Where Africa and Technology Collide!

Thoughts on Ecommerce Problems in Africa

Recently, I’ve noticed a sudden buzz about ecommerce in Kenya. Brian Longwe talks about the beginnings of this with Mpesa, emails are bouncing around between companies I know, and last week I spent a morning listening in to what the Kenya ICT Board and Federation had to say about it.

Mobile Phone with Money in Kenya

Let me start with the Kenya ICT Board. The meeting was basically about legislation and the fact that ecommerce would be good for Kenya. Of course it is, anything that lowers transaction costs for both buyers and sellers greases the wheels of commerce and increases the amount of trade across all industries and sectors. That’s a given.

But how? See, that’s the big sticking point that I’ve been banging my head against the wall over for 2 years now. It’s not enough that you can buy and sell with a Visa or Mastercard in Kenya. As long as you continue to ignore the wananchi (average person), then you’ll only help the wealthy and not see the real gains and advantages of a level playing field.

Which brings me to Brian talking about Mpesa, the mobile phone payment system in Kenya. For, in Mpesa, we have the beginnings of a payment system that can be used by everyone. He’s right about that. What’s wrong is that it’s mobile phone carrier dependent (Safaricom).

What we need is a carrier and bank agnostic ecommerce platform for Africa. Why?

Let’s go back to our “average person” again and talk about banks. They are generally unbanked (thus the use of Mpesa), or if they are, they have only a couple thousand shillings (less than $100) in the bank. The transaction costs for them having to keep their money in these aging institutions is often impractical. They have no, or very limited, opportunities to borrow money and they have no realistic way of getting any type of credit.

So, as can be seen, tying money, credit and debt to banks is not practical.

Now, let’s talk about why it needs to be carrier agnostic. This is even easier to understand. In Kenya there are two carriers; Safaricom (Mpesa) and Celtel (me2u). By the end of the year, there will be four. The barriers to use of a system that relies on one carrier is as ridiculous as requiring any payment system on the web to only go through one ISP. Sure, it makes sense if you’re that company to control that monopoly, but it’s bad for everyone else.

What does this mean then? Where do we go from here?

The upsides of a carrier and bank agnostic payment system is high. Not only would a system like this be used for the obvious domestic transactions (Kenya-to-Kenya) and external transactions (Kenya-to-world), but all of the sudden we have the ability to create real micro-loans and a new system to create credit scores for unbanked people over time. That’s wealth building, and it would transform Kenya.

Well, first off, let those who have the funds to do so, start building the right type of payment gateway. Start in Kenya and grow regionally, then continent-wide. It’s a semi-heavy investment (relative to who you are of course), but the return is absolutely insane. In fact, it’s ridiculous that after this long no one has done anything beyond build monopolies in this space.

[Note: My first post on this from 2 years ago]


  1. The way you explain it, and you have explained very clearly, this is not a news problem.

    The logical answer is for the 4 mobile companies to form a non-profit association/alliance/payment system. This is what visa and mastercard are: an association of banks [and non bank financial institutions].

    The main benefit of an all encompassing association is the ability to pool and quantify loses that arise from fraud. And the ability to get insurance for those loses.

    A short cut way of going about it would be for the government through regulation tp require interoperability/standardization.

    As it stands, under what section of law do these payment systems operate?

  2. Good article & mobile money transfer systems such as mpesa have definitely shown their value without a doubt. A common transaction gateway will only boost this market further.

    I recently read that in smaller towns shopkeepers are having trouble keeping their cash reserves high and could spend the better part of the morning standing in line at banks to fund their accounts. A virtual economy built entirely on phone credits where these could be exchanged via the mobile would greatly ease the flow of currency and rid inefficiencies in the system.

  3. We can’t force banks to work together; they pursue initiatives such as funds settlement and shared ATM where savings can be realized, but m-pesa is an outright threat to some of their products [debit cards, money transfer]. It has resulted in banks lowering their fees and credit cards to reduce their charges [KCB next month] Safaricom would not have got this far if it did not comply with the law e.g. getting central bank licensing, but going cross-border will be more of a legislative challenge (without money launderings law in Kenya)

    M-pesa is only a platform! It is now up to online sellers, entrepreneurs, micro-lenders, NGO’s, individuals etc. to take it to the next level. Add M-pesa to their payment options – strike out credit cards, and why accept pay pal which is not really useful in Africa?). M-Pesa is here for the next few years. But if Vodafone becomes too expensive or stringent, or a new entrant shows a better way of serving the public better, they will migrate

  4. @Fimbo – that’s an interesting idea, I hadn’t thought of a solution like that. Just yesterday I saw an interesting proposal along those same lines, unfortunately I had already written this post… 🙂

    @Banks – Agreed. Technology has a tendency to change older institutions. Some die, and are replaced by new ways of doing things. Back in 1900, a cart maker would have laughed at you if you told him the automobile would replace his business. Is it the same for some banks?

