Mobile payments talk at #tech4africa

A number of people at #tech4africa, the excellent conference organised by Gareth Knight (@oneafrikan), asked whether I’d make the copy of my introduction to the panel on Unlocking Mobile Payments available. You can find the text after the fold. Attribution will be appreciated, but feel free to use it however you wish.

The subject of mobile payments is, in my view, extremely important, but also quite complicated. I want to give you some context, which I hope will explain why I think so.
Time for some impromptu research. How many of you have a debit card? How many have a credit card? How many of you have a credit card merchant account?
I’d like to ask how many of you earn more than R6 000 a month, but I don’t want to embarrass the journalists in the audience, so I’ll just assume that most of you do.
R6 000 a month is the gross national income per capita in South Africa, according to the World Bank, at purchasing power parity. That makes us almost average. However, what this figure does not show is that more than 80% of South Africans households earn less than this.
In Sub-Saharan Africa, the average is about R1 200 a month.
In South Africa, 50% of the population is unbanked. While banks will say they’re doing everything they can, I doubt this will change significantly in the near future. Banking is expensive, inconvenient and complicated, especially for poor or rural populations. In Africa, 95% of the population, over 700 million people, are inadequately served by the formal banking sector.
That’s the first thing to keep in mind: you and I are not representative of the African market out there. Their lives, their needs, and their problems, are very different from yours and mine.
In Africa, very few people will ever have a wired internet connection. If you want to know how well it works to try to sell tickets online in Africa, just ask FIFA. It never even occurred to them that it would never even occur to most local football fans to buy tickets on the internet. I could have told them that, but I’m not really on speaking terms with FIFA.
By contrast, most South Africans, and about a third of all Africans, have a mobile phone. You can get a basic model fairly easily on a prepaid basis.
That’s the second thing to note: for the developing world, the future is mobile.
In order for an economy to develop and grow, people need an effective way to transact. The less easy it is to transact, the fewer transactions will happen. The more time and money people spend to make or receive payments, the less they can spend on actually making money in the first place.
This leads to the third observation: the future of payments must be mobile. And this is true especially for Africa. Africa will lead this change.
Brian Richardson, the CEO of Wizzit, tells a great story which I like to quote, about a woman in a village somewhere, who was out of airtime. He used his phone to send her R10 in airtime, to oohs and aahs of the assembled crowd. A while later, he saw she was in tears. Worrying that he’d embarrassed her in front of her peers, he went over and apologised.
“No,” she said. “It’s not that. I can afford to buy airtime myself. But I have to walk to the main road, wait for a taxi, and then travel an hour to town. If I don’t get robbed, I stand in a queue, buy my airtime, and then catch another taxi back. So R10 of airtime costs me R5 in taxi fare and four hours away from home. You’ve just given me all of that back.”
It is startling when you realise how elementary the problems are in the developing world, and how much of a difference basic financial services can make.
In many rural areas, for example, airtime is being used as a proxy for cash. What happens is that a farmer, for example, uses airtime to pay a labourer. The labourer then either uses the airtime to buy things, or finds one or more people to whom he can sell the airtime for cash. It is, quite frankly, absurd that this transaction model is more efficient than what the financial services industry can supply.
With decent mobile payment services, shopkeepers can not only accept money by mobile phone, but act as bank tellers to handle wage payments, remittances, transfers, and cash withdrawals. They can act as agents who sell electricity, airtime, and even small-scale insurance policies or micro-loans. These services filter out into the wider community, giving people more time, more money, and more opportunities.
Theirs aren’t the sort of businesses that make the papers. They’re not even the sort of businesses most of us would think valuable. But they make a world of difference in that township or village. That’s why this matters.
These people, and these businesses, are the building blocks of economic growth. They are the drivers of future prosperity. Reducing poverty is not just about formal-sector corporations employing large numbers of workers, all of whom have a union card and a formal bank account. It is about people having the infrastructure to enable them to work for themselves, to trade easily, locally and globally, and to start small businesses. That’s why this matters.
Having said that, it’s not just about the broad base of the pyramid, either. In many African countries, even the rich don’t have electronic payment options. Agosta [Liko, of PesaPal] pointed out to me that in Kenya, managers send messengers to buy airline tickets, and parents spend half a day queueing to pay school fees. This is stupid. And that’s why this matters.
