What US banks can learn from Africa’s mobile money scene

In Sub-Saharan Africa, a dearth of banking infrastructure sparked a hugely active and innovative mobile money market. Can American banks learn from the continent’s experience?

By Adam Oxford

South Africa is the most expensive place in the world to remit money from,” says Matt Coquillon. “But there are half a million cross-border transactions flowing out of the country monthly.”

In the blazing Cape Town heat, Coquillon, with his dreadlocks and long shorts, looks like he’d be more at home on one of the nearby beaches than at the helm of one of the country’s most successful fintech startups. But the company he is a cofounder of, Mama Money, just closed its first round of funding after two years of solid growth. Its business proposition is simple: Help migrant workers in South Africa send money home without paying the painful double-digit commissions that traditional wire transfer services and banks there charge. What makes Mama Money’s proposition possible is the dramatic uptake of person-to-person (p2p) mobile money transactions across Africa. People usually pay cash into Mama Money, Coquillon says, but at the receiving end, it’s almost exclusively collected in whatever local mobile form is popular. In Zimbabwe, it’s EcoCash; in Kenya or Tanzania, it’s the mighty M-Pesa.

M-Pesa has created a financial revolution in Kenya since it launched in 2007. At the last count, some 25 million people used it regularly, including about two-thirds of all Kenyan mobile phone owners.

M-Pesa was developed as a way for urban workers to send money to their families in rural areas, where banking services were pretty much nonexistent. It works like this: The user visits an agent of cell network Safaricom, which owns M-Pesa (an agent can be anything from a kiosk in a village market to a hardware store in a larger town). There, the user hands over cash, which the agent adds to their mobile wallet. The user can then send money to anyone with a cellphone, even if that person isn’t an M-Pesa or Safaricom customer. After the transfer appears as an SMS on the recipient’s handset, they can go to a nearby agent and claim the cash. Critically, the actual transfer is as near to real time as it’s possible to be.

These days, M-Pesa incorporates all modern payment methods, including M-Pesa account-linked debit cards with NFC, or contactless, features. It’s quicker and cheaper than traditional banking for city dwellers and has brought millions of previously unbanked citizens in rural areas into the financial system, helping to start countless small businesses.

It’s also spawned similar and associated services in almost every African country you can name. According to Disrupt Africa, in 2016, a quarter of all funding for startups on the continent went to fintechs.

It’s easy to look on with envy at M-Pesa’s user statistics and record of financial innovation, and at the ease of use that consumers enjoy. In the US, part two of the Faster Payments Task Force Report, which will suggest ways to speed p2p payments, is only expected later this year.

So what can community banks in the US learn from Africa?

“When you look at M-Pesa,” says Douglas Brown, head of mobile in North America for financial software provider FIS, “you can see that if we had a system that was as seamless for sending people money, the convenience would resonate and play well in the US market. Venmo [PayPal’s mobile payments app] is already popular with millennials, for example, for money transfers between friends.”

The cost factor

Along with convenience, cost-efficiency is a key consideration in Africa, and one that leads to innovative approaches. One of the reasons often cited for the slow take-up of chip and PIN on the continent, as well as in the US, is the cost of replacing payment terminals. In South Africa, Mastercard and the $143 billion-asset Standard Bank are pushing the use of QR codes to facilitate payments from mobile wallets. Instead of swiping or tapping a contactless reader, customers point their phone cameras at a QR code that activates a secure electronic payment. Mastercard’s Masterpass also works on basic handsets when the user taps a numerical code into an onscreen menu.

“Merchants love the [Masterpass] system as they don’t need to worry about cash and they receive payments instantly,” says Gaurang Shah, “Merchants love the [Masterpass] system as they don’t need to worry about cash and they receive payments instantly,” says Gaurang Shah, Mastercard’s lead for digital payments and innovation labs in the Middle East and Africa. “And they don’t need a POS terminal costing $200; a $2 piece of cardboard will do.”

Perhaps the most important lesson, however, is that driven by a need to service previously excluded communities, African banks have become very good at listening to their customers. The original M-Pesa, which was designed as part of a top-down international aid project aimed at facilitating micro-loans, wasn’t a success. It only took off after the designers started paying attention to what people actually wanted to do with it, rather than what they thought it would be useful for.

Fintech entrepreneur Angus Brown has developed products for several of South Africa’s major financial institutions and led the team that developed First National Bank’s hugely successful customer reward scheme, eBucks. He recently helped launch Centbee, which looks to reduce the high cost of cross-border remittances using bitcoin transactions.

“You have to define your demographic not by geography or racial identity or circumstance, but by the problems they face,” Brown says. “So banks with lots of Mexican customers in California, for example, could have the same issues with remittances.”

Africa’s banking giants also take this approach. Barclays Africa, which has subsidiaries all over the continent, was one of the first banks globally to facilitate transactions using a conversational chatbot in Facebook Messenger and Twitter.

It recognized that its customers in Africa might not bank online through web browsers or mobile apps. But they do use social media, so services could be taken to them in that format. These transactions take about 10 seconds to process.

Brett St. Clair, who is head of digital products for Barclays Africa and previously worked for Google, says the bank makes decisions about new products based on feedback and customer data. Once a customer need has been identified, it jumps at the opportunity to fill it.

“Our key advice is that you must know what you want to do in that channel, understand which parts of your audience exist there and be relevant,” he says. “Then, get a minimal viable product up and running for the lowest cost, and if it works, invest heavily and perfect it.”

Adam Oxford is a technology writer in Johannesburg, South Africa.