Lack of Trust, Gov’t Support Are Main Barriers to Digital Advancement in Developing Markets

Barriers to Digital Growth in Developing Markets

If anyone has the knowledge and experience to speak confidently about the ups and downs of Africa’s technology and payments ecosystem, it’s 30-year-old serial entrepreneur Iyin Aboyeji, better known as “E.”

In an interview with PYMNTS, Aboyeji said there must be as much hunger from governments as consumers to connect Africa to the global economy, adding that a complete shift in thinking is needed so that someone interacting with the global economy is not seen as “illegit, mischievous or ungrateful.”

And it would be impossible to talk about the payments space in Africa without mentioning the success of M-Pesa, a mobile money service created by leading digital payments innovator Safaricom. When asked why no other company has been able to replicate the success of the service, Aboyeji responded that a lot of the challenges that M-Pesa creatively solved were problems that countries didn’t encounter.

Unlike Safaricom, which is one of the few well-run telcos on the continent, most countries don’t have a government-run telco, or they have state-run telcos that have never succeeded, explained Aboyeji.

Secondly, he said the Kenyan banking system didn’t have certain features that other banking systems have now developed, such as central switches, intra-country bank transfer or real-time payments. In addition, he said, the government also felt comfortable ceding mobile money to Safaricom, “unlike in other countries where the top telcos are from South Africa [MTN] or from India [Airtel].

“When you put those three together, you realize that M-Pesa is a very unique circumstance in a very unique point in time with very unique people and very unique leadership,” he noted. “And they’ve done very, very well, but I don’t think it’s fair to expect other countries of similar size to tow that path.”

And Aboyeji should know, since prior to helping co-found and lead Flutterwave, he co-founded Andela, Africa’s largest engineering organization with over 1,000 software engineers, which has attracted major investors, including Mark Zuckerberg and Google Ventures.

Everything Is Embedded in Finance

Big Tech and FinTechs are driving the innovation agenda in developed markets, setting the stage for how digital payments and commerce happen, and trust is a significant enabling factor.

“The developing world famously has weak institutions, unfortunately, particularly institutions that can maintain rule of law and sanctity of contracts, so I think that a lot of the technology you’re going to see in the developing world will be designed to manage that risk,” he explained.

He said escrow, payments, decentralized finance, blockchain, cryptocurrency, data-backed lending and asset-backed lending that allow interactions with the global economy are imperative for many of these businesses, and building around the trust barrier would influence the growth of payments and eCommerce in developing markets.

Everything going on now in the developed world is embedded in finance, he said, “simply because people can be identified, you can have a credit history, your credit gets messed up, you can’t do anything in your life,” said Aboyeji, who is currently the general partner of Future Africa, a company he founded to connect investors to promising startups. “There are all these things that prevent you from being crazy in a developed market,” which developing markets don’t yet have.

Crypto and Payments Innovation Go Hand in Hand

According to Aboyeji, cryptocurrency and payments innovation work well together in developing markets because there’s a desire to interact with the global economy which crypto does very well.

“The mindset that we need to have is that crypto and FinTech need to work side by side to be able to realize value for each other,” he said. “I don’t see one necessarily as a full-on replacement for the other.”

He said integrating identity with payments is advancing not just the super app notion in Africa, but in payments more broadly because it enables new forms of payment experience like layaways and credit at the point of sale (POS). But he cautioned anyone trying to build developed country infrastructure in developing markets be mindful of the differences in markets and the different trust barriers involved.

“Even if I take a picture of you and put a name behind it, and the government says, ‘This guy is X, and X owes 500,000 naira,’ can I take his family land? Probably not. Can I garnish his wages? Probably not. Can I even get a court judgment? Probably not,” he said, adding that eventually it becomes useless given the constraints of the system.

He is not against national IDs systems like the ones Senegal and Ethiopia have implemented, but he said “it’s not going to do much for anybody,” let alone solve the problems governments are facing.

Some central banks like Nigeria’s plan to launch a digital currency in October, but for state-driven digital currencies to be the gamechanger, Aboyeji said it’s going to depend on how the banks are able to pull the ecosystem to support them in distributing the currency.

“It’s one thing to issue a currency and to have all these amazing use cases for it, but if they don’t spread their wings and open themselves up to collaboration with the likes of Facebook, it’s not going to matter.”