AS the World Economic Forum Africa convened in Kigali, Rwanda, this week Natalie Baatjies, Senior Director, Financial Inclusion CEMEA (Central Europe, Eastern Europe, Middle East and Africa regions) at Visa, spoke to Mail & Guardian Africa about financial inclusion, mobile money, remittances, payment solutions, innovation, the future of banking, and money.
MAIL & GUARDIAN AFRICA: Africa’s population is booming. Over the next 35 years, half of the world’s total population growth will be concentrated in nine countries, and five of those will be African: Nigeria, DRC, Ethiopia, Tanzania and Uganda. What kind of opportunities do you see, and what perils?
Natalie Baatjies: The countries projected to host half of the world population in 35 years currently have large unbanked populations, which is primarily due to the lack of bank branches and ATM/point of sale networks in rural areas.
While Nigeria is the fastest growing economy in Africa, 56% of its population remains unbanked.
There is a growing body of evidence indicating that countries with high financial exclusion are prone to income inequalities, and that underdeveloped financial systems have a disproportionate negative effect on small businesses and low income consumers, resulting in unstable economies.
In order to support the future population growth and ensure a stable future economy, Nigeria needs to increase the reach of financial services by ramping up its mobile money networks that currently only reach about 2% of the population.
Tanzania has done this very well and has quadrupled the number of people with formal accounts in the last 5 years due to unprecedented growth in its mobile money industry.
In fact, 38 million Tanzanians have mobile money accounts and 8.9 million are active users, with an average transaction value of $19 as opposed to the 26 million users and 14.2 million active users in Kenya.
Banks in Nigeria will also need to extend their rural footprints by ramping up their agency banking programmes and leveraging the networks of retailers, post offices, mobile network operators and microfinance institutions.
M&GA: Along with the world’s fastest population growth, over the next several decades Africa will also experience the highest urbanisation rates anywhere on the planet. Congestion, and traffic jams are already a nightmare. What are the simple but smart technology solutions out there that might ease this, and also improve security? Would, example, a different and quicker electronic payment for buses and taxis help move queues along faster?
NB: Visa payWave is a contactless payment solution that can shorten the time it takes for commuters to pay for taxi’s and buses, and will eliminate the need to carry and count small change every day.
The solution uses Near Field Communication (NFC) technology to enable customers to make purchases by simply holding their Visa payWave card in front of a reader, rather than swiping or inserting it. In the city of London Visa payWave can be used to pay for travel across the full transport network including buses, tubes, trams, the London Overground, TfL Rail, Emirates Air Line and most National Rail services.
As young skilled workers flock to the cities to find employment, there is also a growing demand for affordable solutions that enable the urban professionals to send money home to rural areas. mPesa effectively addressed this need in Kenya, but solutions in most other markets have limited rural reach. Similarly, migrant workers and refugees need affordable international remittance solutions with cash out points near their friends and family that live in rural Africa where there are seldom bank branches.
South Africa is the largest sender of remittances in Africa, and also the most expensive G20 country to send remittances from. While Nigeria is the biggest remittance receiver in Africa, attracting diaspora remittances in excess of $21bn per annum, Sub-Saharan Africa is the most expensive region to remit to. As a result the majority of remittances are still send via informal channels such as buses and taxis.
Visa has designed an innovative push payment remittance solution called Visa Direct. The solution will enable partner banks, money transfer operators, and new entrants to lower the cost of delivering domestic and international remittances, with the goal of leaving more money in the pockets of beneficiaries who are often dependent on these remittances as their primary source of income.
M&GA: Journalist and writer Howard French says that in West Africa, the cities there are being connected along a long extended corridor - essentially one long street - that traverses national borders. When you think of the fact that phone systems and banks are organised nationally, not regionally, do you think perhaps that this regulatory model has become dated? What might a new order look like, from the point of view of a payments solutions provider?
NB: Telecoms companies and banks need to invest in technical architecture that meets the domestic needs of today while enabling future regional, inter-regional and international growth.
The future growth of mobile money and its effectiveness as a credible payment solution will depend on its ability to scale beyond domestic borders to support regional and international trade. However, domestic, regional and international mobile money interoperability will only be possible if banks and telecoms companies adopt a single global standard for interoperability, similar to the *EMV standard in the card world.
