“You said I didn’t need to wear a tie,” muttered Nelson, a tinge of betrayal in his voice. Slightly apologetic in my body language, it is my lucky tie after all; I sat down for one of my increasingly rare 2020 interviews. Nelson is part of the new generation of entrepreneurs in Africa who eschew traditional formality and are hyper-focused on optimised sales and customer streamlined experiences.
I had first interacted with Nelson via his Social Media business page when he was selling mobile phone and laptop accessories. My purchase experience had been fully digital, right from negotiation to order payment and delivery. Although Nelson’s page offered links to an online payment gateway, he preferred to get paid via M-pesa, citing predictable transaction fees and instantaneous settlement. The delivery, dispatched via a trackable ride-sharing motorbike service took 2 hours and all price points were visible to me as the buyer. When I subsequently probed Nelson on his avoidance of online payment gateway providers, he merely pointed out that he can complete an almost frictionless sale using MPESA, without the need for training or re assuring customers as is common with other payment methods.
In Kenya, a key African Fintech hub, the payment ecosystem has in large part been shaped by Safaricom’s M-pesa mobile money system. With 22 million mobile money accounts out of a population of 47 million, M-pesa’s network effects are so significant that traditional banks have been left scrambling to play catch up. In 2017, Kenyan banks finally launched a mobile-friendly solution called PesaLink. This long-overdue innovation allowed bank customers to transfer money to both bank accounts and mobile money wallets within minutes. However, the M-pesa payment channel has remained the main option. Three years on, Nelson’s question, “What’s PesaLink?” When I first offered this as a payment option, reinforced my conviction of the uphill task facing traditional banks seeking to provide financial services to the average African consumer.
This challenge for banks is even numbers. Kenya’s Telco-led approach has not taken root in many attractive digital money growth markets, with one of the reasons being the decision by regulators to only license bank-led mobile money solutions. The Central Bank of Nigeria had indicated its intent to allow non-bank financial players into the mobile money space in 2018. However, this has not materialised in a meaningful way, leaving Nigeria’s 60% unbanked-population dependent on cash for handling payments. However, numerous Fintech players have built solutions that leverage their own banking relationships and a 60,000+ agent network to create a mobile-money equivalent to their end users.
Based in Abuja, Chioma effusively narrates how she established and grew her bakery business. She received a co-investment in two tranches in 2018 from her aunt based in Luton, England. She has recently formally hired her only sibling to help with bookkeeping and other administrative tasks. Chioma was a beneficiary of Nigeria’s significant annual diaspora inflows ($22 billion in 2017) and was fortunate enough to establish a successful business with the proceeds. Her aunt’s initial 1,500,000 Naira investment supplemented her savings and, with her new hire, will enable her focus on product differentiation and expansion beyond the pastries (mainly bread) that she currently offers.
Both Chioma and Nelson have narrated the business shocks that hit them with the onset of the COVID19 pandemic. With the characteristic optimism of Africa’s burgeoning entrepreneurial class, they both told of their unfolding disbelief as international and local lock-downs brought their businesses to a grinding halt by mid-2020. They have both weathered the storm, but not without significant income reductions. In some ways, however, the benefits of governmental drives to eliminate physical cash, as well as a consumer-driven dash to cash helped reduce transactional friction for their businesses. In Nelson’s case, client preferences shifted almost overnight towards online shopping; and a professional online presence supplemented the need to pay for expensive store space. Chioma, on the other hand, had to engage in protracted, but ultimately successful, rent negotiations. Fortunately, she managed to retain her core customer base and managed to eliminate the need for frequent cash agent or banking hall visits. During interviews, both Nelson and Chioma evidenced a low level of interest in any electronic payment channel alternatives. In particular, certain payment options such as contactless debit/credit card seemed to elicit little consumer or merchant enthusiasm. Perhaps most interestingly, both merchants seemed not to mind relatively high mobile money transaction costs, even when lower digital payment options were highlighted. Convenience and consumer preference drove both of their thought processes in terms of their preferred payment channels.
Like many of their counterparts across Africa the economic knock on effects from the COVID19 shutdown also led to a sharp rise in social fundraising requests from friends and relatives. Whether it was for medical expenses or to help the recently-unemployed meet basic living costs, the appeals kept coming. At a governmental and International donor level, the existence of digital payment infrastructure aided social protection distribution. As a case in point, Kenya’s government was able to create a temporary employment drive and make weekly payments to approximately 130,000 recipients, as well as provide full reconciliation by close of business. Separately, the United Kingdom, in partnership with GiveDirectly, was able to effect direct cash transfers to 50,000 participants. With a well-developed national identification system and an established Unemployment insurance fund, South Africa was also able to disburse existing and enhanced social protection payments to over 17 million recipients via a range of bank account and cash-based channels. Overall, ensuing studies on the benefits, and lessons to be learned from various payment channels should provide a rich source of information for organisations formulating their 2021 digital strategies.
Statista estimates that, close to 300 million Africa’s 1.3 Billion population held bank accounts in 2017. Although this number is likely to continue growing significantly, the growth rate will pale in comparison to that of the growth in mobile money accounts. With countries such as Ethiopia now seeking to further liberalise digital payment channels, mobile money is bound to lead the growth in both financial inclusion and sophistication of financial products via digital channels. The GSMA’s 2018 listing of 3 sleeping mobile money giants includes Ethiopia, Nigeria and Egypt, all countries with populations exceeding 100 million. However, latent demand and regulatory enablement may drive faster growth in relatively smaller, but more nimble markets in 2021 and beyond.
As for the likes of Nelson and Chioma, the prospects of building back their own futures and those of their compatriots and neighbouring countries remain as bright as they ever were. Organisations with the right focus on Africa’s digital future will be around long enough to support this growth journey and benefit from its outcomes.
