The Sleeping Giants Of African Mobile Payments

Kenya’s M-PESA is the poster child for mobile money services in Africa, but it is also increasingly gaining attention further abroad. It is, however, only one of the mobile payment systems on the continent that have bypassed the typical financial rites of passage and are very quickly catapulting consumers into a truly cashless economy, as well as transforming lives in a very real sense.

To make a sweeping generalization about a very large and very diverse continent, Africa has three characteristics that have created fertile ground for the growth of mobile money. Firstly, there is the enormous uptake of mobile phones across the continent: according to the African Development Bank there were fewer than two million mobile phones users in Africa in 1998. This number grew to more than 400 million by 2009 and the GSM Association predicts cellphone numbers will top 735 million by the end of this year – in excess of 70% penetration.

Secondly, there are a large number of unbanked, and underbanked, people in Africa. A 2009 World Bank report puts this figure at as high as 70% of Africans, while South Africa’s First National Bank (FNB) says 13 million out of South Africa’s population of around 50 million people are under-served by banks. Fundamo, the South African-based mobile financial services infrastructure provider acquired by Visa last year, estimates that 3.5 billion people around the world do not have access to traditional financial services.

And finally, much of the continent’s population lives in rural areas, with very little access to banking infrastructure. Now add into the mix an urban workforce sending cash far distances to dependents living in rural areas. But with both sender and receiver owning or having access to a mobile phone, it was inevitable that this was going to be key to extending banking services to the unbanked.

Mobile operator Safaricom’s M-PESA  started life in March 2007 as a way to pay and collect micro-financing. The service centers around airtime as a currency and very soon morphed into a “send money home” service. An account holder in the city wanting to send money home buys electronic funds at an M-PESA agent, sends the electronic money to a family member who then redeems it for cash at another M-PESA agent.

M-PESA has since expanded to include airtime top-up, bill payments, salary payments, M-KESHO banking services (which allow customers to earn interest) and also international money transfer in partnership with Western Union. Safaricom is encouraging the use of M-PESA as a bill payment service and a way to buy goods and services. It quotes CEO Bob Collymore: “Studies show that customers save 3 hours per transaction which is ploughed back into economic productivity and the savings of US$ 3 is spent mainly on food and savings.”

According to Safaricom, M-PESA has 15 million users and up to a third of the Kenyan GDP passes through the system. It handles KSH 1.8 billion (US$ 21 million) a day, with transaction values ranging from KSH 10 (12 US cents) to KSH 70,000 (US$ 820). In total, M-PESA has seen KSH 1.5 trillion (US$ 17 billion) in peer-to-peer transactions.

Further south in Zimbabwe, Econet Wireless claims that almost two million Zimbabweans carry out all their business using EcoCash transfers and the service “moves millions of dollars every day from urban to rural areas” which has helped to “revitalize the rural economy.”

In addition, the one-year-old mobile money transfer service announced in August that it had linked with all the commercial banks in Zimbabwe. This extends the service to customers with bank accounts, allowing them to transfer money into the EcoCash electronic wallet. From October this year, businesses are able to take payments via EcoCash then redeem the cash at approved banks; expected to comprise all the banks by the end of the month. Taxi drivers have also started accepting  EcoCash payments said the company – reducing the need for commuters to carry cash.

West African giant Nigeria’s been a bit late to the mobile money market, thanks to lack of clarity around the licensing of mobile money providers, despite the country saying that a cashless economy was vital to its goal of becoming one of the top 20 largest economies in the world by 2020. Finally telco Etisalat teamed up with FirstBank of Nigeria in February this year to provide mobile money services to Nigerian consumers and then in September it launched Easywallet, a SIM-based interface that allows customers to access mobile money and bank accounts. They can send and receive money, transfer money from a bank account to a mobile wallet, pay bills, buy goods and services, and top up airtime.

Commentators point out that for mobile money to truly succeed in Nigeria, an extensive agency network needs to be established across the large country. For instance, Kenya’s M-PESA has more than 40,000 agents countrywide where customers can make and receive payments, payments can be made via Western Union from 70 countries and it has in excess of 900 paybill partners.

Interestingly M-PESA has never really gained traction in South Africa, where it was launched by Vodacom – cousin to Kenya’s Safaricom via Vodafone – in 2010. Reasons for this include a tougher banking regulatory environment, lack of M-PESA outlets, too high transaction charges and, it could be argued, the banks beat the mobile operators to the punch. Particularly South Africa’s FNB, recently the recipient of winner of the Most Innovative Bank of the Year for 2012 at the BAI-Finacle Global Banking Innovation Awards, is working hard to bring the un- and underbanked into the fold via a set of cellphone banking services.

Mid-2011 FNB said it had seen a rapid uptake of cellphone banking in Africa, with year-on-year growth of 376% in Zambia, 277% in Botswana; 204% in Namibia and 473% in Swaziland. Together, subscribers in these countries carry out around 1.2 million cellphone banking transactions per month and FNB has processed more than R1.2 billion in the last year in these countries.

More recently it has teamed up with African social networking giant Mxit to allow its 10 million users to get money into the mobile commerce system. The key to any m-commerce is how currency enters it, and previously Mxit users bought “moola” via premium rate SMS. Now, thanks to this latest tie-up, Mxit users who bank with FNB can buy moola for 35% less as the premium rated SMS charges have been removed from the equation.

So while much of the rest of the world, including Canada and Sweden, looks to credit cards as the key to a cashless economy, Africa has – out of necessity – leapfrogged this step all together and tapped into the power of the ubiquitous cellphone. These services are changing people’s lives and countries’ economies, as well as underpinning a thriving startup community across the continent developing an eco-system around these payment giants.

Editor’s Note: Vanessa Clark is the co-founder of Mobiflock,, a mobile safety and security company offering a suite of services for businesses, individuals and parents. She’s a startup junkie, ran her own public relations agency and was a London-based telecoms journalist back in the days before blogs, Facebook and Twitter. She doesn’t like marketing weasel words, but does like people making information flow more easily and safely around the world. She especially likes being in the mobile industry in Africa.

Image via keeeeegan