Incumbent institutions anywhere in the world can learn a lot from the FinTech companies building the financial services industry in Africa. We gathered the experts to share their thoughts:
- Ron Webb, Director of Financial Services at Safaricom
- Gerhard Coetzee, Lead Financial Sector Specialist at CGAP
- Brett Loubser, CEO of WeChat Africa
- Lesley-Ann Vaughn, M-PESA Co-Creator
If you missed this amazing discussion on episode 222 of FinTech Insider, make sure you go back and listen – then listen again. This episode was packed with valuable insight. Here are some highlights.
Trending toward partnership models
In Kenya, where nearly 80% of people are not on the formal electricity grid, M-KOPA turned solar energy into a pay as you go proposition.
Lack of electricity has a profound impact on schooling, the ability to generate additional income, the growth of smartphones, and many other aspects of life. M-KOPA, using the GSM infrastructure of Safaricom and the payment infrastructure of M-PESA, the mobile money transfer service, allows customers to use a solar-powered energy box to power lights, radio, television, “and they allow you to pay for that per day, at about 50¢ US per day. If you pay, the lights are on. If you don’t pay, the lights are off,” Ron says. “And it’s a great model, what we call the kadogo economy.”
He explains that in Kenya, most people aren’t buying a large bar of soap. They’re buying a third of a bar of soap. They’re buying a small tin of charcoal to cook on. “Everything is sold in small sachets, tiny amounts…as income comes in, they’re using it. When they go to the market, they don’t buy all their product from one vendor. They’re buying it from the cheapest possible place. So they’re buying their ugali, which is their maize, staple porridge, from one vendor. They’re buying their sukuma wiki, which is a spinach relish they’ll make, from another vendor, the charcoal, they’ll buy from a third, so lots and lots of these micropayments, very, very small.”
85% of payments in Kenya are below five dollars, and 50% are below two dollars, or 200 shillings. M-KOPA matched the kadogo economy with a business model that makes sense for people. “They’ve got hundreds of thousands of these solar energy systems installed in people’s homes, giving them hours of additional light, access to information, access to television and radio, which they would not otherwise have had. That wouldn’t have worked without a number of combining technologies. Firstly, GSM, and then secondly the payment infrastructure that we provided with APIs etc., on M-PESA.”
“They’ve effectively turned themselves into a digital asset financing company,” Lesley-Ann says, providing services such as layaway loans using APIs. “It would be lovely if M-KOPA customers could have a chat with M-KOPA and decide how much to buy. There’s a little bit of customer experience transformation that we could see, to make it a bit more Uber-like, a bit more seamless and frictionless, but my goodness, it’s an amazing example today of what is going on in Africa.”
Similarities between challenger banks and emerging markets
On episode 214 of FinTech Insider, Monzo CEO Tom Blomfield shared how engineers at his challenger bank work alongside designers and other decision makers. Lesley-Ann says that’s exactly how it was 10 years ago when they were developing M-PESA, “We were building a full stack from ground zero, we had no code until we had code, and we built our platform. It’s got the front end UX stuff, which is not as fancy as smartphone, that we can do these days. I mean, it’s amazing what they’ve done in Monzo with the smartphone UX, we couldn’t do that, but customer-centricity was at our focus, and rings true with what Tom’s vision is for Monzo.”
Removing the need for physical infrastructure
Moving money from person to person without any physical infrastructure, like with M-PESA, has transformed people’s lives. The opportunities to get rid of physical infrastructure and use digital services to move value around are unprecedented, says Brett Loubser, the CEO of WeChat Africa. And while an agent who is authorised to take and give out cash through a digital network like M-PESA’s could be seen as a decentralized network infrastructure, “it’s not an ATM, and the cost of deploying an agent like that is miniscule in comparison. And I think therein lies the opportunity.”
Indeed. When M-PESA was designed, the agent’s POS terminal was a Nokia 1100 that cost £10.
Cash can be completely digitised
WeChat Africa recently partnered with Stuff Magazine on a campaign in which people could buy a product by scanning a QR code directly on the page of a magazine ad, and then it was shipped via ecommerce channels. “So what we’re doing is creating multiple channels for wallet usage, apart from just person-to-person money sending, and it’s proving extremely successful for us,” Brett says. “Some of my colleagues in China have said they’ve not taken their wallet with them on an outing in months. The idea that cash can become completely digitised is well on its way.”
WeChat Africa is also trialling mobile payments with McDonalds to show that “there is a way to process a payment at the point of sale that is as quick, if not quicker, than a traditional card or cash payment, remains cashless, which is, of course, attractive for a variety of reasons, and then gives McDonalds a new channel through which they can communicate with their customers.”
If you think about a transaction in the context of the digital economy now, Brett says, it’s the same as a chat message. “It’s moving bits and bytes from one place to another, and it actually is part of communication. So how you leverage that in the greater context of communication between two parties, whether it’s person to person, or person to customer, I think there are some really interesting developments that we’ll see in the next couple of years in that regard.”
“The idea that we are in a position to provide digital tools that promote financial inclusion for Africa that helps Africans facilitate and manage their own businesses, and do it seamlessly, without the dependency on legacy infrastructure, is incredibly exciting,” Brett says. “We are going to see some of the most unbelievable innovations in the mobile and FinTech space. And that, in many ways, will lead the charge for how these products are deployed globally.”
“If you think about Latin America,” says Gerhard Coetzee, Lead Financial Sector Specialist at CGAP, “it was very much a bank and bank expansion kind of play. In Africa, it is a mobile network operator play, but I do see the banks coming through now. They’re always a little bit slower than the other guys, but I do see them entering this market, looking at what they can do to create partnerships. Where it is extremely important now is to see whether you can create these partnerships en masse.
“I have a very strict rule which I apply when I look at things: ‘Is there a business model for the client?’ In other words, is there value for the client in what we do? And if there is value for the client, is there value for the firm, and for that partnership? There will be value for society, if you can answer those ticks, but it’s a massive ask. And, the question is, who are the people that are really excluded, that we can’t reach with what we are doing?
“Innovation and technology and people on the ground, the people that Ron refers to as African inventors, will provide the answers, but we have to give them access, and bring them to the party, and may even have to invest in them to empower them to participate on a level playing field. But I see the solution lies in a combination of those things, and in that way, we will solve the inclusion question.”
Need help with your own FinTech innovation? Whether you’re working on APIs, building a bank or experimenting with blockchain, 11:FS can take you to the next level. Get in touch at firstname.lastname@example.org