Extending the benefits of electronic payments to people who have been financially excluded is especially important in Africa, where less than a quarter of adults have a financial product or bank account with a formal financial institution, and about 90% of all consumer payments are conducted in cash.
Traditional bricks and mortar banking infrastructure needed to provide financial services to underserved Africans is expensive, and branchless models have not yet been fully developed.
The good news is that about 80% of Africans have a mobile phone, increasing at about 4% a year, making Africa the world’s fastest growing mobile phone market. These mobile devices provide the platforms necessary for consumers to conduct safe and convenient electronic payments without having to travel to a branch or ATM.
The mobile revolution has become synonymous with emerging markets, and is facilitating the reduction of cash and bridging the divide between the banked and under-banked.
A good example is Kenya’s M-Pesa, which saw the total number of person-to-person electronic transactions grow by a substantial 215% between 2006 and 2009 during its expansion phase. M-Pesa now reaches more than 70% of the adult population. In Egypt, mobile payment wallets such as Flous and Phone Cash have provided the largely unbanked population with a product that meets the needs and expectations of all consumer segments, resulting in a more financially inclusive society.
Not all African countries have yet to enjoy such success. Some long-standing barriers continue to pose challenges:
- Established payment ecosystems, providing both interoperability and access to a wider range of financial services, are not widespread.
- The need to iterate and evolve the business model for financial inclusion – reaching the unbanked is expensive and significant investment is required.
- Positive identification of people: Know-Your-Customer regulations are in place for the right reasons – but there are many people who have no formal identification documentation.
- Financial education needs to move beyond the benefits of budgeting and saving towards an understanding of the benefits of financial services, building trust in the system and products.
- Regulatory environments are frequently challenging, with price caps and restrictions on the participation of non-banking institutions making it difficult to address financial inclusion.
For mobile financial services to play a role in achieving financial inclusion there needs to be a concerted effort from business and policy-makers to establish mobile payment eco-systems that provide access to a wider range of financial services. Then we can ask, not how to make mobile financial services available, but rather how to ensure that the industry works together to remain sustainable.
By Aaron Oliver, Head of Emerging Payments for Middle East and Africa, MasterCard