Visa operates the world’s largest retail electronic payment network called Visanet which links 2.5 billion Visa cardholders in over 200 countries to 13,700 financial intuitions and 40 million merchants. The company leveraged the power of Visanet and it’s 50+ years’ experience in interoperable card payments to design an interoperable mobile money network solution called mVisa.
mVisa links closed loop bank-led and mobile network operator (MNO)-lead mobile money schemes to create an interoperable network that can serve more people in more places. mVisa was piloted successfully in Rwanda in 2013 with 3 banks and will be rolled out in other African and Asian emerging markets.
M&GA: Africa has not yet moved beyond M-Pesa-like payments, to fully fledged neobanks. Given the relatively underdeveloped financial systems infrastructure in many countries, and even security in some, some argue that the continent is ripe for neobanks. Do you think that is still far out, or the time has arrived?
NB: Theoretically the concept of neobanks should be easily understood and accepted in markets where mobile money and agency banking is prevalent.
Like neobanks, MNO lead mobile money eliminates the need for bank branches and offers simple, low cost financial services that leverages the ubiquity of mobile phones. While neobanks use ATM’s to support cash withdrawals, mobile money uses a network of “human ATMs”.
The biggest difference between neobanks and mobile money seems to be that neobanks strive to eliminate face-to-face interactions, whereas mobile money drives adoption and establishes trust through its agent network.
Despite the similarities to mobile money, it is unlikely that East and West Africans who value interpersonal relationships of trust will readily adopt neobank solutions. In the near term these solutions are likely to be adopted by millennials who embrace mobile-first solutions and have simple financial services needs. While neobank are criticised for having limited products to cater for the sophisticated needs of the middle class and affluent consumer, these digital banks constantly analyse transaction data to learn about accountholder behaviour and predict what they will need next.
One thing is clear, traditional banks and financial institutions need to respond to the threat of disruptive payment solutions from fintechs and social media giants and need re-invent themselves in order to remain relevant in this fast-changing industry.
In response to this changing world, Visa is transforming the way we introduce new products, capabilities and services. We’re opening our network and providing access to powerful application programme interfaces (APIs) that will help our partners build easier, faster and more secure commerce experiences.
Visa APIs can be accessed online by product development teams who can explore documentation and test sample code. Fintechs, social media companies, mobile app developers, banks and geeks in a garage will be able to take advantage of Visa’s global reach, security and knowledge to create brand new experiences between consumers, financial institutions and merchants.
Visa will review and approve all apps and perform a readiness check prior to launch. Facebook payments in the US, Apple Pay and Samsung Pay are all enabled through Visa API’s. Ultimately we want to be the payment engine behind the Pay button wherever you are.
M&GA: Branchless, and indeed a new range of card services, look like the future, but ultimately the bigger value a bank offers is financial advice, and some of its best decisions are made in face to face interaction with customers. If this is to be replaced, what form might that take?
NB: When dealing with low income and unbanked consumers in Africa we should always couple technological solutions with face to face interaction, education and support.
Visa incorporates financial education in most financial inclusion programmes. This education should include financial literacy, technical training on how to use the digital account as well as training that addresses cultural myths and misconceptions about banking.
Mobile solutions can be used for refresher training and to send simple tips and alerts to previously unbanked accountholders. Middle class and affluent account holders enjoy the convenience of digital support when they have simple queries, but usually prefer face to face financial advice for large and complex transactions.
M&GA: Mobile money in Africa has been credited with bringing unbanked groups, for example, women with little income, into the formal financial system and mobilising savings. Some estimates have nearly 50% of Kenya’s GDP passing through M-Pesa. How do companies like Visa enter this space?
NB: It is particularly difficult and expensive for banks and mobile network operators to build agent networks that match the ubiquity that mPesa has achieved through its network of 125,000 agents in Kenya.
Visa designed a product called mVisa that links disparate MNO and bank-led mobile money schemes to create a single interoperable mobile money network which is larger than the sum of its parts. Visa piloted this solution in Rwanda in 2013 and plans to roll it out in several markets globally.
It’s difficult and expensive for banks and mobile network operators to build agent networks that match the ubiquity that mPesa has achieved through its network of 125,000 agents in Kenya (Photo/Andrew Currie/Flickr).
