Tips for 2012: Understanding Payment Behavior of African Households – A Vast and Untapped Market

What's Next In Payments®
10:56 AM EST February 9th, 2012

What does 2012 hold in store for payments in the developing world? We believe there will be a renewed interest in domestic payments and remittances. While more attention is often given to international remittances by the payments industry, we present new data that shows a vast and untapped domestic payments market in Africa that could be serviced by providers(1). However, the market is often misunderstood, and domestic payments in developing countries have been neglected in policy discussions and as a line of business. Our Tips for 2012 are to keep an eye on the mobile payments space in Africa and not to underestimate the demand for better domestic payment options in this part of the world.

The Survey

To better understand the market for domestic payments across various African countries, a module of 30 or so questions on payments was attached to the Gallup World Poll, which is a nationally representative survey of 1000 adults per country conducted annually(2). Questions in the module tried to get at respondents’ payment behaviors through services such as money transfers, international remittances, government and wage payments, and utilities and other bills. The questions referred to payments involving distant counterparties (i.e., those not in the same village or neighborhood) within the past 30 days, and respondents were asked to specify the channels they used to send and receive payments: via mobile phone, bank transfers, a friend or courier, a wire service or public transportation. They were also asked about the fairly common practice in Africa of traveling to hand-deliver a cash payment (such is the state of payment options in many contexts that it’s actually preferable to jump on a bus for a day and deliver payment in cash rather than to send money through a formal or informal intermediary). Respondents were also asked to differentiate between cash and non-cash payments, and payments made in person from payments made remotely. The survey also included questions about the sending and receiving of domestic and international remittances.

Not included in this data would be the much more frequent pool of payments at the point of sale and other payments made to local counterparties.

A democratic distribution of payment behaviors…

We were surprised by the large number of respondents who reported being payers, payees (or both), and the extent to which the respondents were from all levels of income. Over the entire sample of 8,000 adults, just over half sent or received a domestic payment or remittance in the past 30 days (Figure 2 below shows how payment behavior breaks down by country). Government to person and wage payments and payments to formal institutions (e.g. interest payments, utility bills, etc.) were reported by almost a fifth of respondents. We think these numbers are large in comparison with popular industry perspectives. A full quarter of the respondents reported sending or receiving cash delivered in person, which signifies a clear opportunity for electronic transactions to solve a very common pain point faced by many African households. Surprisingly, and again, contrary to popular wisdom, international remittances were only reported by 4% of the respondents in the past 30 days(3). We will have more to say on international remittances below.

Long distance payments were even common amongst the poorer income quintiles. 40% of respondents in the lowest income quintile of their country reported at least one payment, and just over 45% reported the same in the second quintile. This shows that even the poorest in Africa could potentially be a large market segment for electronic payment and remittance services.

Many respondents reported sending or receiving more than one payment per month. The average number of payments was 3.6 for those who sent or received any payment and 21% of the respondents had more than five transactions with few percent of respondents doing more than 1 transaction per day (likely these were micro-enterprise or small business owners).

Figure 1 shows the distribution of payments over different modes of transfer (here we show only sending; receiving is roughly similar) and prominence of mobile-based transfers is clear. There are interesting cross-national comparisons in the distribution of modes of sending payments as well. Kenya stands out for the development of the mobile money market with 52% of Kenyan Adults reported conducting a mobile-based transaction in the past 30 days. However, Tanzania and Uganda appear to be catching up with Kenya in terms of the use of mobile money services with 24% of Ugandans and 15% of Tanzanians reporting a transaction (for respondents in the other five countries, it was less than 2%). Nigeria, however, provides a comparison that shows greater reliance on bank transfers for sending money but not for making a payment. In Rwanda, cash is king. In Congo and Zambia, there is greater reliance on transfer services like Western Union than in the other countries in our sample. Looking across the region we see a highly differentiated market in payment services, perhaps related to differences in infrastructure development, with potential openings for mobile and other electronic payments services to supplant or complement cash, banks and wire services.

