Africa Is The Future Of Mobile Payments Not Apple
Mobile payments systems have struggled to take off for at least 5 years. ApplePay is the latest and may be the solution. Yet since 2007 tens and now hundreds of millions of people have used mobile money in Africa. The future of payments will come from this experience. Meet real customer needs. Disrupt the lucrative sinecures of the financial system. Improves millions of lives. These are the lessons. Now lets look at an example.
Rajabu Hassan has run his little cut flower business in Tanzania for the last 11 years. He operates from a small shop just outside Dar es Salaam city centre next to the Namanga shopping centre. His capital came from his own modest savings accumulated during a period of steady work. The shop is located in a cut flower cluster with 27 shops in the same area. The businesspeople themselves built the shops. Squeezed onto property that belongs to a nearby primary school. The flowers come from Nairobi (Kenya) and Arusha (Tanzania). Rajabu switched to m-Pesa in mid 2009. He adopted the technology immediately for his business payments.
The impact of mobile money has been huge. He pays suppliers the instant he receives the blooms. Instead of spending hours in traffic jams and days caught up in the banking system. His flowers arrive fresher and his customers are happier. He receives payment immediately so his working capital position is sounder.
The African experience
There are many thousands of stories like Rajabu’s across Africa and the developing world. According to the GSMA there are now 103 million active mobile money users and 299 million registered accounts. On top of sheer scale, there are some incredible facts. More than 70% of adults in Kenya have a mobile money account. By June 2014, 17 million mobile based insurance policies had been sold. Telecom ZAAD has over 1 million registered mobile money users in Somalia. Yes you read that right, Somalia.
This has not been achieved by the world’s biggest company partnering with some gigantic banks. It is not based on cool, expensive technology. The services are not based around the needs of trendy, urban professionals. Buying from high end, niche coffee outlets. The inspiration behind m-Pesa, the original Kenyan system, is a mobile operator. Mobile money systems work on feature phones. That’s old Nokias and Blackberrys for those who don’t remember. It uses SMS. Seriously. These guys don’t even get WhatsApp. And there is no fixed backup. Everything is mobile.
By contrast mobile money systems have struggled to get off the ground in the rich world. Regular headlines have proclaimed that mobile is the future of banking. But it still hasn’t happened. ApplePay may change all this. It has grabbed headlines and it has the support of an impressive list of established players. There is also a long list of “experts” who believe ApplePay will be the future. Search for the technology and you will see a flood of well written and credible pieces.
Somewhere in the pile you might come across an article like this from the Huffington Post. Their survey of 8,000 people showed that cash is still king. But Huffington Post readers are right in the target market? Does this mean mobile money is not going to happen?
Scroll down your search list and you will find reassurance. You will find another big name to explain the curve of adoption. Or a similar impressive argument. I almost laughed when I saw this headline in Techcrunch. “The First Battle In The Mobile Payments War Is Over.” Sure enough it includes the sentence “Mobile Payments won’t take off overnight.”
Hmmm…compare this to another technology. Launched just a few months before Apple Pay. No-one is asking whether Slack will succeed. The growth curve looks more like a rocket tracer. And the blog posts are not from experts. Users are talking about Slack. A developer community is emerging based on Slack. Investors are busy looking for the next Slack. This is what breakthrough technology looks like.
Check the history of M-Pesa. Its launch in 2007 looks a lot like Slack.
In one respect the experts are right. Mobile is the future of payments. The model pioneered in Africa will be that future. Because M-Pesa and all those other systems are true innovators. Genuine disrupters that share much with the startup world.
Solving a real world problem
Mobile Money is a product designed around the needs of the poor. The target market is migrant workers and subsistence farmers. The test bed was people dependent on aid for food and medicine. In Africa this is still a large part of the population. M-Pesa went to the customer. Mobile money business plans in the US and Europe are designed to go where the money is.
Scale requires a mass market. No product will succeed in the developed world until it addresses the need of a mass consumer. Apple, Google and Paypal are all aiming at a wealthy niche.
I was struck by this quote from Disrupt NY in May 2015:
“Folks at the top are using technology in a way that those at the bottom are not. If we are to believe that our economy is increasingly digital and no longer analog we should be doing what we can to help.” Tristan Walker, Walker & Co Techcrunch Disrupt NY 2015.
