Farhad Manjoo makes a compelling argument for why the real winners of the payments revolution are the same players we already know, the credit card companies and the banks, in his, “Donâ€™t mess with credit: Why the future of payments is already in your pocket.”
“Nearly every start-up working in payments is simply creating a new front end for your credit card. Thatâ€™s not a small thing; we need new ways to use our credit cards. But we shouldnâ€™t forget the true winners in this new marketplaceâ€”whatever innovations we see in payments over the next few years, thereâ€™s a very good chance that most of the rewards will flow to Visa and MasterCard.”
This is true… if you live in the US or Europe.
It’s also why Mpesa is so important, as it represents a new form as well as a new source.
Mpesa destroys the paradigm of payments as we knew it
It’s a good thing that Mpesa happened in Africa. It offered a new way of thinking about money and payments, without the legacy baggage of banks and regulations meant for another century. The powerful banking interest were held at bay, not by great power, but by indifference – this is Africa afterall, who cares about this market?
With Mpesa, and without a bank account:
- People can send and receive money.
- People can store up to $1000 in the system, creating a pseudo-savings account.
- There are no credit card companies involved.
- There are no banks involved.
Mpesa is big now too, big enough to garner a lot of attention from the the credit card companies and banks. M-PESA has over 14 million users in Kenya, 9 million in Tanzania, and hundreds of thousands in Afghanistan and South Africa now too. It now processes more transactions domestically in Kenya than Western Union does globally, somewhere in the range of 25% of Kenya’s GDP is transacted on it.
The banks actively lobby against mobile-based payment and money systems now, globally, as it constitutes a massive competitive threat that they are unable to compete with due to a multitude of reasons, one of which is simple transaction costs. The credit card companies are watching closely too, and moving. Mastercard and Visa both are working on mobile offerings, seeking to link with mobile operators in order to bypass a would be competitor.
Mpesa isn’t perfect – we need a payment system that works across mobile operators and can be synced (easily) with any bank, if needed. While it could improve, it’s still worth pointing out the really big missed opportunity here is by Vodafone. Like I’ve said before, if Mpesa was rolled out at as an independent company led by Michael Joseph, it could battle the credit card companies of the world and unseat them in many markets.
What’s interesting to me is that in the arguments in the US and Europe on “the future of payments” the real innovation, with real numbers, isn’t being mentioned.