    Also, I’m not thinking of a system that has banks as the central node. The only thing you have to be able to do with this kind of platform is allow people to send funds to the bank, or draw from it directly, if they have a bank account. That’s the kicker, allow people who have bank accounts to use the system, but make it for the unbanked.

  5. More discussion
    More discussion here
    PS. Hash,
    I’ll give the html tag a try, if it doesn’t work just go to fimbo.org .

  6. Those interested, such as yourself should do a little research on the nationwide rollout of the EasySwitch payment system in Ghana. Granted this is a government mandated implementation, and the design I assume is not African originated but I think it takes MPESA to the next level as it is carrier agnostic, bank agnostic and technology agnostic i.e. Ghanaians do not need a bank account, it is basically an ATM card that uses biometric technology rather than a network that needs to be online, and any merchant can be a distributor…….

    P.S. To Bankelele, it is possible to force banks to work together, Ghana used the carrots and stick approach and sold to banks how ‘lucrative’ this universal cashless payment system would be for them, and unsurprisingly they are installing the new system in droves. I think part of the compelling argument is that the Government of Ghana has footed the bill for indentifying the suitable software/hardware vendor i.e. EasySwitch, they have paid for national rollout of the technology, banks do not have to incur large infrastructure costs accomodating the technology, and the fact that this is now a parallel payment system that is nationwide competing with their small and isolated credit/ATM pool.

    If you cannot beat them, join then……enlightened self interest 🙂

  7. Ghana Leads The Way In Access To Financial Services Through Biometric Smartcard

    In what is the first major implementation of its kind in the world designed to ensure financial inclusion, Ghana has introduced a smartcard based on biometric technology to promote wider access by the unbanked public to financial services. The Bank of Ghana (central bank), in collaboration with the banking industry has launched a national payment system infrastructure and a common platform or switch for all commercial banks, the numerous rural banks and savings and loans companies. This new payment system goes by the name “e-zwich”. The launch was performed by Ghana’s President, John. Agyekum Kufuor on April 28, 2008. The centerpiece of the e-zwich system is a biometric smartcard that can be used online and offline for financial transactions.

    The e-zwich smartcard is unique in the sense that it requires little numeracy due to its biometric feature and has all the required security safeguards. Transactions are authenticated using the finger print of the cardholder. This feature eliminates the problem of identity theft that prevails in many countries where card transactions are usually authenticated through PINs. With the new payment system Ghana has leapfrogged the existing technology in use in many advanced countries.

    An e-zwich smartcard would also be much easier to obtain than opening a traditional bank account. All you basically need are your fingerprints to get the smartcard. The e-zwich smartcard contains both a current account and savings account wallet. Holders can undertake transactions such as paying for goods and services, money transfer, cash withdrawals, third-party bill payments, and receiving salaries or pensions at any e-zwich point of sale terminal in the country. This means that people can undertake basic financial transactions at shops and petrol stations, post offices, etc. The system also has a mobile banking application to allow banking transactions to take place on the mobile phone.

    In implementing e-zwich, Ghana is demonstrating leadership in an area that has confronted policy makers the world over by offering a comprehensive solution to the problem of the unbanked.

    What is so remarkable about the Ghanaian experiment is the level of cooperation that has been obtained by all the financial institutions in what is otherwise a very fiercely competitive banking sector. As the Governor of the Bank of Ghana, Dr. Paul A. Acquah puts it, “it was not easy getting all the banks (large and small, local and foreign) to agree to this common platform. Our banks have developed products like ATM networks and debit cards which are largely limited to their own customers or members of their own network with limited coverage and access. The system was therefore becoming increasingly segmented and we had to do something about it. However, once it was clear to the banks that the new payment platform would allow them access to a larger customer base and increase their profitability in the process, they were very cooperative. It was a win-win situation. More importantly, the banks were part of the process of drawing up the request for proposals, evaluating the bids and selecting the solution provider (Net 1 Technologies). The whole process was very transparent”. A private company, the Ghana Interbank Payment and Settlement System (GHIPSS) was formed to manage the new payment and settlement infrastructure with the banks as part of the governing board.

    The e-zwich payments system is an innovative and bold move by Ghana to enhance financial inclusion and deepen the financial system, but then again Ghana (the first African country to gain independence in 1957) is quite used to being a pioneer on the African stage. It was recently the first sub-Saharan African country other than South Africa to issue a sovereign bond on the international capital market. This time round, Ghana, one of the frontier emerging market economies in Africa is also leading the world in the application of biometric technology on a comprehensive scale to enhance access to financial services by the population.

    MAY 2, 2008
    Source: GHP

  8. @Sijui – Thanks for sharing your knowledge with us! I wasn’t aware of the project in Ghana, that’s very very interesting. I wonder, will it have the ability to work outside of Ghana, even regionally?

