Tipping the Scale: Can Social Media Drive DFS Adoption and Use? | FiDA Partnership
Introduction
As we go about our daily lives we engage in basic financial transactions such as making payments or saving and borrowing money. These can hardly be separated from our social lives since they occur to facilitate our day-to-day livelihoods. Looking at how people across the globe interact socially through digital media and entertainment platforms, it is no wonder that these have become key drivers for the adoption and use of digital financial services (DFS) in China.
Social media and digital entertainment in China offer a natural consumer base for digital finance providers, to an extent which might make Facebook and other social media platforms salivate. Having cultivated digital interactions through their existing communities, Alibaba and Tencent have found innovative ways to convince users to live their digital lives within these platforms. This allows Alibaba and Tencent to study their users’ profiles and monetise their behaviour. Chinese internet finance companies have leveraged their vast user bases to drive DFS adoption and use. What can Africa learn from these Goliaths?
Tech Giants’ Large User Bases Drive DFS Growth in China
Social media and digital entertainment are increasingly important in our lives, cutting across social and economic levels based on the entry point of the cost of smartphone ownership and mobile data. This is great news for digital financial service providers in China who own the social media and digital entertainment platforms themselves. They can, therefore, analyse social behaviour in order to develop and monetise new products.
To be worthwhile, however, user bases must be large enough to prove commercially viable, since the model often followed is one of low commissions but high volumes. The large user base in China has proven beneficial to Alibaba and Tencent, who were able to identify and capitalise on trends in the usage of social media and entertainment to create a reusable source of customers for the introduction of new DFS products.
For example, Alibaba’s Alipay mobile and online payment service emerged in response to the need for users of Alibaba’s original e-commerce platform to process payments within the system. Similarly, Tencent’s social messaging service, WeChat, and mobile games such as Arena of Valor, provided natural paths to monetisation through in-app transactions.
Still, these limited use cases did little to generate customer “stickiness”, or encourage customers to make repeat purchases. Simply having a large customer base does not guarantee viability of the business model. This is where the ability to develop products around its knowledge of customer behaviour proved beneficial to Tencent.
Building on the tradition of exchanging red envelopes containing money between family and friends during special occasions (such as weddings and the Chinese New Year), the company developed a digital wallet in WeChat to digitise this age-old custom using P2P payments. Coupled with a media campaign and live interaction during the New Year’s broadcast, and with the requirement that customers link their bank account to a mobile wallet, this proved to be another simple yet effective customer acquisition strategy. Having launched the product in 2014, Tencent reported 2.3 billion transactions on January 1, 2016 alone. Despite a decrease in holiday transactions since then due to competition from new market entrants, more than 768 million WeChat Pay users sent or received red envelopes during the six-day holiday in 2018, a growth rate of 10% year-on-year.
Similarly, Alibaba introduced a competing product, giving away an equivalent of $97m of “lucky money” to users, in order to convert customers to their wallet. It further modified the product so that, when shared with WeChat users, users would be required to download and open the Alipay wallet to access the funds. Despite Alipay’s initial advantage, however, of handling payments on China’s biggest e-commerce platforms Alibaba, Taobao and Tmall, Tencent’s WeChat Pay grew its market share to 40% in Q1 2017, while Alipay’s dropped to 54%.
Tencent has further exploited the popularity of WeChat, known to have approximately 980 million active monthly users, by introducing over 10 million light-weight apps and more than 500,000 social commerce mini-programs. These provide shops with new ways of selling products to WeChat group members, without users having to install additional software on their phones. With such ease of use and various discounts offered for group purchases, WeChat and its popular app-within-an-app model have become ubiquitous in China. It is estimated that 77% of all Chinese mobile phone owners use WeChat Pay, with 30% of mobile use dedicated to WeChat and another 30% spent using other apps developed by TenCent’s subsidiaries, meaning that there is little reason for customers to engage in activity outside of the WeChat mega-app.
DFS and social media in Africa
In Africa, use of social media and consumption of entertainment are on the rise. The African social media market was estimated at 100m users in 2014 but has now grown to over 120m. Facebook and WhatsApp dominate this usage, with over 80% of access being done over mobile.
