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Tag: banking

Banks Blocking Mobile Money Innovation in Africa?

There’s an good post over at the CGAP blog about mobile money’s innovation crisis. The author claims that nothing new has happened in mobile money since Mpesa was launched in Kenya, except for maybe the launch of Mkesho this year in Kenya as well. Besides that, everyone around the world pretty much tries to duplicate what Safaricom is doing in this space.

Why?

“There may also be one partnership in particular that could be hampering innovation—that with the banks. Historically, these two players have taken very different strategies for new product development, especially in resource poor countries.”

Thinking big picture

You can send up to $500 for as little as 37 cents using Mpesa. On Zain it will cost you 74 cents. That’s an insanely low transaction cost compared to what banks charge, and that’s not even going into the fact that they can’t do transactions as low as 50 to 100 Ksh ($.60 to $1.24). The kicker, you can store your money in it for no fee at all (unlike the usurious rates that the banks charge).

Simply put, banks cannot compete with mobile operators when it comes to transacting payments for the majority of Africans.

Regulators make and enforce the rules around everything. How do they make their decisions, who lobbies them and why? Is the reason that we haven’t seen a true replication of Mpesa anywhere besides Kenya due to the banking sector protecting its interest?

Opportunity lost

Right now anyone in Kenya can do every type of transaction within our own borders, and if creative into neighboring countries as well. A few other countries have the ability to do this type of thing as well, if less efficient and/or elegantly conceived.

Currently opportunity is lost by local merchants in not integrating mobile payment structures better into goods and services offered to both businesses and the public. This is changing, businessmen are quick to move to figure out new ways to increase margins and customers. It’s only held back by the operators not willingly opening up their platforms for easier integration into business.

11% of Kenya’s GDP was shifted through Mpesa in 2009, and the company expects that to be around 20% this year.

We can all agree those are big numbers and that a massive ability to make money has been shown in Kenya. This begs two questions:

  • Why has no one allowed it to truly replicate in another country?
  • Why is no one throwing big money after this, trying to figure a way to scale a mobile operator and bank agnostic payment solution across a region, if not the whole continent?

There are big players trying to break into the greater African market (I’m looking at you Naspers). There are banks who have the money to spend on figuring this out, but aren’t thinking beyond their own brand, so continue to fail. Maybe the answer is we just should sit here and let all this lost opportunity continue to drift by us, waiting on the big credit card players of the world like Visa or Mastercard to make a move.

That’s a fatalistic stance, and I certainly hope it’s not true. Unfortunately, I don’t think we’ll see this service come from 2 guys coding in a garage. Instead, I hope that there are mobile operators and banks banding together to make something bigger than themselves that make more profits for everyone. If not them, a big investor willing to wager millions of dollars on making billions.

MoneyGram Tackles Mobile Payments

Transacting money to and from Africa comes in a variety of flavors. Generally, besides country-specific solutions, there are: bank wires, Western Union or MoneyGram, buying phone cards in-country that can be resold, cash in a suitcase, mail a check (that will be stolen in the post office), etc.

Comparing money transfer services rates

As you can see, there are limited practical ways for getting money transferred internationally on a regular basis. It’s no wonder then, that even with the transaction costs ranging from $15-70, people tend to use the safer, more secure methods of banks, and money transfer businesses like Western Union and MoneyGram. I’ve used all three of these, and over time have started to drift towards MoneyGram as my favorite. They have a cheaper transaction cost than the other two, and I’ve experienced a much easier time with them over the hurdles that Western Union decides to throw in your way.

All this to say, if we consider banks wires a static white-collar service, then MoneyGram is quickly becoming the best option as the common man’s way to transfer money internationally. As such, I’ve been getting deeper into their services, seeing what types of API and digital offerings that they have which could be useful.

Mobile Payments

Currently, MoneyGram has around 180,000 agent locations around the world. More importantly, they’ve just announced that they are set to tackle the mobile payments space by creating relationships with the mobile networks.