  9. This is a very constructive discussion.

    For one, citing the case of Mpesa in Kenya and EasySwitch payment system in Ghana, I can say that these are the initial practical steps that have already started in the right direction towards introducing ecommerce to Africa.

    A few years back no one thought cell phone usage will be a major player in say the Kenyan economy.

    Unfortunately for now, the opportunities and value of ecommerce is still flying under the carpet as far as the interested parties are concerned.

  10. Interesting Article.
    The problem with those payment schemes involving credit cards, banks and all those nice hi-tech solutions is that they have been designed from the perspective of people living in highly developed countries and having the infrastructure to support them. Few people in some African countries even know what a credit card is, although they may have a lot to offer or would be interested in purchasing stuff from other people.
    Also there is a high level of “e-literacy” in Africa, meaning that most common people would even have a hard time creating a yahoo e-mail account for themselves, not even to talk about dealing with electronic payment. The main problem e-commerce can start addressing is to enable providers and potential buyers to find each other and trade. That alone would be a great achievement. The payment does not necessarly have to be done electronically. I mean that would be great if electronic payment is possible, but viewing it as a pre-condition for e-commerce in Africa is wrong in my view.

  11. Cafe, I believe the e-zswitch accomplishes already many of the issues you cite. For one it operates OFFLINE meaning using the card for transactions doesn’t require an internet connection or a fancy network.
    Secondly, I give the Bank of Ghana credit, they are marketing this card extensively to the Mama Mbogas or in the case of Ghana, the ‘market queens’, rural farmers and civil servants by emphasizing its practical utility i.e. Ghana’s cocoa farmers just like Kenya’s tea and coffee ones have to go through the cumbersome process of getting their produce checks from designated banks, cooperative societies etc…….payments will now be handled using this card at whatever POS/Vendor has the unit, so the convenience factor is very attractive…ditto for teachers, other civil servants who no longer have to queue and queue….as for the market queens the portability of carrying large sums of money and making payments in a safe, accessible way is an easy sell.

    I agree about e-literacy but I think what they are emphasizing for their initial sales pitch will win many converts.

    Hash, it waits to be seen how many kinks this system has and how they are handled….we’ll all stay tuned 🙂

  12. http://www.aplitec.co.za/……just found out Net 1 Technologies who are the developers of the system are Proudly South African….good for them!

  13. Very intersting developments I hope the easyswitch concept can extend to other countries its totally brilliant. i agree with sijui that we don’t have to wait till everyone is technologically savy (don’t think this is possible even in developed countries) before we roll out such technologies. The biggest problem for ecommerce in Kenya is a reliable and universally accepted payment platform. So far its only few banks that offer international accepted credit cards that can be used to buy stuff on the net.

  14. Very interesting. We run a ecommerce solution company in South Africa, and we found that one of the main barriers to online shopping is the payment gateway. I have felt for a while now that if you could have a mobile phone payment gateway, this would open up the world of ecommerce for the ordinary person, and it would drastically expand the market for ecommerce sites. It can surely only be a matter of time before some mobile service provider realises this…?

  15. Something like this is needed in South Africa. Many people can simply not buy online for lack of a credit card or online banking facilities. FNB’s Cell Pay Point is one excellent service aimed at the average man. Lets hope other banks take note, expand and make this available to all..

  16. E-commerce is good for Kenyans, bt whre ‘ve we reached in implementing this. Kenyans only ‘ve Visa electrons a mini card of the original Visa to purchase online only. Receiving payments is a big problem, with online transact process such as Pay pal, Google co, TrialPay, don’t operate in Kenya hence makins sales online becomes cumbersome. 2co operates worldwide bt payments are made monthly…We blub so much and do too little. To me Mpesa should be more like Kenyan Pay pal, What do you think?

  17. Lets hope things look more promising when the new cable arrives. South Africa has lots of growing still to do. But something like this is needed for us.

  18. Martin Muckle

    April 8, 2009 at 8:32 am

    http://www.monyamickle.com is soon to launch in Kenya. This is a payment gateway that accepts funds via Safaricom Pay Bill. Pay Bill is similar to Mpesa as far as senders are concerned but the money sent resides in a Safaricom account, not on the recipient’s mobile phone.

    Once a user has loaded their Mony a Mickle account they will be able to use the credits to shop online where Mony a Mickle is accepted. shopping cart plugins are being created for OSCommerce (available) and Joomla’s Virtuemart. This will allow anyone to set up on online shop free of charge. No bank account or credit card required

  19. Kudos, monyMickle. ‘ve been checking your payment transact process and even though it’s the beginning it looks promising. Anyways, I wanted to implore to you that you add a feature speck where by we can create our custom ‘Buy Now’ button.
    Also I believe tulipe.co.ke is an up coming payment system online (Check it Out)

  20. i think there is also an issue of security.If you approach many kenyans especially us the common mwananchi with even an atm card idea.It puts people off.Only mpesa can save us.If you interested in my idea for transactions with mpesa just email me at kimkan20@yahoo.com

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