Furthermore, the number of African internet users in 2017 grew by 20% year-on-year, representing the fastest rate of growth among the four billion new users of the internet worldwide in that year. Also encouraging is the growth of the mobile gaming market on the continent, with African developers creating African-themed games. Industry associations for developers now have presence on the continent, for example, the International Game Developers Association with seven chapters in Africa.
Due to the nascent stage of these markets, and the prohibitive total cost of mobile ownership preventing widespread smartphone adoption, the current African user base and resulting social media and entertainment consumption are dwarfed by those of China. This is partly because the African social media user base is owned mainly by US platform holders such as Facebook and WhatsApp, which have yet to integrate DFS into their current service offerings for African markets. Furthermore, DFS providers in Africa tend to be smaller MNOs and banks that struggle to find ways to grow and profit from their small base of customers. Finally, many barriers to bank account ownership persist in Africa, making it impossible for Africa to follow China’s path to DFS growth through social media and entertainment.
With the growth in smartphone penetration in Africa, however, there has been a reversal in trends that saw smartphone importation surpass that of feature phones for the first time in 2016. Ovum predicts year-on-year growth of 52.9% culminating in 929.9 million smartphones in Africa by 2021. Though still expensive for low-income users, Huawei and Tecno models now cost as little as US$50 to US$100.
As smartphone ownership grows, the popular use of mobile money wallets that are funded using widely-spread agent networks can create opportunities for digital payment services. According to GSMA, the total value and number of mobile money transactions in sub-Saharan Africa grew by 14.4% and 17.9% to reach US$19.9 billion and 1.2 billion, respectively in 2017. Furthermore, East Africa accounted for 56.4% of the continent’s market for mobile money that year, with Central and Western Africa’s uptake doubling over a five-year period thanks to evolving regulatory policy.
The growth of Africa’s budding social media user base can be reinforced by lowering the total cost of mobile ownership and making DFS offerings, such as payments, more affordable. As seen in China, where peer-to-peer transfers within payment services like Alipay and WeChat Pay are free, mobile money customers still pay a transaction fee that, though tiered, is often prohibitive to middle- to low-income earners. This is possibly because Alibaba and Tencent’s business models treat DFS as a value addition to their core revenue streams of social media and entertainment. They prefer to upsell customers to other income-generating services such as e-commerce, digital credit, and wealth management products.
While African financial institutions such as EcoBank have also begun to introduce mobile banking applications that enable free peer-to-peer payments, they remain constrained by low bank account penetration. To overcome this, African providers should consider partnerships with fintechs such as Norway’s Blockbonds. It launched SPENN, a mobile application payment service that offers free money transfers and does not require the users to have a bank account. Customers can fund their accounts at I&M bank branches for free or through fellow customers who opt to perform cash-in and cash-out services at a 2% fee. Having launched the platform in Rwanda as their initial market in June 2018, SPENN’s founders have targeted Botswana, Kenya, Mauritius, Namibia, and Tanzania as potential markets for expansion.
There have also been reports of Alipay and WeChat Pay being introduced in the East African market. According to Xinhua, in June 2018 Equity Bank and Red Dot Payment, a Singapore-based online payment company, signed an MoU to link the Equity Bank payment gateway to both Alipay and WeChat Pay. Equity Bank is present in Kenya, Uganda, Tanzania Democratic Republic of Congo, South Sudan and Rwanda.
Which model will bring the long-awaited exponential growth in digital financial services in Africa? Taking stock of the widespread adoption of DFS by Chinese social media and entertainment consumers, African markets can learn much about how to permeate the everyday lives of mobile users by creating useful products and services, which lend themselves to the addition of value-added DFS. Whether it is the introduction of existing Chinese payment services through partnerships between Chinese companies and local financial service providers or the development of completely new services, one thing is clear: scale is important. Regional market creation through policy and regulatory harmonisation will be a key driver in achieving this.
This blog was co-authored by Adaora Ogbue, Associate Programme Manager at Mastercard Foundation and Renita Nabisubi, Head of Digital Financial Services at Access to Finance Rwanda following a trip designed for the Mastercard Foundation and their Next Generation Financial Services Portfolio Partners.
Originally published at https://www.financedigitalafrica.org on September 4, 2018.
