The mobile commerce revolution

There are several fundamental financial transaction issues faced by 100’s of millions of adults in Africa on a daily basis, ranging from the ordering and payment of goods and services, to the challenges of traditional banking, bill/tax payments, salary withdrawals and international remittances.  Fortunately there is a broader mobile commerce revolution about to be witnessed in the financial sector that will provide the option for true financial inclusion for the unbanked and under-serviced adults (50 per cent – 95 per cent of the bankable population, depending on the individual country) in a manner that will have dramatic deep-rooted benefits for all.

Whilst the banks are deploying SMS banking or m-banking across Africa, the real day-to-day issues faced by hundreds of millions of Africans have seemed rather lost on the traditional retail banking industry until quite recently. With the exception of a few notable banks and the MFI and SACCO groups that are developing this vast under-serviced segment, many banks are still making it extremely difficult to open an account (KYC – Know Your Customer – policies); they remain inaccessible to service the account (urban location of branches and restrictive hours of opening) and charge relatively aggressive fees (e.g. COT charges, monthly maintenance fees) that greatly discourage most potential clients from entrusting a bank with their money. This is now about to change on a wholesale basis.

The solution – mobile financial portals

The time has arrived for mobile commerce services to offer  independent “financial portals” to service all aspects of financial life, thus enabling a plethora of financial transactions to take place from the home or locality at any time, at a low cost, and with the efficiency and reliability of the best banking practices.

Phase One of this revolution has been witnessed over the last two to three years with the mobile operator mobile wallet person-to-person transfer services such as Zap, Orange Money, MTN Money and M-PESA (pan-Africa), and several strong national bank initiatives including Barclays Hello Money (Kenya), FinBank’s FlashmeCash (Nigeria), KCBConnect (Kenya) and particularly Wizzit (SA). Some of these have been dramatically successful in capturing latent demand and solving some of the above-mentioned challenges.

The next generation, Phase Two, is about to take off on a continental level with bank and mobile network independent service providers such as MobiKash in east and southern Africa, Mopay in South Africa, Moneybox in Nigeria taking a national or regional role as independent m-commerce “portals” for financial inclusion. These include m-wallets as found in the Phase One service providers, but add extensive banking, biller and merchant integration so as to offer a completely new type of service in the form of truly interoperable and accessible bank and MFI accounts. In turn, this approach now gives the banks the reach and range they have been seeking for many years whilst keeping costs to a minimum.

The services offered are specifically focused on solving the aforementioned day-to-day issues in return for small transaction fees. By operating as a stand-alone independent business, these companies can be truly dedicated and highly responsive to market needs, whilst developing niche products for large and small stakeholders as needed.

Mini-accounts:  The stepping-stone from mobile wallet to full banking

One example of this is the concept of opening a mini-bank or MFI deposit account on the street via agents (street agents, kiosks, bars, fuel stations). This allows the public to gain confidence in opening and managing a basic bank account without ever visiting a bank branch. The KYC is minimal, the experience simple and non-intimidating. Often, the local agent opening the account will be a village friend or acquaintance, therefore minimizing the notion of alienation even further.

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These mini-accounts offer the stepping stone from mobile wallet to full banking whilst the service intrinsically provides full mobile banking features for all of the linked deposit or loan accounts as operated by the various banks and MFIs in the scheme. This means that the customer’s money can now be transacted from the access points of the mobile handset, local agent, ATM, POS terminal, and internet (via a local cybercafe) across the whole banking ecosystem. It is also possible to logically extend the financial limits of the m-wallet by allowing funds sweeping between m-wallet and bank account and ‘hunting’ for funds across various accounts and the m-wallet when performing a payment.

Loan collection and payment reminder solutions for MFIs and SACCOs coupled with the above-mentioned account opening can give these FIs a greatly extended footprint with the opportunity to significantly increase their client base at little extra cost, and as in the case of many Africans, great convenience in the weekly task of loan repayment. There is already great interest being shown in this inclusive mobile and agent-based channel for micro-lending.

m-commerce services designed for both mass and niche markets

Schools and universities, insurance schemes, pensions and medical service providers are all examples of groups who rely on regular contributions to enable their services. In many cases for the average citizen the costs are too high and uneven (e.g. annual renewal fees for insurance). Micro-payment schemes allow such services to attract many more new customers and allow the customer to spread the cost of payments so as to enable the services to be more affordable. These m-commerce payments are fully integrated into the service provider’s IT systems so that real-time transactions can be achieved, reminders can be pushed to the customer and micro-standing orders or direct debits can take place. For schools, micro-saving plans are an option, allowing for regular sweeping of small values to a savings account to help enhance the existing savings culture.

The government wishes to collect taxes, the utility companies want to collect revenues, but the process of doing so is cumbersome today. With m-commerce, the billing and payment process is greatly simplified and with full integration comes the opportunity for micro-payment plans. Hence, instead of buying electricity for a month, customers can perform a real-time top-up of their pre-paid electricity meter on an as-needed basis. This spreads the budget and allows power to be available in the home all the time or when needed.

The same scenario applies to tax collection where the collection of small to medium value tax from private consumers or SMMEs (driving licenses, Turnover Tax, VAT, import duties) is challenging today. What if the bill can be pushed to the customer, reviewed and paid via mobile, internet or POS terminal, from a m-wallet (micro taxes), or linked bank account (larger taxes), in real time? This is already becoming a reality in some countries.

Salaries, pension/welfare payments, NGO disbursements can all be distributed to the user at their locality via such m-commerce projects. Governments have large values of undistributed disbursements waiting to be collected because the public is either unaware of the benefit in the first place, can not easily access the payment points, or chose not to reach the payment points due to excessive lost time.

SMMEs and corporates are normally in the difficult situation of having to handle cash trades where security and fraud are the key worries. Mobile payments, mobile ordering and pre-payment can solve many issues along with the benefits of ease of SMME disbursements and tax payments. The SMME market is the core of every country’s economy and m-commerce can sit at the heart, both speeding up and securing transactions. Work is already underway in Africa to help large distribution companies remove cash payment from their delivery trucks and allow pre-delivery orders to be placed, thus improving the company’s visibility of forward demand and improving manufacturing efficiencies.

Mobile remittance – a more affordable option

There are over 33 million Africans in the diaspora, many sending money home each month (on average $1200 / year). Such international remittance to and within Africa ($38bn in 2007, 5 per cent of destination GDP) is hampered by exceptionally high transaction costs (8 per cent – 12 per cent), limited sending options (well over 80 per cent of transactions are controlled by a duopoly) and limited outlets at the cash-out destination. This is being addressed by m-commerce projects adopting their own remittance approaches, new bank partnerships, last-mile ‘cash-out’ partnerships with the legacy remittance companies and new products. It is now possible to reduce the transaction fees by half whilst delivering the remitted funds direct to the m-wallet of the recipient for local cash-out.

The future is here

The mobile commerce revolution has started its second phase and will bring the potential for financial inclusion to 100s of millions of adults, saving precious time, money and opportunity-lost through the use of exceptionally simple, efficient, low cost and ubiquitous financial tools accessible wherever and whenever needed. The resultant opportunity for job creation, income enhancement, money flow acceleration and GDP growth is sizable. The challenge now is for these projects to continue developing the ecosystems, niche products and territories in order to fulfil the hopes of those people that will come to use the services.

Shaun Campbell is director for mCommerce business development, sub-Saharan Africa, at Sybase 365