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.
According to the GSMA 2013 Mobile Money Adoption Survey, sub-Saharan Africa is home to 53 percent of all live mobile money services in the world. These services, which allow users to withdraw and send cash from one cellphone 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 use of mobile money transfers, more than $3 billion (R36bn) is shifted in this way every month, according to Vodacom. That’s $36bn a year. Neighbouring Tanzania sees more than $12bn transferred annually.
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. (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, First National Bank’s e-wallet and Nedbank’s send imali).
In the relationship between retailers, banks and customers, what role will these new technologies play?
Retailers are exploring opportunities 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 commerce in Africa. But alternative payments are gaining traction. In many markets across Africa, card payments, while still limited, are growing and e-commerce is growing aggressively.
Point of sale
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 cellphone 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 7 million people in South Africa who earn salaries but do not have their own bank accounts. In the rest of Africa, this figure is a lot higher. It is small wonder that non-traditional financial firms, such as Google, Apple and now Samsung, are all vying for a slice of the mPOS pie.
Meanwhile, crypto currency is also gaining traction on the continent. In August, Africa’s first Bitcoin ATM opened in Johannesburg while Nigeria’s Bitcoin exchange launched in January – 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. In terms of demand, we’ve seen in markets where 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.
The future of payments in Africa is changing rapidly. Merchants and banks that are moving into new countries in Africa need to be mindful of the rapid technological growth and the particular constraints that make each territory different.
Arrie Rautenbach is the chief executive at Barclays Africa Retail Banking