A digital fiat currency and government-issued mobile money platform could transform the Sub-Saharan African economy, according to nanopay CEO Laurence Cooke, who recently visited East Africa to explore opportunities in the region and has returned with some key insights.
First and foremost, he said, banking in Sub-Saharan Africa is almost exclusively urban. However, the vast majority of the population lives in rural areas and is therefore unbanked. The nearest bank could be a multiple days’ walk away. That’s why the economy has historically been cash-based.
Today, Cooke said, people are shifting away from physical tender to mobile money providers.
The problem with these solutions is that they’re delivered by foreign mobile operators, which makes them expensive, costing participants around 10 percent of the transaction value. There is a minimum cash-out fee, which has led to the practice of exchanging IOUs until customers build up enough to make a larger payment.
Thus, micropayments, such as the amount someone would pay for a cup of coffee, become unfeasible transactions, Cooke said. Any payment smaller than around $10 simply wouldn’t be worth it, since the customer would pay more in transaction fees than he would for the coffee.
Then there’s the problem of closed-loop systems: To accept money on multiple platforms, Cooke said, sellers are swapping out multiple SIM cards in their phones. The system should provide this capability, not require users to MacGyver their way around available tools.
Finally, said Cooke, these mobile money platforms are unregulated, yet they have replaced banks as the go-to for financial services. Due to a lack of security and privacy, most of the platforms would not succeed in a first-world setting, but in this region, Cooke said, there isn’t a better option.
That’s an opportunity for providers to make their platforms better, he said. But perhaps the greater opportunity is for the government, which Cooke said could step in and offer a solution with ubiquity.
Payments are currently happening outside the government’s visibility, so it isn’t earning any taxes on that activity. And when the poorest people are paying the highest prices to do payments at all, Cooke noted, that’s money leaving the system and going to a foreign player.
Cooke said governments should consider providing their own mobile money platforms for free to end users, which would ensure everyone in the country has access to financial services and would begin to generate tax benefits at the same time.
More than that, Cooke said it’s time to think about taking things to the next generation with solutions that work on multiple platforms — and that must include offline platforms.