Mobile Transactions in Africa

Mike,

I am impressed by your company's mission. My name is Bobby Kia, a George Washington University Global MBA Candidate. While in Ghana last year I noticed many people, even villagers, had cell phones. I think the difficulty would not only be equipping people with cell phones but accessing and teaching them about the financial possibilities having a cell phone offers. Maybe at the point of sale of the cell phones one could inform the buyers of these financial possibilities. Of course, many people buy cell phones from street vendors. What investment challenges have you faced? Keep in touch, I am interested in similar socially-entrepreneurial developmental goals.

Best,
Bobby

Hi Bobby,

Thanks for your comment and compliment!

Contrary to the hype around increasing cell phone penetration in Africa, most people still do not have cell phones - especially in rural areas. In Zambia, I think penetration is up to 30+% overall. This is why an agent network is the key. Our agents have cell phones, and even "unconnected" customers can visit them to receive their microfinance loan, redeem an electronic voucher, or send / receive a money transfer.

Mobile Operators are the key actors in promoting mobile financial services at a consumer level, as you are pointing out. This is what was so successfully done in Kenya with Safaricom's M-Pesa product. A mobile operator has a customer base, brand power, and marketing budget to target individuals to use their mobile money products, which are packaged nicely on SIM cards. But their incentives are geared towards signing up customers on their network and selling airtime - in other words they are biased towards a closed network model. They also tend to underestimate how hard it is to get a robust, liquid agent network.

As for investment, we've faced similar challenges to any start-up of trying to do a lot with a little. The investment funds are out there, but we are a new business in an emerging industry in a country that few people know much about. Plus in Zambia it is a challenge to find good middle management to help us get "investment ready". It also takes a considerable amount of time to identify the right investment partner (s), build a relationship, and go through a complete due diligence process, all while running a business that changes by the week!

Best,

Mike

Hi Mike and Bobby

I fully agree with your view that "mobile operators are the key actors in promoting mobile financial services at a consumer level." You are probably also aware that mobile payment or m-payment is now rolled out very heavily across Africa by mobile operators like FT Orange with orangemoney, MTN with Mobile Money, Vodafone with M-PESA and others. That includes agent networks for cash-in/cash-out.

Bringing m-payment to consumers increases economic efficiency, a basic win-win where every party wins (except the criminals). In Sibesonke (www.sibesonke.com), we embrace the basic win-win principle in 360 degrees by working directly with operators as partners. We are also happy to work with local partners who understand consumer behavior very well.

Cheers,
/Uwe

I enjoyed Ethan Zuckerman's podcast on Future Tense on this topic (http://bit.ly/bv5Tld), especially the quotes:

"what you see happening in Africa is an interesting precursor to what will happen in the rest of the world. ... a global movement of billions of people coming into a more formal economic and banking system."

"It may turn out that payment technology may be adopted by marginal groups before early adopters because marginalized users may have more use for it."

But on Twitter one person had concerns and asked:
"could you point me to some resources to explain why Africa going cashless is a good idea? I can see some important downsides"

Can you talk about the benefits of "going cashless" for Africa, and the potential downsides that you need to prepare for or guard against? Can you point to other resources and references for people who want to know more?

Thanks,
Jill

Hi Quinn,

I am a student of project management with growing interests in social entrepreneurship. I fully support your new venture in Zambia. What Africa needs is business and not charity.

Having said that, I am worried about how you will marry your individualistic intentions with the context you are working in. From the look of things, the benefits you anticipate from this venture exceed contextual challenges you face otherwise you would have closed business.

Now to answer your questions, I do not think Africa will purely become cashless. Phones are not safe. What happens if you lose your phone like many people do? Changes in mobile banking may only occur if local people realise the benefits and finally, you can only win if you have a clear mission. And I think you will.

Hi Jill,

Thanks for your comments.

There are lots of benefits of "going cashless", including:

Improved Security: A common phrase used in Zambia is "Cash has legs." Money stored electronically is less likely to be stolen or misused than cash kept on a person or stored under a pillow. Also, companies and organisations can process high volume, low value transactions securely without worrying about theft or leakage of physical cash.

Speed of Transaction: Electronic transactions can be instant, whereas giving cash to a bus driver to deliver to a relative takes time.

Lower Transaction Costs: Rural teachers, health workers, and civil servants may have to take day(s) off work and pay transport costs to collect their wages. But if an entrepreneur sets up as an agent in a rural community miles from the nearest town, someone can get paid directly into their account and cash it out in portions at their convenience.

Increased Liquidity: Because electronic money can circulate faster than physical cash, it counters informal barter economies where people with assets tend to always win over people without.

It's hard to think of downsides that don't also exist with cash. The biggest downside would be that cash is more liquid than electronic value stored on a phone. But this will change over time, as the demand for electronic will increase and cash will decrease in the economy.

