The mobile payments industry is booming in developing nations and research shows that these countries are at the forefront of innovation within the financial technology (Fintech) sector.
With the majority of innovation in Africa, India and Asia Pacific coming from mobile devices and wireless technologies, it demonstrates that emerging markets can be leaders in the tech industry.
Mobile payments are taking off in developing countries for a few main reasons; firstly because of the lack of traditional banking infrastructure - the distance of local branches and there is no access to broadband for online services, secondly, a large percentage of the population simply don’t have a bank account and a large number of the transactions made are very small in comparison to developed nations.
Rapid adoption of mobile payments in Kenya has been accelerated by the invention of M-Pesa, a mobile-phone based money transfer service created in 2007 by Vodafone for Safaricom, (the leading Kenyan mobile service provider) which enables millions of people who have access to a mobile phone, but do not have or have only limited access to a bank account, to send and receive money, top-up airtime and make bill payments.
Before mobile, millions of Africans had limited access to data and only 1% of the population owned a mobile in 2000 but now astonishingly 60% of Kenyans have mobile phones despite living on less than £1.50 a day, and 80% of these mobile owners use them for payments and banking. M-Pesa has also inspired many tech start-ups from Nairobi to come forward with their innovative ideas and has placed Nairobi as the major tech innovation hub in Kenya.
In July 2014 Kenyan financial services provider, Equity Bank, will begin to provide customers with a new slimline SIM card to ensure safer banking transactions. The slimline SIM is placed on top of the customer’s current mobile phone SIM card and allows the bank access to the phone menu, without disrupting mobile services or phone numbers.
According to a BBC News report, July 2014, Equity Bank Chief Executive, James Mwangi, believes that many Africans have problems with face-to-face banking because of the location of banks and the travel costs involved getting to them. He also believes that mobile payments allow customers to access their bank services without having to travel and going cashless in Africa could help to promote security and reduce the risks associated with cash management.
Research from Gartner indicates that Africa's transaction value is forecast to reach $160 billion in 2016, a figure which is way ahead of more developed countries. Research also shows that Africa isn’t the only innovative developing nation, mobile tech innovation is also rapidly developing in India. India has the fastest growing smartphone market with a 167% growth in the fourth quarter of 2013 and a forecast of 224m new sales in 2014, with 92% expected to go to new users. By 2016 Asia Pacific is also indicated to overtake Africa by reaching $165 billion in transactions.
The National Payments Co-operation of India (NPCI) has developed an Immediate Payment Service (IMPS) which can only be initiated via mobile phone and provides instant, interbank electronic fund transfers. IMPS offers an instant, 24/7 service that enables customers to access their bank account via their mobile and send high value fund transfers, securely and immediately. The authentication is enabled via MMID (Mobile Money Identification Number) and statistics show that 50 banks have already signed up to use this service and transactions have grown from 700,000 to over a million in just two months.
According to The Mobile Consumer, 46% of consumers in Asia Pacific are using their mobile to buy goods and services than any other region in the world and there are three times more mobile phones than there are bank cards in China. These figures are set to rise and it comes as no surprise that some of the best innovation is coming from Fintech start-ups emerging from these developing nations.
The Fintech Innovation Lab Asia-Pacific has been launched by ten leading banks including, Bank of America Merrill Lynch, Bank of China and Barclays, alongside technology and outsourcing services company, Accenture. The 12-week programme is accepting applications throughout July 2014 and enables early and growth-stage financial technology innovators in Asia Pacific to accelerate product development and gain exposure to top-level financial industry executives.
According to Sushil Saluja (Senior Managing Director, Financial Services for Asia Pacific at Accenture), Hong Kong is a regional hub for the banking industry and is the ideal location to launch the Asia Pacific Lab. Sushil realises the need for financial institutions to get up to speed with tech innovation but admits that they often find it difficult to access innovation on their own. “Financial institutions recognise more clearly than ever the importance of technology innovation but often lack hands-on exposure and engagement with promising ventures.”
Samson Chan (MD, Head of Equities Technology Asia-Pacific, Barclays) mentions that the program creates an opportunity for regional entrepreneurs to develop their ideas and receive the support necessary to make their ideas happen in Asia and at Barclays they “recognise that the leading banks of the future need to be at the forefront of FinTech in order to best service our clients.”
So, why are these countries ahead of the West when it comes to tech innovation? Developing nations don’t have the barrier of legacy technologies that can restrict countries in Europe and US. These countries are also focusing on providing low-cost mobile payment solutions to low-income, isolated populations where there is a need for these solutions.
However, Britain is already starting to get up to speed with digital banking and according to a British Banker’s Association’s report, June 2014, more than 15,000 people are downloading banking apps every day. With more financial institutions and payment providers starting to invest time and money into start-up initiatives, not only in major tech hubs like London and New York but now also in developing nations all over the world we are set to see more innovation emerging from financial institutions as they gain more exposure to new ideas.
By Nicole Miskelly, bobsguide Lead Journalist