east-africa

[viii] Here’s what happened in payments this week, The Business Insider, 27 June 2015

[ix] Startups are bringing mobile banking to remote villages, The Guardian, 4 June 2015, http://www.theguardian.com/sustainable-business/2015/jun/04/world-remit-do-pay-financial-services-western-union-world-bank

[x] Phones4Power: using mobile phones to run micro-grids in Africa, The Guardian, 19 June 2015, http://www.theguardian.com/sustainable-business/2015/jun/19/phones4power-using-mobile-phones-to-run-micro-grids-in-africa

[xi] Telecoms in Kenya: A new east Africa campaign, The Economist, 11 July 2015, http://www.economist.com/news/business/21657378-two-african-business-giants-go-head-head-over-mobile-telecoms-and-payments-new-east-africa

[xii] Banking in Africa: ‘We need to be innovative: mass adoption, then profit’, The Guardian, 30 June 2015, http://www.theguardian.com/global-development-professionals-network/2015/jun/30/barclays-boss-financial-inclusion-africa