For more resources, I would recommend these websites:

Consultative Group to Assist the Poor (CGAP) - www.cgap.org
GSM Association's Mobile Money for the Unbanked - http://www.gsmworld.com/[…]/index.htm
http://www.mobilemoneyexchange.org/
http://mmublog.org

There's also some good groups on LinkedIn that you can join.

Best,

Mike

Hi Quinn,

Thank you for the clarifications and the sites you have sent through. They look amazing.

As an investor / entrepreneur, I think this article from Uganda / Kenya that have more advanced mobile banking services than Zambia (I lived in Zambia for sometime) indicate some of the threats of using mobile phones for transactions.

I hope you find it interesting.

Dennis

http://newvision.co.ug/D/8/12/724606

Hi Dennis,

Thanks for your posts above.

Mobile money is definitely not without its risks, but what I would say is that neither is cash! Just think how many robberies there must be with people walking home with their entire month's wages in their pocket, or in the case of small-scale farmers often the bulk of their annual income. It's true that a criminal can force someone at gunpoint to send them money through their mobile account, but it's equally true that a criminal could hold me up and force me to withdraw cash from an ATM machine...

In my mind, it's important not to think of mobile money as a silver bullet solution to every problem, but as an improvement over cash for the reasons I outlined above. Safety and security will still require regulation around know-your-customer requirements, maximum sending limits, etc, and education on pin security and financial literacy.

Best,

Mike

Hello Mike,

I was wondering, having been through an MBA program yourself, are there any which stand out in your mind as being particularly good for someone planning to become a social entrepreneur?

Also, I am wondering what factors influenced your decision to pursue cell phone banking?

Hi David,

I'm naturally biased toward's Oxford's Said Business School if you are considering an MBA with a Social Entrepreneurship slant. The Skoll Centre for Social Entrepreneurship is there, which attracts a great group of people from all over the world. A highlight for me was a group consulting project I did for 2 months in the summer with a social enterprise in the Gambia which was fantastic experience.

SBS is a 12-month MBA which is intense but I loved it. If you're after some 2 year programmes, I know there are some good schools in the US like Haas (Berkely), Stanford, that have a good social entrepreneurship focus. But nothing beats practical experience so if you're really keen on becoming a social entrepreneur I'd suggest finding a good social enterprise to work with.

In terms of cell phone banking, I definitely stumbled into this space by accident. After getting my MBA, I wanted to move back to Africa so I started my own business with the idea that I would connect social investment funds, which are primarily based in the US, UK, and Canada, with start-up businesses on the ground in Africa. I was introduced to the founders of Mobile Transactions on my first day in Zambia, and instantly saw the potential. Zambia is not exactly a hotbed for technology start-ups, and after learning how M-Pesa in Kenya went from 0 to 16 million users in 3 years I became very excited about the business prospects for growth and scale.

I introduced the founders to the Grassroots Business Fund, and over the following 4 months worked to facilitate a start-up investment that helped get us off the ground. I then became more and more involved in the day to day operations and was appointed as CEO in January this year, 1 year after I first met them. For me, nothing beats the challenge of starting a business from scratch, and my advice to any potential entrepreneur out there would be to take the leap and just get started!

If your looking for the intersection between social impact, commercial viability, and growth potential, I don't think there is any industry better than mobile payments anywhere in the world. But there are still relatively few players trying to make it work on the ground, so now is definitely the time to get in!

Best,

Mike

I have seen the same kind of innovation in Guatemala in our micro-loan program to village women. Mobile tranfers allowed us to stop using bicycle messengers who were vulnerable to robbery. It also allowed the women to keep quiet about who got money and who did not, reducing arguments at home and in the village. Keep up the good work

Patrick O'Heffernan
Nameste-Direct Foundation

Thanks Patrick,

I have actually just retuned from a few days in the field where we have small scale cotton farmers now depositing money at our agents. We've been working with a cotton company to facilitate payments to these farmers expecting that they would only use agents to withdraw cash as they would not trust electronic money yet. Instead, farmers are being paid cash and rushing to deposit it at our agents.

This proves to me there is latent demand for financial services, especially in rural areas where there is none. I think it is precisely because of the security issue you raised of holding cash - farmers get paid a lump sum and literally have to sleep with it under their pillow. In Zambia, storing cash electronically also means less social pressure to "lend" cash to family members when asked.

Best,

Mike

Hi Mike,

Your business innovation is really fascinating to learn about and how it is changing how it is changing to social landscape of how Africans use money.

I just have a few questions regarding the cashless part of how the innovation works.

Since 80% of adults do not use banks, how are they able to withdraw hard cash (vs. soft cash) from their electronic account if they need to? I assume not all services can accept electronic transfer of cash at this point.

Also I was just curious about how long it takes to set up a vendor to be able to send/receive electronic cash. Are you finding that people are willing to shift to this new model or are they hesitant to switch since the money isn't as tangible?

Looking forward to your response and best of luck in your endeavors.

Emily
(Masters of International Management Candidate - Portland State University)