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, 62% of the world’s population has a bank account. In 2011 that figure was 51%. In three years, 700-million people became “banked” in some way, and the number of “unbanked” individuals dropped 20% to 2-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 overemphasised 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.
McKinsey & Company projects around 80% of the continent’s population is not connected to formal financial services. MasterCard says only 2% of retail transactions in Africa are electronic.
And this on the “continent of mobile money”.
Is this a huge surprise? Not really. Even in the UK, electronic retail transactions have only recently overtaken cash. Cash is still king in the US. We must not overemphasise 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.
However, in terms of “banking the unbanked”, it has 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.
Cost is driven by two factors: energy and time. To really allow electronic transactions to take off, we need to tackle these factors. Electronic transactions fixes the energy issue, but thus far has it actually tackled the problems of time? Mobile money agents need to be paid for their time; we need to provide low-friction transactions.
The continuing popularity of scratch cards gives lie to the idea that Africa is transacting in an ever more hi-tech manner. For the past three years, we have looked with admiration at scratch cards. At informal outlets across Africa they are successful — they have values of less than a dollar, but create $70bn in revenue for mobile phone companies; they are the lifeblood of the oft-cited mobile revolution and a lot of other industries are looking at implementing them.
The success of scratch cards can be attributed 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.
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 lot more need for consolidation in the industry. Regulators are now helping, forcing people to play together nicely. The next level of consolidation is creating specialist roles.
Clearly, though, a move away from cash would be beneficial for all concerned, both customers and merchants. I lost my wallet recently while travelling, had no credit card, and was operating only with cash. It is amazing the level of risk you’re bearing. Now imagine if every cent you owned was on your person or in your bedroom. Mine was a small fraction of the worry that many unbanked people bear.
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 realising them. Just perhaps not as far down the road as many think.