Tristan is dead right. Mobile money is a great example of a product that can succeed only if it reaches those at the bottom of society. In Africa, the financial system excludes much of the potential customer base. Most mobile money users have no bank account. Many have never even seen a bank. Never mind an ATM.
In our economies the problem is different. The financial system exploits the poorest in society. It imposes burdens and penalties. Thins like extortionate interest rates for loans and credit cards. Loan sharks. Unfair mortgages followed by repossessions. No money to buy food. Fuel poverty. No reserves to cover for unexpected misfortune.
Instead of reducing the time required to buy a latte, address these issues. Millions of customers will follow. Money is the ultimate networked product. Mass adoption will pull others in.
Innovation not Invention
ApplePay and some predecessors also make another mistake. Analysts seem to think failure to adopt mobile money is a technology problem. The best startups in other markets succeed by using the technology they have to create a great user experience.
Mobile payments are no different. The systems were developed to work with the technology available. Cheap smartphones are available in Africa today. Nothing existed in 2007. Network coverage is poor. Few people have e-mail. Access to Facebook costs real money. SMS is the lowest cost and most ubiquitous technology available. So the teams who created M-Pesa used it. Make a great product that works with what you have. Use the technology, don’t blame it.
Established Players Don’t Lead Disruption
Safaricom was the leading mobile operator in Kenya when M-Pesa launched in 2007. Not the typical startup profile I admit. But they were not a bank. They were a new player in the market they were attacking. That made a crucial difference. the team took a different approach. The product is customer centric. Not constrained by previous ideas. Driven by a new set of goals.
In practice one huge factor changed everything. Safaricom did not set out to make money from payments. They knew the system would be sticky. Stickier than anything else. They would make money from their traditional products of voice and SMS. There was no need for M-Pesa to be a profit centre. Mobile payments make a small charge for each transaction. Just enough to offset direct costs and distribution expenses. That is it.
You may not realise that this is not how the global payments system works. Using a credit or debit card means a whole stack of big industry players take a slice of your payment. And make enormous profits from all those slivers. The merchant bears this cost today so you don’t see it. But it is there. The survival of this model is an underling assumption in every Western mobile money system. That’s why Apple announced all those partners before launch. The share may change. The winners and losers may be new. But free is not an option.
In reality it is worse not better to begin with. Because the mobile money provider, the network operator and the device maker all want a sliver as well. On top of the existing players in the system.
Wrong, wrong, wrong. Making it free or ultra low cost is good for the customer. It also builds the network. You need and incentive for merchants to join. Right now they face significant costs to adopt new systems. Mobile payments will explode when the cost to the merchant falls rather than rises. Remember this is not just Macys and Walmart. Most shops are small businesses who battle to make a living. Help these people. Don’t exploit them further.
Free has another giant effect. I have interchanged between mobile money and mobile payments in this article. At the start successful systems are just payments. Many would argue that M-Pesa is not a real mobile money system. They would sniff at its lack of sophistication. Once again these people don’t get it. Mobile money systems are a platform not just a mechanism.
Africa is now home to a whole ecosystem of financial innovation. Micro insurance that helps subsistence farmers survive drought (or flood). Financing for community projects. Small business loans. Mobile ERP systems. Agriculture, health, education and other sectors are all benefiting.
This revolution is drawing new customers and new businesses into the financial system. Does anyone think the financial world in the west would not benefit from this?
In the US and Europe, every business plan is about capturing the wallets of wealthy consumers or cash rich businesses. Startups could change the world just by aiming at a different set of real world problems.
Emerging Markets will lead the world
We are about to enter the next phase of the emerging markets revolution. At some point growing economies are bound to start leading. Not just copying the successes of the first world. Japan and Korea followed this path in the 20th Century. China, India and Africa will take the same road in the 21st.
Alibaba is the standard bearer company for this shift. Others already exist in the hardware world. think Foxconn and Huawei. Xiaomi combines consumer and hardware.
Mobile money will be the first entire technology to come from the emerging world. Founded on innovation, disruption and real need. M-Pesa is changing the world. Improving the lives of millions of people. This is the startup model.