While mobile money can play a pivotal role in financial inclusion, women are 14% less likely to own a mobile phone than men. Over 300m women in sub-Saharan Africa do not have access to a mobile phone. This not only inhibits their ability to open a mobile account but also impedes their ability to obtain essential healthcare and emergency services.
M&GA: Looking at payments, and the technology infrastructure that enables it, can you point to a few cases of actual initiatives and innovations on the ground in African cities, that tell us what the future might look like, and what likely works and what doesn’t.
NB: Most Africans do not have access to safe, affordable solutions to save money, pay for goods and pay each other. More importantly they don’t have access to affordable credit to start and grow their own businesses.
In fact, the lack of SME credit has been identified as the primary inhibitor to economic growth in Sub-Saharan Africa.
It is thus imperative that payment innovation in Africa be primarily focused on solutions for the unbanked, and on creating bridges between informal solutions and formal banking solutions.
Visa recognises and respects the role that informal solutions like mobile money and village savings and loans groups have played in providing solutions to the unbanked. However, these models have their limits and are unable to support large transactions or address Africa’s urgent need for SME credit.
Village Savings and Loans groups are groups of 15 to 30 people who meet on a weekly or fortnightly basis to save into a common fund.
The common fund is used to support loans within the savings group as needed, with the loan interest used to provide a return on the invested savings.
Visa’s NGO partner, CARE, created over 3 million such groups, reaching approximately 60m unbanked people across 26 countries in Africa. Since the group members decide on who can join based on character, VSLA’s generally achieve repayment ratios as high as 98%.
Nevertheless, the women cannot access more funds than they can collectively save. Members save and repay faithfully for many years, but still cannot access credit from banks without a credit score.
Visa funded the development of a credit score for VSLA women in partnership with CARE in Kenya. The credit score is being developed in consultation with banks and the credit bureau and will be based on repayment behaviour and other data sources. CARE will also do research amongst the banks to design a group lending business model that banks can use in the subsequent pilot.
Alternative credit scoring is also revolutionising mobile money and mobile payments. A handful of pioneering MNO’s around the world are starting to develop credit scores based on mobile payment behavior.
The credit is primarily used to buy airtime and mobile phones, but is expected to extend to other uses.
Kopo Kopo in Kenya have created credit scoring functionality for merchants accepting mPesa transactions.
This innovative business model incentivises merchants to promote digital payments in their stores by building a credit record based on digital payments received. Digital spend at a participating merchant doubled within the first year of implementing this solution.
Another trend we expect to see in Africa is the digitisation of value chains. Visa is partnering with the Clinton Development Initiative in Rwanda to digitise the agriculture value chain. This presents a significant opportunity to financially include smallholder farmers while creating sustainable commercial value to industry stakeholders. Agriculture is a significant contributor to GDP in most African markets and employs millions of people across Africa.
Visa also wants to partner with Fast Moving Consumer Goods companies that have extensive distribution networks in rural areas. Visa partnered with the largest bakery in Mexico, Bimbo, to provide POS acceptance at 75,000 mom and pop stores across the countries. We hope to forge similar partnerships with FMCG and beverage companies Africa in order to service last mile merchants and consumers.
Other East African examples include:
* Mobile: M-Pesa (Kenya). 20M mobile wallets in market with 25M adults.
* Retail banking “ground game”: Equity Bank (Kenya). Growth from 1M to 10M accounts via steady execution of relatively traditional retail banking practices
* Seeding digital accounts with alternatively-scored consumer credit: M-Shwari (Kenya) 12M registered users for on-demand, mobile-accessed, nano credit (avg $6.50) scored from bank/telco usage data.
* MTN Uganda achieved 7m registered mobile money accounts within 5 years, in a market where 80% of people are unbanked and it took banks 100 years to reach 5 million people .
* MM in Tanzania with 38m registered MM accounts.
M&GA: Socially and culturally, based on Visa’s insights, do men and women in Africa use credit cards differently?
NB: Credit cards make up a very small percentage of cards in Africa, which is predominantly a debit card market. Studies have shown that women are more responsible stewards of their finances and that they are more likely to spend money on essentials such as food, education, healthcare.
While it is harder to sell a financial services product to a woman, once they have access to financial services, they are more likely to save than their male counterparts.
M&GA: Are there differences in how regions or countries on the continent use cards and financial infrastructure like ATMs?