“Mobile money transfer services are an emerging part of our product offering and we are eager to bring these services to the Middle East. Overall, we expect mobile service to be in highest demand in developing economies where individuals are more likely to have mobile phones than bank accounts.”

This is an important point, as it merges two different ecosystems of payments. At the local level, in countries that have the right tools and cultures for them, mobile payment solutions act as transfer services for people within the country. Traditionally, this local mobile payment system is not available for use by those internationally.

Global vs local mobile money transfers

Right now MoneyGram’s connection to the mobile payments agents is focused on the Middle East and Asia, my hope is that countries in Africa will soon follow. My guess is that Zain’s Zap service might be one of the first, due to their connection to the Middle East, but no one knows for sure yet.

[Update: Just before posting this I heard about a couple of banks and Western Union in the UK working with Mpesa in Kenya to do transfers via mobile. Others are working hard in this space too, and for good reason, it provides a great deal more usability for end-users on both sides of the ocean. If one entity catches that mindshare, they’ll have a lot more profitability in the space)

Kenya – M-Banking 2009: Balancing Innovation and Regulation

Volume vs Value in Mobile Payment Systems

Bankers are not well known for giving riveting talks. However, Stephen Mwaura Nduati gave a surprisingly interesting one here at the Mobile Banking conference just outside Nairobi. He’s in charge of “Payment Systems” at the Central Bank of Kenya – a regulator.

He made the case for why regulation is needed, and what risks are naturally inherent within payment systems. Not just mobile payments, but all systems.

What I was most interested in was his slides giving out some data on the payment system space within Kenya. It’s really quite revealing on what the motives are, and why they’re there, for the Central Bank and policy makers.

Kenya’s payment system timeline

You can see where Mpesa and Zap came into the timeline for payment systems in Kenya, but you can also see that it’s quite clear that the Central Bank of Kenya (CBK) thinks of many things beyond mobile payments.

Kenya National Payment System Modernization Framework

Kenya National Payment System Modernization Framework

Low vs high volumes

Mobile payments are all the rage, clearly shown in the graph below. However, the amount of money flowing through the system from this is negligible compared to the other types of payments. There is a large difference between high volume systems versus where a lot of money flows, but with fewer transactions.

Monthly transactions in Kenya payment systems by type

Monthly transactions in Kenya payment systems by type

Current payment system flows

Low volume, high value. These are what the CBK care about. Taking a look at the following two slides, you can see that though mobile payments and ATMs are what everyone talks about, what the bank really cares about making sure that the real time gross settlement (RTGS) system stays on the tracks.

Kenyas current payment systems flows

Kenyas current payment systems flows

Average daily values for Kenyan Payment Systems

Average daily values for Kenyan Payment Systems

Talking Mobile Banking in Kenya

I’m attending the Fletcher mBanking conference in Nairobi today and tomorrow. Right now I’m sitting in the panel on “Perspectives on Mobile and Branchless Financial Services”. It’s quite a panel with, among others, Michael Joseph of Safaricom (of Mpesa fame), Adan Mohamed of Barclays Bank, David Proteous of Bankable Frontier Associates.

mbanking-kenya1

Points from the Panelists

David Porteous
He challenges Kenya to create a Kenyan model, not just of one-off success stories, but a Kenyan one that is open and usable by multiple actors in the country, not just one or two. Something that can be duplicated and used around the world. Lastly, he warns of “Regulator Flu”, much like Swine Flu it sweeps around the world and stifles innovation.

Adan Mohamed of Barclays
Adan starts with this provocative statement, “We will never have an environment where we have no branches.” He says it is ingrained in our psyche to use branches, and we will always need branches, so this idea of a branchless banking system is nice, but will run concurrently with the old status quo system. The use of technology continues to be small, it’s patchy, it’s mixed. There’s a long way to go, as people are nervous of what goes on behind this internet system.

Specific challenges revolve around regulation. For instance, if you want to run it 24/7, you have to get permission, you have to deal with money laundering rules, etc… He thinks that the central bank needs to be given a greater mandate. However, we need to see this space not revert back to the old ways, even as more control is given.

