Innovative mobile payments technology once again comes from Africa
Oltio head talks about a new mobile payments system, and what it could mean for Africa's SMEs.
A lot has been said about creating innovative strategies for targeting unbanked citizens in Africa using mobile phones. But what about the banked? How can mobile phones reduce the costs and hassle of payments and transactions for businesses and consumers with bank accounts?
One company that believes it has an innovation that will change the way we shop and make payments is Oltio, a South African-based mobile banking, transactions and payments solution company that rolled out MTN Mobile Money in Africa.
“The real challenge is this: if you went to Kalahari (an online shopping website) right now and you used your credit card – you simply enter your credit card number, expiry date, and your three digit cvv number and off you go. Some banks will come back and say we need a onetime password entered in your phone... so if you have a credit card, life is great. But if you are a debit card holder you can’t use it,” said Dave Parratt, chief commercial officer at Oltio.
Oltio has introduced payD into the South African market where, using their mobile phone, customers are able to securely make online payments using their debit, credit or cheque card.
“The first thing about South Africa is that we have very good debit card penetration. In fact, we have pretty good banking penetration as a country as well. If you look at it from an MTN perspective, roughly 70% of the customer base is banked, and of those that were banked, 97% had debit cards,” explained Parratt. “Only 3% qualify for credit cards.”
PayD works by allowing users to key in the automated teller machine (ATM) PIN they use with their bank card into their mobile phone securely. The service safely encrypts the PIN using the SIM card (which has a microchip similar to the microchip in a credit card) in their mobile phones. Parratt believes it will help grow online shopping in South Africa, which is still in its infancy.
“Only 0.36% of retail sales in the country are online,” he explained. “And a large reason for that is that people just couldn’t pay [with debit cards].”
When customers register for payD, they enter their bank card details once, which are encrypted securely and linked to their MTN or Vodacom SIM card.
Thereafter, to make a payment on a website, consumers receive an authorising message on their mobile phones. Once confirmed, the system prompts users to enter the debit card personal PIN number on a mobile phone to complete the payment, which is then confirmed via the website. The payment is made immediately.
Turning mobile phones into point-of-sale devices
Parratt said Oltio is the first to introduce a system in which its payD technology allows mobile phones to act as point-of sale devices for merchants using both debit and credit cards, without the physical presence of the bank card, and allowing consumers to use their phones as the PIN keypad. He showed How we made it in Africa a live example of how it works.
Customers download a payments app to their phones where they can register their Mastercard or Visa details. When they want to pay a merchant, both the merchant and the consumer open the app on their phones. The merchant scans the customer’s unique QR code or captures his or her mobile phone number, then enters the amount due and starts the transaction on their phone. The customer gets an instant notification and authorises the payment by entering his or her bank card PIN on their handset. Both the customer and the merchant receive transaction notifications and the whole transaction takes seconds.
The system also allows all receipts to be stored digitally and automatically, removing the need for paper receipts that are not only easily lost, but can also fade in high temperatures. This process can make personal and business financial accounting simple.
It also means that invoices (such as those for rent) can be sent with barcodes that can be scanned by mobile phones and easily paid.
“I have twin 18-year-old daughters and they used to buy that magazine Seventeen, and at one stage they quite liked Justin Bieber,” said Parratt. “Can you imagine if Justin Bieber [is coming for a concert] and inside this magazine there is an exclusive that says ‘on Tuesday the 15th, between 1pm and 3pm you can buy Justin Bieber tickets by simply scanning this code'... can you imagine how many Seventeen magazines you would sell?”
Parratt said the overbanked are also often under-cashed. He explained how ATMs seldom give R10 notes and how valuable they are for paying for parking in South Africa. You can’t use bank cards to pay car guards as they could not afford to have a point-of-sale device. But now they can, using their mobile phones.
“It costs Standard bank about R10,000 to buy a point-of-sale device and to get it into the field... and those devices wear out after two years, maybe three years... So it is a very capital intensive environment,” he explained.
Oltio’s technology means all that is needed is a data capable phone and the mobile app.
While the ability to turn a mobile phone into a point-of-sale device currently exists with a square card-reader dongle that can be plugged into a phone, it still needs a card to be present. “It requires typically a high-end phone to be deployed and it also requires a distribution capability for the dongles, and many are not certified for PIN,” added Parratt.
The potential for Africa
Africa has a large unbanked population and Oltio’s service caters for the banked. This means it will do well in developed countries and emerging markets such as South Africa and Brazil. However, the transactions solution also has the potential to positively impact payments and small to medium sized enterprises in Africa.
“The big challenge in Africa is there are a lot of cards but there is nowhere to use them,” explained Parratt.
He pointed out that in most African countries, those with bank cards do not generally use them to make direct payments as many services and retailers only take cash. So effectively, cards are used to simply draw money from ATMs because of the lack of point-of-sale devices in most African countries.
But if phones become point-of-sale devices, merchants could start using them for payments. It also reduces the amount of cash consumers and informal retailers carry.
“For example, Coca-Cola will not deliver Coke to a spaza shop unless they have been pre-paid because with a cash delivery, trucks were being robbed of the cash just after being paid,” said Parratt.
The future of payments will be based on the payD technology, said Parratt, adding that Oltio will make a number of big announcements in the coming months in connection to this. The company is a joint venture between the Standard Bank Group, which operates in 18 African countries, and MTN Group which operates in 21 countries. Oltio has also recently partnered with Mastercard.