Payments in Africa continue to expand. The large untapped market of those who do not currently use electronic payments is attractive. As is the comparative lack of legacy infrastructure, plus the legacy mindsets and processes that come with this.
Innovation has become almost an essential currency in payments. The Global Payments Innovation Jury rated Asia as home to the most payments innovations over the next two years. Africa is rated in position #3, narrowly behind Europe but ahead of North America.
However, views differ as to the current status of the payments industry in Africa. How it should evolve to meet customer needs and provide adequate return to those who invest?
The Africa Payments Innovation Jury convened 25 industry leaders drawn from 14 countries to investigate. The Jurors came from banks, payment switches, card processors, closed-loop payment networks, schemes, mobile money operators and agency networks across Africa.
COMPELLING USE CASES
When introducing electronic payments to under-banked customers, a compelling first use case is essential. This will encourage customers to switch from their existing payment methods. It will also stimulate regular, habit-forming usage, which goes to changing long-term behaviour.
The Jurors ranked domestic person-to-person (P2P) payments as the most compelling new-to-payments use case. They felt P2P was most likely to displace cash and see daily usage. This was particularly as African consumers are connected to large families and rural areas. Electronic P2P is more convenient than travelling large distances to pay in person, or entrusting cash to an intermediary.
Indeed M-Pesa clearly found P2P to be the compelling use case in Kenya. Likewise, Zoona in Malawi and Zambia has seen P2P and complete immersion in the local community with agents as its brand champions as the best drivers. Despite the success of domestic P2P-led mobile money programmes, growth across the region is slow. Jurors believed that there were many contributing factors. Time to change consumer behaviour was ranked as the major inhibitor.
BARRIERS AND ACCELERATORS
Other inhibitors to mobile money growth are also noteworthy. They act as useful pointers to the barriers and accelerators of electronic payment in the region more generally. The impact of governments, regulators and international agencies is one. Jurors reported that most governments had not established formal national electronic payment plans. This contrasts with Asia where governments have been more active in setting policies. In Europe regulators tend to take the lead.
Rwanda was cited as a market with a formal payments digitisation strategy. The South African government was felt to have a positive view on the role of payments in wider economic development. Conversely, regulation in Nigeria has led to an industry structure in which it is hard to be successful, Jurors said.
The Jurors considered the extent to which regulators impacted on payments innovation. 35 percent of the Jury thought that regulators were assisting innovation. However, a sizeable majority (57 percent) saw regulatory action as being negative for payments innovation. This is substantially more pessimistic than the Global Jury, which had a 39 percent negative score. It illustrates the difficulty regulators have in balancing risk management, innovation and growth.
“Regulators look at payment innovation from a risk mitigation perspective whereas entrepreneurs look more to growth. There will always be a difference of view,” said one Juror. Another felt that regulation protected incumbents where the risk profile was known. The purpose of regulation was not to speed up innovation, rather manage risk. On the other hand, one Juror described the support that incumbents and monopolies received in their market as “borderline criminal.”
The question of interoperability is key for the development of both mobile money initiatives and the payments ecosystem more generally. The top priority identified by Jurors was to establish interoperability between mobile money operators and banking systems. This would avoid siloed ecosystems — one centred on mobile money operators and the other one bank rails – which is not efficient for the economy as a whole.
Research suggests that leaving the development of interoperability solely to market forces is not optimal for the industry. Arrangements can develop substantially later than when it would benefit every market participant. The majority of Jurors (86 percent) agreed that interoperability should not be left solely to market forces. The inevitable reluctance of the market leader would lead to slow progress.
The Global Jury favoured a market-driven approach to financial inclusion. However 50 percent of the African Jurors felt that central authorities should ensure innovation was appropriately incentivised. 38 percent felt that the market should be left to develop solutions. All but 12 percent were opposed to the central agencies, usually the central bank, becoming an operator.
Agency networks were felt to be a key accelerator of financial inclusion. Specifically when they provided the necessary interface between unbanked customers and electronic payment systems. For example, agency networks, such as Fawry in Egypt, IFIS in Nigeria, Maxcom in Tanzania and PesaPoint in Kenya are truly independent of both MNOs and banks, and are well-placed to serve all players in the industry.