Plenty of progress has been made on increasing the size of Africa’s banked population. The trouble is, from the amount of noise that is made about the topic, you would be forgiven for thinking we had fixed the problem when we really haven’t.
According to the World Bank, today, 62 percent of the world’s population has a bank account. In 2011 that figure was 51 percent. In three years, 700 million people became “banked” in some way, and the number of “unbanked” individuals dropped 20 percent to two billion adults. Much of this progress was attributed to mobile money.
Mobile money is clearly a great story, and a tale of African success, but it has perhaps been overemphasized when it comes to its ability to bank the unbanked. Things are further behind than people think, but too often it feels like those of us that say so are yelling against a wind of “we have arrived” when really we haven’t yet.
Africa’s unbanked majority
McKinsey estimates that around 80 percent of the continent’s population remains un-connected to formal financial services. MasterCard says only 2 percent of retail transactions in Africa are electronic, with the rest made possible through the use of cash, and this on the “continent of mobile money”. Is this a huge surprise? Not really. Even in the United Kingdom electronic retail transactions have only recently overtaken cash. Cash is still king in the United States. We must not overemphasize the progress we have made in Africa.
Mobile money has been an exceptional development for the continent. In a couple of cases mobile money has cracked it, and it really has raised the bar in terms of being a proven electronic means of transaction and storage. Yet in terms of “banking the unbanked”, it is yet to really figure out its role. The average transaction value on M-Pesa is $29, which is a lot if you are earning $2 per day. Mobile money has a ways to go to banking those at the bottom of the pyramid.
Energy and time
Cost is driven by two major factors: energy and time. To really allow electronic transactions take off, we need to tackle these factors. Electronic transactions have helped fix the energy issue, but thus far has it actually tackled the problems of time and cost? Mobile money agents need to be paid for their time. We need to provide lower friction transactions.
The continuing popularity of scratch-card gives off a skewed notion that Africa is transacting in an ever more hi-tech manner. For the last three years we have looked with admiration at scratch-cards. At any informal outlet across Africa, they are successful. They have values of less than a single dollar, but create $70 billion of revenues for mobile phone companies. They are the lifeblood of the oft-cited mobile revolution, and there are a lot of other industries looking at implementing them.
Scratch-cards’ success is down to their ability to convince both customers and merchants of their worth. The cost, energy and time issues are solved for customers, and merchants like them because they result in increased footfall. This is the challenge faced by electronic means of storing and transacting wealth. Customers will only use electronic means if they can spend their money in their local area. Merchants will only accept electronic means if they believe customers will use these means. These two factors go hand in hand, and represent a chicken and egg trap that is difficult to break out of.
Breaking out of the trap
There are ways of breaking out, however, and they involve consolidation, different stakeholders working in their areas of expertise, and building on what we have already. Safaricom’s success with M-Pesa was down to its ability to use its pre-existing merchant network as a means of pushing electronic payments. If we can figure out clever ways of using existing networks we can break out of the chicken and egg trap.
It needs all hands on deck, whether the private or public sector, the more the better. There is a greater need for consolidation. Regulators are now helping, forcing people to play together nicely. The next level of consolidation is creating specialist roles.
Aside from the risk element, there are financial benefits too. If you sit on cash you are losing money, missing out on the ability to participate in the likes of shared savings schemes. Energy and time come into play here too. Merchants need to pay suppliers, and by eliminating time and energy expended in handling cash, can improve their businesses.
The benefits are clear, and we are on the road to realizing them. Just perhaps not as far down the road as many think.
By Vahid Monadjem
Vahid is the co-founder and CEO of Nomanini, a South African-based mobile Point of Sale service for facilitating cash transactions in emerging markets.