Smartphone penetration and mobile technology are changing the way Africans transact, writes Arrie Rautenbach, chief executive of Barclays Africa Retail Banking
Writing in his latest annual “Gates Notes” letter, Microsoft founder and philanthropist Bill Gates highlighted the digital banking sector and observed that smartphones and mobile technology would define banking in Africa, especially in those communities where the cost of banking and a lack of infrastructure remain major barriers to entry.
Gates’ view is reflected in part by figures from technology company Ericsson. It indicates that mobile is the communication tool of choice in Africa where competitors are scrambling to tap into the “unbanked” market by providing platforms for money transfers using mobile technology.
The way that mobile is changing payments in Africa was a key discussion point among bankers and tech companies at the Africa Cards and Payment Conference, held in South Africa earlier this year.
According to the GMSA 2013 mobile money adoption survey, sub-Saharan Africa is home to 53% of all live mobile money services in the world. These services, which allow users to withdraw and send cash from one mobile phone user to another, using local retailers and trading stores as ATMs, are available in 36 out of 47 countries in the region.
In Kenya, which has the highest usage of mobile money transfers, more than $3bn are shifted in this way every month, according to Vodacom. That’s $36bn a year, in a country that had a gross domestic product (GDP) of $37bn in 2012.
Nearby Tanzania sees more than $12bn transferred annually, with a GDP of $28bn.
In these two countries M-Pesa money is a mobile-phone based money transfer and micro-financing service. Launched by Vodafone in 2007, it is proving to be a huge success.
The rapid adoption of feature phones, smartphones and online technology is providing new, highly-convenient ways for consumers to pay themselves, other people, bills and retailers. With this mobile revolution has come an array of mobile payment solutions. Some examples include Standard Bank’s Snapscan, Absa’s Payment Pebble and Payment Pebble Handset, Vodacom’s M-Pesa, the Zapper App, Nedbank’s Pocket Pos, MTN’s Mobile Money, FNB’s e-Wallet and Nedbank’s Send iMali.
One of the main issues anyone operating in this sector is faced with is this: In the relationship between retailers, banks and customers, what role will new technologies play?
Retailers are exploring any opportunity to solicit new ways of being paid and differentiating themselves. Adopting alternative services at the point of sale (POS) will play a key role in this. Therefore, understanding customer needs and wants is a focus point for retailers and banks. The way people pay for transactions is changing.
A breakdown of customer payment methods provides insight. Cash is still “king” – it accounts for most of the value transfer in African commerce. However alternative payments are gaining traction. In many markets across Africa, card payments, while still limited, are growing and e-commerce is also growing aggressively.
Mobile point of sale (mPOS) growth has been nothing short of phenomenal. In South Africa, a fairly conservative market when it comes to mPOS adoption, we have more than 10,000 mPOS devices in circulation since first being brought to market. Nigeria, with Africa’s highest mobile phone penetration, is regarded as the next big mobile payment opportunity.
Much of the rhetoric behind the product revolution involves tapping into the unbanked sector of the market. According to Vodacom’s estimates, there are seven million people in South Africa who earn salaries but do not have their own bank accounts, which represents about 14% of the population.
In the rest of Africa, this figure is a lot higher: the organisers of the Mobile Money Africa conference in 2013 estimated that 80% of adults on the continent were still unbanked.
It is small wonder that non-traditional financial companies, such as Google, Apple and now Samsung, which launched its payment app at the World Mobile Conference in Barcelona recently, are all vying for a slice of the mPOS pie.
Meanwhile, crypto currency is also gaining traction on the continent. In August last year, Africa’s first Bitcoin ATM opened in Johannesburg while Nigeria’s Bitcoin exchange launched in January this year – and more are to follow.
So if one takes a look at the changing ways of paying or being paid, cash is losing ground, and being replaced by card payments, online payments, mobile payments, wearable technology, biometrics and crypto currency. These payment methods are growing at different rates, in different markets for various reasons.
In Africa, three factors are key to the growth of payment methods: security, market demand and a push towards integration.
The availability of secure payment facilities is most critical and is a major differentiator that all entrants to the African market will have to take into account. Near Field Communication (NFC) will have a key influence on the development roadmap of future mPOS solutions, as the various QR code and other mobile check out methods need a standard. Tokenisation solutions enabling the likes of Apple Pay in an NFC configuration has already shown its influence in the US market and it’s only a matter of time before it will become the key secure payments acceptance enabler on the global stage.
In terms of demand, we’ve seen in markets such as Kenya, where mobile has been adopted by customers as a method of payment, that the demand for mPOS is outstripping that of traditional POS and any attempts to enter such a market should include strong mPOS solutions.
And in terms of the integration push, many multi-nationals and large retailers already use payment methods that are integrated with their sales infrastructure and treasuries, and therefore prefer to roll out standard solutions across their outlets. Customers are then pushed into using the retailer’s preferred payment methods that play into the traditional POS space.
It is clear that a rigid, narrow payment suite approach will not work. What is needed is a flexible, consistent payment approach. In certain markets we are starting to see integration driven by customer demands and needs – and this is where traditional and mobile payments complement each other.
In these markets mPOS is used for non-traditional payments such as sending money, buying apps or music and paying a vendor at a seasonal show. However, adoption rates, for all forms of payments, do not always follow innovation and in some instances customers have remained cynical and refused to adopt. Traditional POS thus remains the payment method of choice at established retailers.
The future of payments in Africa will be affected by a combination of the growth of mPOS, the speed and quality of infrastructure development, the push of payment methods by major retailers, as well as customer demand. Merchants and banks moving into new countries in Africa need to be mindful that each territory is different and will need different solutions.