Customer contact tends to be low in a branchless system. He thinks this is a place where people want to be in touch and face-to-face with people. A lot of focus has so far been on the payment side of the occasion – we need to focus on the savings side of the equation as well.

Mark Pickens of CGAP
What we have today, is not necessarily what things will look like in the future, “what could disrupt the current landscape?” Mobile network operators are leading the charge. We think there will be 120+ initiatives like Mpesa in the next year around the world.

What is driving this for the mobile operators?

  • 2.93B shillings from Mpesa of revenue
  • Increases in loyalty
  • Increases in users
  • Globally think there is 1b ppl with a mobile phone but no bank account

Where else could innovation come from?
What if the kinds of technology that poor people had in their hand changed dramatically? If the phones that people had in their hands could browse the internet. Not smart phones, but sub $100 phones for this.

  1. Why would this matter?
  2. GPRS and EDGE are dramatically cheaper than SMS (75x cheaper)
  3. Mobile operators and banks would not own the customer due to owning the infrastructure. Anyone could reach out and find customers directly. The incumbents wouldn’t be as privelaged.
    Localized creation of tools

3 main points:
Regulation. Particularly openness for non-banks to operate. Would there be a regulatory framework where this could be open for others to access and bes safe operating within? If we think that banking infrastructure needs to be openly accessible, then what is needed in the openness of mobile infrastructure?

Agents. The preponderance of Mpesa agents make a profit of $5/day. If there is limited capital in these dukas and agents, then how will he get liquidity to do it for anyone else? Maybe it can be done by extending lines of credit to the agents.

Consumers. The next round of innovation is beyond payments, but to use the wallet to store value. Who are the players that can provide this service on a safe basis? Paying for products directly would cut the cost for agents directly, and it would cut the cost of money within the system to the gov’t (2-3% of GDP). Poor people do have money, and they do save, but they put it at home in a jar, under the matress. What comes next innovation, is that the mobile needs to beat the matress

Peter Rinfretof Iris Wireless
Friction will continue to increase between operators, banks and other institutions like Western Union, etc.

The regulations and regulatory environment will change a lot for everyone. You’ll see regulations in one country that affect other countries. His example is the US is the largest remittance market in the world, and that has huge repercussions to what happens in the other countries around the world. Anti-money laundering rules will become stricter and more difficult for receiving countries to comply.

We’re not talking about a change of habit that is relatively new. This is money, something we’ve been dealing with for millenia. We’re talking about old habits dealing with money, so it will take time and it will evolve slowly. And it has to make sense within the market that you’re in. No two markets will look the same.

Michael Joseph of Safaricom
Mpesa launched in March 2007. It’s surprising to see how fast it’s grown. 19% of the population is banked, but 71% who have access to mobile phones in Kenya. The key success of Mpesa is not just good working technology, but to be successful with it you need to understand distribution. It’s not cheap. It’s not easy to put together an agent network that operates with integrity. “It is not build it and they will come.”

Customer growth is at 6.2 million customers in March of 2009 with over 11,000 new registrations each day. Trends: $1.7B moved in P2P transfers since launch. Average P2P transaction is just under 2500/= shillings ($30).

“This is what worries the banks, that we’re moving all this money around and they’re not getting any fees.” We’re not a competitor to banks, because they couldn’t operate on these small 30/= fee.

Safaricom has 300 staff dedicated to Mpesa. There are now over 10,000 agents. It’s the McDonalds effect” – whenever you are hungry there is a MacDonald’s. For us, whenever you turn around there is an agent.

“It is so important to have a regulator that is willing to take a risk with you.” It took nearly 9 months to convince the regulators in Kenya to allow them to launch Mpesa. We are treading new ground in Kenya, so having a courageous and risk-taking regulator made it possible. For money transfer we need some sort of regulation – a level playing field for others to do this a well. Regulation should facilitate and not frustrate.

“When we look back, money transfer will be the biggest thing that we ever did in the telecommunications world.”