NB: True financial inclusion will only be achieved when everyone everywhere has access to safe, affordable and easily accessible financial services solutions that are relevant to their daily needs.
Although there are millions of cards in Africa, the number of people who use their cards for payments is very low compared to most developed markets.
While Kenya is recognised globally as a mobile money pioneer, 98% of payments in Kenya are done in cash.
Part of the reason for this is that banks still position cards as ATM cards, in an effort to drive customers out of the branch.
South Africa has the highest rate of card payments in sub-Saharan Africa, which is largely attributed to its extensive POS footprint.
Until a few years ago cards were used primarily for travel and entertainment, but we have seen steady growth in everyday spend categories like fuel, groceries, and quick service restaurants. In sub-Saharan Africa, fuel payments have been a significant catalyst for the adoption of card payments for everyday spend.
M&GA: African parents invest heavily in their children’s education. What solution do institutions like yours have to support this financial need?
NB: The World Economic Forum found that 0.5 billion people globally pay school fees in cash even when they have a bank account. In Africa, very few banked people pay school fees electronically.
Visa is working with banks and schools to provide easier ways for parents to pay school/university tuition as well as examination fees etc. Many of the banks have launched youth cards that will allow young to start saving from an early age and enables parents to pay their allowances on card or mobile solutions.
We partnered with UBA bank across East and West Africa to develop the Smart Money Account. Smart Money is a pre-paid card solution that is linked to a mobile app. Youth in Kenya, Ghana (other countries to follow) use the app to create their budgets and save money.
The app is integrated to social media and allows them to share savings goals with their friends who can hold them accountable when they spend on unnecessary goods. Visa and UBA have also arranged promotions that incentivises youth to pay for goods on campus using their cards.
M&GA: As is, urban citizens have to pay for a raft of services; water, power, sanitation, name it. How would a smart city use your services to make this worth everyone’s while - essentially make it more than just a transaction?
NB: Visa’s interoperable network (Visanet) serves 2.5 billion cardholders, linking those that need to pay with those that need to be paid. It runs in over 200 countries and connects over 13,700k financial institutions with 40 million merchants worldwide.
Our Visanet network will provide smart cities with an interoperable payment network that enables utility payments using any channel including face to face, e-commerce, m-commerce and mobile payment functionality.
Smart cities will thus be able to support a number of different customers experience giving citizens the option choose whether they want to pay for utilities using mobile apps, QR codes, NFC, social media or even biometric technology.
Our open architecture allows cities to innovate against our API’s (application processing interface) thus leveraging the power of Visanet.
Our aspiration is to be the engine behind the “Pay” button on every website and mobile app.
M&GA: Some innovative cities - Tunis comes to mind - have allowances put into officials’ cards, allowing for them to account for every penny of public money. Is this the future for accountability?
NB: Certainly, by digitising their payments governments have increased control over the way money is spent and can mitigate the risk of fraud and leakages in the system. Moreover, governments can accelerate financial inclusion and the realisation of cashless economies by digitising the millions of payments they make to stakeholders every month including salary payments to civil servants, staff travel allowances, social protection grants, pension payments, subsidies, unemployment insurance etc.
Visa supports 250 government disbursement programmes in 18 countries globally and has issued millions of cards across Sub-Saharan Africa. However, Visa believes that true financial inclusion cannot be achieved through account issuance alone. We will only achieve cashless economies in Africa, when Africans have more places to use their digital accounts and more relevant uses for them.
We are thus committed to partnering with governments, banks, mobile network operators, NGO’s and other institutions to provide low cost acceptance solutions that reach the unbanked and underserved. In 2015 Visa partnered with the Ministry of Agriculture and Livestock in Zambia, Zanaco and Banc ABC to launch the Farmer Input Support Programme. In partnership with the banks, Visa issued input subsidy cards to 220,000 smallholder farmers. We also worked with Standard Bank and Zanaco to ensure that farmers could use their cards to purchase inputs from nearby input shops.
Since government to person payments presents the single biggest opportunity to drive financial inclusion in Africa we will continue to expand our offerings in this space.
*EMV is a global standard for credit and debit payment cards based on chip card technology” taking its name from the card schemes Europay, MasterCard, and Visa - the original card schemes that developed it.