When we think of the potential for a cashless society we tend to look at the developed World and markets such as the United States or Europe as the places most likely for this development. Even with credit cards and smart phones being ubiquitous throughout these countries, and the rise of mobile wallet providers such as Apple Pay and Samsung Pay, you would be wise to look to emerging markets as the potential birthplace of a future cashless society.
GSMA Intelligence projects that there will be 525 million smartphone users in Africa by 2020, up from 72 million in 2013. Markets&Markets forecasts the Africa mobile money market to grow from $2.73 Billion in 2015 to $14.27 Billion by 2020. Data activity for this region is also expected to grow by 20 times during that span.
Mobile Money not a success across the African continent
Even with substantial growth the impact of mobile money has not been uniform across the continent. GSMA’s Mobile Money Deployment Tracker has found that of the 300 mobile deployments across the world, the vast majority have failed. For every M-Pesa, which has been a resounding success in Kenya, there are other mobile money deployments that have fallen short, most notably in countries like South Africa and Nigeria.
There are numerous reasons that mobile money providers have failed outside of East Africa. Closed systems and a lack of interoperability have not helped, and interoperability between services and countries is only just beginning to become a reality. Mobile Money providers have also attempted to scale quickly without first determining their design process, structure management, and providing clarity to their consumers of the value proposition of their mobile money service.
In some countries, such as Nigeria, there has been market confusion, where the average Nigerian is still unsure what digital finance is, and how it solves a pressing problem for them. If the customer doesn’t understand how mobile money offers value to them, or how to register for and use a mobile wallet, chances are low that they will partake of this service.
Bank Led vs. Telecommunication Led business models
Another issue is the bank-led versus telecommunication led models that different countries have taken. Kenya and Tanzania have chosen the telecommunication led model. Telecommunication providers have more customers than traditional banks, as more people own mobile phones than are banked, and have the ability to scale quicker because of large marketing teams and budgets, and extensive experience in network development and distribution.
The bank led model, chosen by Nigeria, has hindered the growth of mobile money in Africa’s most populous country. Banks have traditionally served upper class clients for hundreds of years, largely ignoring the unbanked and only recently decided they wanted in on the mobile money game as well. Offering financial services to the unbanked and poor is risky, and by nature banks are risk averse. The banks have also done a poor job explaining the value proposition of their mobile money services and have failed to reach scale as well as their telecommunication counterparts.
For the future of mobile money look to China
Of course there are pros and cons to both models and I could easily spend a whole article discussing the benefits and handicaps of both. There is hope though, and a new model that might just change the mobile money landscape in Africa as we know it. The new game changer could be an outsider, and that outsider is China.
China has seen tremendous growth and success with mobile money as over 358 million Chinese use their mobile phones to purchase goods and services with e-commerce giant Alibaba’s Alipay and TenCent’s WeChat Wallet leading the way. Last year Standard Bank, one of the largest financial institutions on the African continent, partnered with WeChat for the South African market. Using Standard Bank’s payment network SnapScan, the partnership with WeChat doesn’t require customers to have a bank account, and WeChat is customizing its service offerings to fit the needs of the local market. Alipay is also getting into the fray and is offering customers discounts and promotional offerings for African customers using its mobile money service to purchase goods and services on its e-commerce platform.
Whether mobile money in Africa is here to stay or not is the wrong question. Mobile money will continue to grow, not only in Africa, but across the world. The better question is how to get mobile money right so that it benefits the consumers and meets their ever changing needs and wants. The current trends are showing a growth in e-commerce across the continent, an uptick in smartphone ownership and usage, and an increase in data activity allowing mobile providers to understand their customers on a deeper level. Mobile money providers who can tap into these trends and get it right will be the winners in the end and might just replicate the success of M-Pesa, albeit with their own unique value proposition and business model.