The payments industry has never been more diverse or exciting than it is today. The rise of activity within this space has been exponential in recent years, moving the market away from common associations such as the correlation between banks and payments. Banks are no longer the sole owner of the payments space, with the broadening scope of players in the market largely due to technological advancements that have opened the market up to everyone.
The issues that arise from this technological revolution stem from both consumer demand and the requirements of financial institutions. Do we need this new wave of technology? Payments aren’t broken, so, for example, what will paying with your glasses fix? The developed market today is saturated with innovation; offering more convenience, quicker payments and greater mobility than ever before, making it a highly competitive environment full of start-ups working to establish themselves over brick and mortar institutions, with varying levels of success and failure.
The distributors of these new products and technologies find themselves in such an aggressive situation, whereby the competition is so steep and the demand so niche, that the lifecycles of their products are declining. The end user already has everything they need alongside their established payment habits and the opportunities to really grow a money-making enterprise are slim.
Whilst the marketing machine is churning out keywords such as innovation, cutting-edge and truly revolutionary, very few ‘new age’ products and services realistically make it out of the ‘nice to have’ box and into the essential pile. It is therefore refreshing to look to the developing world, who leap frog over the mistakes of the developed markets before them and demonstrate true innovation that brings both convenience and investment to their respective geographies.
Africa is the current poster child for getting innovation right. Over the past decade, there has been significant investment into infrastructure and technology making it the second-fastest growing economic region in the world. Mobile payments have been a key driver of this growth and are the best example globally of how to innovate for economic success. According to GSMA Mobile Money for the Unbanked 2013 Global Mobile Money Adoption Survey, mobile money accounts outnumber bank accounts in nine African countries: Cameroon, the Democratic Republic of Congo, Gabon, Kenya, Madagascar, Tanzania, Uganda, Zambia and Zimbabwe.
Contrary to popular belief, innovation is not necessarily a synonym for invention. Innovation can be intrinsically linked to evolution; adapting to changes in your environment to better deliver products and services. It is necessity that drives true innovation, not technology-based solutions looking for a problem to solve. This is where the African case study comes into fruition. Problems in this region generally arise from a lack of financial inclusion, whether due to geography, politics, economy or culture. Substantial thought, planning and collaboration has been required to extend inclusion by offering appropriate financial services to those traditionally excluded by this sector. Initiatives are being rolled out across the continent and the developed world is left to marvel at the success of mobile payments, P2P lending, EBPP and biometric ID payment cards, to name a few.
It is impossible to mention payments and Africa without mentioning MPesa, the most internationally famous case study of mobile payments success to-date. Today MPesa enables users in Kenya to pay bills, transfer money, withdraw cash via retail agency networks, as well as receive microloans and open deposit accounts using their mobile account to top them up. The latter was implemented by Safaricom in partnership with Kenya Commercial Bank, one of the largest banks in the country.
Whilst this functionality is not new to the developed world, the financial sectors have yet to accomplish success to this scale in the mobile money environment. The success of MPesa is such that 19 million of Kenya’s 44 million population are subscribed and a quarter of the country’s economy passes through it.
Not all countries in the region have shared the same success. For example, here are 18 different mobile money operators in Nigeria, and the sheer oversaturation of market players hoping to profit from what is essentially the same business model, has meant that no one player has been able to emulate the success of the Safaricom MPesa initiative. However, Nigeria has had other innovative successes; their national identity payment card pilot (NIMC) in partnership with MasterCard is currently underway with plan to roll out the card to 170 million people on completion of the project. The card acts as both a prepaid debit card and biometric identity card and is seen as a key step to bridge the gap of financial inclusion.
In Egypt, a mobile money initiative backed by both the Central Bank and the government to offer financial services to every Egyptian has meant that all mobile money providers have interoperable services to ensure payment options are available to every consumer. Whilst in South Africa, the collaboration between the Central Bank, Payments Association of South Africa and established local FIs lead to the country being one of the first across the globe to implement a Faster Payments system.
Kenya, Tanzania, Uganda, Rwanda and Burundi signed a protocol for monetary union in 2013 which will see this group of countries integrate their electronic payment systems over the next decade to both expand trade and make payments easier within the group.
It is clear that there are lessons the developed world can learn from these successes in innovation:
1. Offer cheap and easy-to-use value-adding initiatives. Simplicity is king in driving mass consumer adoption across all relevant demographics.
2. Solutions must be relevant to each locale. A model that is successful in Kenya won’t be transferrable to another country without adjustment. There is no ‘one size fits all’ template.
3. Partnerships between market players, central banks and governments. Without collaboration, no one initiative will achieve critical mass.
4. Distribution networks, whether national or cross-border. The solution needs to be available to all parties that need it.
It is rare that the terminology “problem solving” and “payments innovation” can be married together in their true form, and as Africa has shown us, success can be achieved through localised problem solving and partnerships. In the recent Payments Innovation Jury Report 2015, 93% of jurors felt that the developed world has lessons to learn from the developing world when it comes to payments innovation; and they were correct.
By Alexey Osipov, Executive VP & MEA Managing Director at Compass Plus