Mobile Phone Quick Hits Around Africa

I find that there are more mobile phone projects going on in Africa than I can write about. Instead, here are some quick links for you to follow on the ones that I find the most interesting:

Mobile Phone with Money in Kenya

Mobile banking and payments

(Probably the most lucrative space in mobiles in Africa right now, it’s amazing it’s taken this long to really get started)

Canadian firm Redknee selected to supply Uganda Telecom with mobile money services.

Mxit (South African chat client) starts bridging the gap with mobile money. It uses Standard Bank’s MiMoney as an electronic payment voucher that can be purchased through self-banking channels and various retailers.

The Bill & Melinda Gates Foundation, along with the GSM Association, have announced a programme that will expand the availability of mobile banking services in the developing world. The Mobile Money for the Unbanked (MMU) programme, supported by a US$12.5 million grant from the foundation

Mobile health services

(This is all the rage now in the foundation and non-profit space)

50 case studies of mHealth projects, the majority of which are in sub-Saharan Africa, by the UN Foundation. (Download the 4.3Mb PDF)

Opportunities

Nokia and Adobe have announced a $10 million fund to develop Flash based applications for mobile phones. The new fund is a result of the Open Screen Project, an industry-wide initiative of more than 20 industry leaders set to enable a consistent experience for web browsing and standalone applications.

10 Great Reads Around Africa

Nigerian Banking Survey

Jeremy has a quick rundown of some numbers, such as:

“53% of Nigerian adults have access to a mobile phone, yet 74% of the adult population has never been banked”

(Full report: 7.3Mb PDF)

Vodacom South Africa’s Mobikasi

Vincent breaks out with his first new tech release since moving to Vodacom, it’s a location-based mobile phone accessible documentary on Soweto in South Africa.

“The location-based documentary looks at people, music, fashion, social issues and places of interest. Instead of showing the twenty-five minute documentary in a linear fashion from start to finish, Mobikasi splits the content up into twenty-five inserts of one minute each.”

Nominating Peace Heroes in Kenya

Unsung Peace Heroes in Kenya

The Ushahidi Engine is being used to run a new non-disaster related site called Peace Heroes, which hopes to highlight ordinary Kenyans who did extraordinary things to promote peace during and after the post-election crisis earlier this year.

Thoughts on a web cloud for Africa

“While all the pieces had been floating around in my head for a while I am just now understanding that we really need to drag very little out to Africa for them to have incredibly powerful technology in the palm of their hand (and that such thinking is inherently poisonous) and that we are better off attempting to facilitate the connection of their handsets to The Cloud in order to assist with effecting positive social change.”

O3b’s first internet package

The O3b Network is offering it’s first bundle. “Quick Start Africa” is a, Carrier Managed Service designed for Telcos and ISPs on the African continent who need a high capacity, ultra low latency, carrier class IP trunking solution.

“Life is Hard”

Niti Bhan talked about this at the Better World by Design conference. Breaking down why life is so difficult for the poorest people in the world and what can be done when trying to address these issues.

Facebook Garage in Uganda

Jon Gosier of Appfrica.net is heading up a Facebook Garage in Kampala on December 13. It’s a great chance for programmers to get out and get comfortable with the Facebook platform, and also to meet some of the devs. Get more info at the Facebook event page, and the Appfrica wiki.

Mobile finance – indigenous, ingenious, or both?

A must-read post by Ken Banks. “It’s not that people don’t understand banking concepts, it’s just that for them things go by a different name.”

A GPS in every SIM card

Talk about a game changer:

“…a highly accurate GPS receiver and an antenna into the SIM card, enabling network providers to deploy both legally-mandated and commercial applications for all mobile phones, with no need for software or hardware changes.”

Uganda-Congo border images


Congo-Uganda border picture by Glenna Gordon

Glenna Gordon writes a blog out of Uganda called Scarlett Lion, besides great insights, she also has some of the most amazing photography I’ve seen from there in a while. Check out here professional website to see more.

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