Article
Written by James Woodman
Posted on 23/04/2018

B2B Mobile Payments is old news in Africa

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It is easy to think that Europe and the U.S have long led the way on mobile payments, with all major high street banks offering mobile apps for consumers to manage their money. Third-party apps such as ApplePay and AndroidPay, allow for quick transactions on the go, while other providers such as PaySafe and ING provide solutions for B2B mobile banking. So why is it easier to pay for a taxi journey using a mobile phone in Kenya, than it is in New York or London?

Launched 11 years ago, by Safaricom, M-Pesa is a system used by more than 18 million Kenyans, which equates to more than two-thirds of the population. Around 25% of Kenya’s Gross National Product flows through the platform – making it arguably, the most successful mobile banking scheme on the planet. The platform has since launched in Tanzania, India, Mozambique, Egypt, Democratic Republic of Congo, Lesotho, Albania, Romania and Ghana.

“Today there are 30 million users in 10 countries and a range of services including international transfers, loans, and health provision. The system processed around 6 billion transactions in 2016 at a peak rate of 529 per second.” – Keiron Monks, CNN, 24th February 2017. 
 

Lack of permanent infrastructure leads to new opportunities

The large proportion of the ‘unbanked’ population has provided huge opportunities for innovative businesses that have identified the gap in the market, such as SnapScan, a South African mobile payment system, backed by Standard Bank. It was estimated that around 400,000 trading businesses in South Africa, with no access to formal payment infrastructure, and are therefore reliant on cash. There is a large movement to increase the inclusion of both individuals and businesses, led by bodies such as the GSMA’S Mobile Money for the Unbanked programme, aiming to ‘accelerate the growth of commercially viable mobile money services to achieve greater financial inclusion’. 

This rapid growth may yet be confined to the largest of cities however, with a lack of infrastructure meaning that mobile signal is in short supply just an hour’s drive outside of major South African cities – meaning that payment platforms that require only basic mobile devices have an advantage.

An attractive market for banks

Banks are now looking to move into the sector, but they have a lot of catching up to do. Africa’s mobile money market is so diverse with many players and different needs – just over half of the 282 mobile money services operating worldwide are located in sub-Saharan Africa. In order to compete, traditional banks need to offer more, right across the spectrum of financial services, not just focussed on payments and deposits.

Despite a relatively saturated market, there remains huge opportunity for growth in mobile financial services in Africa. Between 2013 and 2016, the number of mobile money users rose by more than 30% year on year.

One major advantage, for both the mobile financial services providers, as well as for the users themselves, is the ubiquity of agents to handle deposits vs the number of bank branches – In Kenya, there are more than 130,000 agents, vs 15,000 bank branch locations.

Fast growth and adoption requires greater regulation

However, whilst there are obvious benefits from the ubiquity of such technology for both consumers and businesses, it is an area that carries higher risk compared to traditional banking methods, with little regulation governing the system. One of the objections raised by banks in 2008, following the launch of M-Pesa was that non-banking organisations providing financial services should be subject to the same regulations in place for banking and financial institutions.

The Central Bank of Kenya based its assessment on three key considerations: 

  • Legal status: is M-Pesa a banking business or not?
  • Money Laundering: could the system be used illicitly for money laundering?
  • Operational risk: what risks could arise from the use of new technology

The Central Bank of Kenya’s legal counsel concluded that the activity undertaken by M-Pesa was not in fact banking business, as defined by the Banking Act, and the Central Bank of Kenya did not effectively have the power to control.  In order to satisfy concerns around money laundering and operational risk, specialist consultants were brought in to conduct an audit of both the robustness of operational capacity, and to ensure compliance with anti-money laundering legislation (AML) as well as Combating the Financing of Terrorism (CFT). 
In countries such as Kenya, Uganda and Tanzania, there is now a dual-model of regulation: central banks and telecommunication agencies regulate mobile financial markets, in the form of two models: a telecom-led model, and a bank-led model. The differentiating factor between these two models is the facet with which the customer or business interacts. For example, the telecom-led model is a mobile financial services business model, in which the ‘nonbank’ is the primary driver of the service, typically taking the lead and is responsible for marketing, branding and managing the customer relationship.

In Kenya, new regulations on interoperability are in process of being rolled out, designed to drive financial inclusion, create fair competition and allow seamless interaction between several mobile money platforms. A move welcomed by many users, and long-expected by many experts.
Although risk for the operator is minimised by the requirement of a deposit prior to payment or transfer, one of the largest issues for the industry is the level of agent liquidity, with many struggling to ensure they have sufficient deposits of both e-money and cash at outlets. This lack of availability in many cases damages the customer experience, with the user needing to visit several outlets to make the deposit they require.

Conclusion

When operating internationally, it is vital to navigate, understand, and assess various risks. It’s a simple message to instruct businesses to understand the local, when conducting international business, a message deployed for a long time by banks such as HSBC. But it really is true. The key to reducing the potential of bad debt whilst operating across borders is to be as informed as possible. Understanding insights, and assessing and being aware of payment behaviour can help your business succeed.
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