Scoping the market: total payment flows and profits in these markets

For those who do manage to bring the right services to the market, the opportunities in these countries could be impressive. The total population of the countries in our sample is a third larger than that of the United States with over 400M people, and of those, 225M adults (there are just over a billion people in Africa as a whole). Figure 2 estimates the number of individuals in each market who conduct a payment transaction within a given 30-day period by multiplying the total number of adults by the response rate from the survey. The total is 124M adults across the eight markets, indicating a sizeable opportunity. We also calculated that 62M didn’t use any formal mode of transfer for any of their transactions, instead sending money in cash with traveling friends or informal money carriers, or traveling in person to make large payments(4). The hassles and risks associated with this type of transfer are obvious and the fact that such a large population is willing to use them is a strong testament to the level of need households have for these services. Any service provider who manages to achieve (for example) a scaled mobile money deployment in these markets will capture a large and mostly virgin territory(5).

Foreign vs. domestic remittances (because foreign remittances are such a hot topic…)

With all of the industry excitement about the potential for international remittances, what is perhaps most striking in this data is that domestic and international remittances are clearly separate markets, with domestic by far the larger of the two, and with little correlation between the two behaviors. The percent of respondents that reported sending or receiving an international remittance in the previous 30 days ranked from a high of 5.9% in Kenya to a low of 2.1% in Rwanda, in stark contrast to the much higher levels of domestic payment activity cited above. This low level of activity is surprising given that Nigeria alone receives over $10bn per year in international remittances(6). Though individual domestic remittances are likely much smaller than the typical international remittance, they appear to touch an order of magnitude more people and could easily represent much larger money flows (albeit internal).

What to watch

As we noted above, these data suggest that people in Tanzania and Uganda are approaching their neighbors in Kenya in their use of mobile payment services. A number of new mobile money services have launched in those countries in just the past two years, while competition is starting to heat up in Kenya, too. At the same time, third-party providers are beginning to realize the benefits of treating mobile payment as a platform for the provision of other services, like insurance or savings (Kendall et al. 2012). Meanwhile the same level of activity has not manifested in other markets where mobile money has been slower to take off, however the data shows a high level of payment activity is occurring in these markets, with much of it happening informally or in cash, reflecting the poorer options available. We feel this represents a major opportunity for whomever is first to market in the rest of Africa.

Looking back, we think that the financial industry’s realization that there is an unmet need for payment services amongst Africa households was one of the most significant developments of 2011(7). Looking forward, we see the increasing use of mobile payments as a platform for other services in the markets where mobile money is already established or rapidly becoming so. And we can’t help but see exciting opportunities in markets like Nigeria, where the central bank has recently issued licenses to electronic and mobile payment providers. We see huge potential across the continent, but especially in places where cash delivered by hand is still a common method of payment. Designed well, priced right, and made accessible to the poorest, mobile and electronic payments will find a large and profitable market while relieving a major expense and source of insecurity for the poor.


Jake Kendall is the Program Officer for the Financial Services for the Poor Initiative at the Bill & Melinda Gates Foundation

Bill Maurer is the Director at the Institute for Money Technology and Financial Inclusion at the University of California Irvine


1 We present data from nationally representative surveys of 1000 adults in each of Nigeria, Kenya, Tanzania, Uganda, South Africa, Rwanda, Zambia and Congo (Kinshasa). These are 8 of 11 total countries covered by the questionnaire module and the final three countries (Botswana, Mali and Sierra Leone) will be available later in the year. The underlying data from this study will also be made available on the web later in 2012. For access, please email one of the authors. This study was funded by the Bill & Melinda Gates Foundation.

2 See Gallup’s web page for more details.

3 This number likely understates the number of people who receive some form of regular remittance from overseas if these payments are less frequent than on a monthly basis. Nevertheless, this number is similarly small (<6%) in al the countries surveyed.

4 See this blog post that presents some data on the risks and costs associated with informal money transfer.

5 We believe these estimates of the number of viable consumers are conservative for a few reasons. First, we only asked about transactions in the past 30 days which would have missed some consumers who transact less frequently. Also, as Kenya illustrates, the level of transactions and the number of people doing them are likely to go up with better formal payment options. That said, if the 30-day period during which we surveyed captured higher rate of payments than normal, we might be overestimating. Since the surveys were staggered, we assume any biases of this type would have been off-setting to some extent.

6 Yang, Dean (2011); “Migrant Remittances”; Journal of Economic Perspectives; v. 25 n. 3. Likely these

7 See this blog post on the subject of how payments have become a much greater focus in the field of financial inclusion.

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