“If you want to live in a cashless society, where most consumers and merchants are using their mobile phones for payments and other financial services, pack your bags and head to Somaliland or a few other destinations that are as long on mobile payments as they are short on 3 star Michelin restaurants."
-- Dr. David Evans, Why Apple Pay Is Fizzling
If you ask the man on the street what they think of when they hear the phrase “mobile payments,” many would say Apple Pay, some might say Silicon Valley, while others might reference something about paying with their phone. It's unlikely, however, that “Sub-Saharan Africa” would make most people’s Top 5 -- or even their Top 3.
Which demonstrates, if nothing else, a major hole in the standard coverage the mainstream media offers Africa - which tends to be more focused on disease, terrorism and civil wars. The real story to be told, however, is mobile payments, which is changing how people pay locally, but actually how they live in Sub-Saharan Africa. For example, in Kenya, the wife of a local cow herder recently switched on her home’s first ever electric light, care-of mobile payments, albeit indirectly.
The Wall Street Journal reports that Rokoine Tipanoi, in late 2014, used her mobile phone to place a small down payment on a solar panel that provides her family home access to electricity for the first time, and for a lower cost than what it once cost to fill her kerosene lantern.
The original deposit for the panel was $30, and she will be paying that off for roughly a year through a series of daily micropayments. Daily fees will add up to about 40 Kenyan shillings, or a little under 50 cents.
"Now I have two lights, instead of one lamp. And I can charge my phone," Tipanoi said proudly of the new solar panel.
Tipanoi’s situation is becoming increasingly common across Kenya, where mobile payments have been been transforming the landscape for almost eight years. In 2007 Kenya introduced M-Pesa (named for the Swahili word for money), a platform that allows for easy money transfers via SMS text messaging. As of 2014, mobile payments penetration is 85 percent in Kenya, according to data from McKinsey and so common that Kenyans do everything from routine grocery shopping, to settling their utility bill to paying their doctors via text message today.
And this changing landscape of payments has created a rising tide that is now allowing other boats to attempt to service the largely underserved lower-class, underbanked consumer in Africa.
According to the World Bank, around 70 percent of the global poor live in Africa. In 2013, Sub-Saharan Africa’s gross national income was a little under $1,700 per capita. It is also, according to data from Gallup and the Bill and Melinda Gates Foundation, still rather cash based. In the 11 Sub-Saharan countries survey, it was found that 80 percent of consumers routinely paid in cash only, and that in some locations (even in mobile-friendly Kenya) cash-only was the policy of 90 percent of local merchants. E-commerce, banking and mobile payments exist, but with the Kenyan exception, are still most enjoyed by upper and (emerging) middle class consumers, as the poorer remain cash tied.
The success of M-Pesa in Kenya, however, is beginning to highlight how a change in payments availability can change the economics of serving the “bottom billion” consumers in the world.
Almost two-thirds of all Sub-Saharan households have cellular phones - though generally not the smartphones that are popular in the developed world. African consumers are more likely to use older model phones that are then loaded up with a few dollars at a time to use for calling and text messaging.
M-Kopa, the company that helped Rokoine Tipanoi switch the lights on for the first time, launched his business because he saw an opportunity to leverage Kenya’s mobile enthusiasm to go from payments to financing. Co-founder Jesse Moore chose solar panels due to the large section of Kenya that is off the power grid.
"We believed there would be businesses built on the back of mobile payments and we wanted to be part of that," Mr. Moore said.
Moore first came to Kenya to help launch M-Pesa for mobile provider Safaricom. He noted the biggest challenge his company faced was convincing a population that was unable to afford a modest increase in the price of milk that a solar panel was a good investment.
Undaunted, M-Kopa set their sales agents loose in some of the country’s poorest areas, determined to succeed at tapping an apparently neglected market.
And since the launch of M-Pesa, they aren’t the only ones.
M-Kopa is just one of many mobile payment companies showing that bringing value to the world’s poorest consumers is a valid path forward for growth-oriented businesses. Small digital transactions are providing new ways for merchants to reach formerly isolated customers, and for remote consumers to explore previously unavailable services.
Kopo Kopo is another such company. It allows informal retailers to accept digital payments, and then to computerize their bookkeeping. M-Changa essentially created a crowdfunding platform for the type of events that draw support from an entire Kenyan village by allowing families to use a phone app to raise money for weddings and funerals .
"The mobile phone made the bottom of the pyramid viable as a business opportunity," said Aly Khan Satchu, who runs a Kenyan investment firm. "If you’re taking a dollar off a million people, that’s a reasonable revenue stream, but it wasn’t possible to do that without the mobile phone."
Moreover, accessing mobile payments in Africa doesn’t require the use of a bank account - as the vast majority of Sub-Saharan Africans, particularly those outside of urban areas, are unbanked. Locally, to load money for mobile use, consumers are able to simply hand cash to agents stationed at grocery stores, petrol stations and shopping centres.
Once loaded, users get a text message with their balance, which they are now free to draw upon to send money to another person or a business.
It is fair to note that Kenya is a special case, as the Gallup data also indicates that mobile payments penetration is higher there than in its 10 Sub-Saharan nation-state neighbors. But, the data points out, the opportunity is there with an opportunity for $6.6 billion to $7.7 billion in possibly potential digital revenues.
Those opportunities are, in turn, drawing investor interest in the region. The Tony Elumelu Foundation, which announced the launch of a $100 million entrepreneurship program, Airtel Nigeria launch Catapult-a-Start-Up, Millicom and Safaricom have both launched investment funds and Microsofts Ventures program expanded into Nigeria.
When talking about the mobile revolution, American minds rapidly spring to how mobile will change commerce as we understand it. However, in parts of Africa, the question is not how mobile will change how they pay; that question was answered seven years ago by M-Pesa.
What remains to be seen is how mobile payments will continue to change the lives of the people in the developing world. In the Tipanoi household in Kenya, mobile has meant that two teenagers are able to study without breathing in kerosene smoke, cooking is now done by electric light and a flashlight is no longer an unaffordable expense. It is hard to imagine a stronger value proposition for mobile payments than that.