Someone I know recently bought a bus ticket from Johannesburg to Bulawayo. The ticket wasn’t expensive, but to get it he had to go to a bank to make a payment, fax a deposit slip to Durban, call a number to check whether the fax had arrived, and fax it again because it hadn’t. Half a dozen long-distance phone calls later, he had a reference number, which he had to take to a ticket office at Park Station in Johannesburg to get his actual ticket. That’s a lot of time, money and effort wasted on one lousy bus ticket. This is stupid. And that’s why this matters.
The biggest hurdles to unlocking mobile payments are not technical. They’re regulatory. There is a raft of legislation that stands in the way of truly simple, universal solutions. I can name them if you like: The Banks Act, the National Payments Systems Act, the National Credit Act, the Financial Intelligence Centre Act, the Competition Act, the Consumer Protection Act, the Prevention and Combating of Corrupt Activities Act, the Financial Advisory and Intermediaries Act, the Electronic Communications and Transactions Act.
The list goes on. That’s only in South Africa. Those are only the short names.
In each country, there are dozens of laws and regulations, and they’re different in every one.
There is, however, one law that is common to most countries. It says only banks may accept deposits. It makes a weird distinction between accepting money for amounts due, that is, when you’re paying for something, and accepting money on the understanding that it will be repaid at some future date.
If you ask the central bank, they’ll tell you the deposit-taking law exists to protect depositors. As if we actually have explicit deposit insurance. As if banks don’t fail anyway. As if it’s any different when a company that goes bankrupt owes you phone calls or clothes, instead of cash.
The true motive of the deposit-taking law is not depositor protection. The true motive is control over monetary policy. I can talk for hours about the reasons why governments want this control, and why this explains almost everything that’s wrong with the world. That’s why my friends know not to buy me beer.
The essence is that governments cannot print money to pay their own deficits, if citizens could just switch to a currency that doesn’t get devalued while it’s sitting in their wallets. That is why you cannot demand gold, or cattle, or airtime minutes in payment of debt. You must accept official, state-issued currency – legal tender.
There are other reasons why laws restrict electronic money. A few are valid concerns, such as fraud and money-laundering, but most come down to the same thing: not being able to steal your money by means of monetary policy, tax or tariffs. Governments don’t like being powerless to take your money.
The upshot is that many transactions are difficult and expensive for the man in the street. It is expensive to accept credit cards, even if customers had them. It is difficult to accept foreign currency, except to sell at a loss on the black market. Other value tokens, such as airtime, are hard to redeem for cash. They cannot transact simply and easily, without a lot of costs, credit checks and legal red tape.
Here’s the ideal. We’re looking for a system that can allow a buyer to pay any merchant and allow a merchant to accept money from any buyer. It must allow person-to-person money transfers, whether they meet in a shop, or send money home across country borders. It must be real time. It must be usable not only for large transactions, but also for small ones. It must smoothly integrate with both bank accounts and paper money.
The bad news is that the regulatory hurdles probably won’t go away any time soon. Although some people in government are keen to remove the obstacles to economic growth and entrepreneurship, there are powerful vested interests in the status quo. Besides government itself, banks rather enjoy the regulatory monopoly they have on moving money around. If you and I earned what they do from bank charges, we’d also spend our days lobbying to make sure non-banks can’t take our lunch money away.
Besides fees, there’s the lucrative business of sitting on your money for a day or two before clearing it. There is no technical reason for it, as your instant point-of-sale notification SMS proves. But they make a killing on the interest. Banks do not want real-time transaction.
And the central bank talks about depositor protection? All I hear is an Italian accent, the kind of protection the mafia sells.
The good news is that point solutions are making very visible inroads. The most famous African case is probably mPesa in Kenya, which is a telco-led system. MTN’s Mobile Money appears to be doing well in Africa, and has over two million customers in in Uganda, Ivory Coast and Ghana. In South Africa, several partial solutions exist, including Pocit, MXiT moolah, Wizzit, uKash, and ABSA’s new CashSend feature.
None satisfy all the requirements for a true universal transaction platform, but in combination they are starting to make a real difference.
What I’ve been trying to understand is how these developments can come together, to satisfy all those requirements. How they can make transactions easier and cheaper, rather than more costly and complicated.