No Simple Solution to Achieving Scale In Global Mobile Payments

LAGOS (Capital Markets in Africa) – In many ways, cash transactions are the original “mobile payments”. They are fast, easy, cheap, and relatively secure, and have set a very high payment experience bar that any other form of mobile payment will need to exceed if it plans on making the use of cash obsolete. Not only are cash payments instantly ‘cleared’ between the buyer and seller, they are mostly universally accepted, require no complex hardware or communications network access, and carry none of the costs associated with most card and mobile transactions. In essence, cash payments set the standard for fast, easy personal financial transactions.

Perhaps unsurprisingly then, recent research released by the Bank of International Settlement indicates that, even in the face of numerous challenges, cash payments continue to rise in popularity as a preferred transaction method, with most recent data pointing to cash transactions as a share of GDP increasing from 7% to 9%. In fact, only Russia and a few Nordic countries have actually shown a decrease in total number of cash transactions recently.

It is therefore clear that for any mobile payments ecosystem to be considered ideal, let alone truly scalable, it would have to combine many of the attributes of cash payments, such as speed, universal acceptance and low cost, with the security, convenience and portability associated with making payments digitally.

Interestingly, in many African countries, mobile transactions are fast approaching this cash-similar state, but only if both the sender and recipient, and all other participants in the transaction, are on the same mobile payments network. This is seldom the case, however, and where the various payment networks do not offer full interoperability, the larger mobile payments network quickly achieves dominance over any other offerings, resulting in something of a monopoly position, in which the dominant stakeholder focuses more on revenue generation than on enhancing the electronics payments ecosystem to maximise uptake and usage.

Then, impressive as many mobile money systems currently are on the continent, there are still a number of financial services industry specific issues that are preventing mobile payments from achieving the same level of popularity as cash transactions and are consequently limiting their achievement of scale. For one, fractured mobile money systems continue to limit interoperability between customers on one network and merchants on another. Then, payment initiation processes are still often painfully slow, hampered by long USSD strings and characterized by system timeouts, a lack of user friendliness, and, as a result, a generally poor experience that few users want to repeat. While the use of apps would appear to be the logical immediate solution to these limitations created by USSD processes, the African mobile world is still very much characterized by large numbers of basic feature phone users.

While the numbers of smartphone users are steadily growing, it would be naïve to assume that these mostly Android-powered devices will quickly replace simpler, feature phones amongst mobile customers on the continent. In a highly cost-conscious market, with particular network availability challenges, feature phones still present many distinct benefits over smartphones. Their lower unit cost, robust build, substantially better battery life, and reduced usage of expensive data makes them an appealing connectivity proposition for the majority of Africans, and particularly those who fall within the massive target market of most mobile payment service providers. That said, for those who can afford data-hungry smartphones, these offer far greater speed and flexibility in processing payments when compared to the slower USSD interface. But until the affordability imbalances between smartphones and feature phones can be eliminated, the latter will almost certainly remain the mobile device of choice for less affluent.

An extract from the INTO AFRICA April 2019 Edition: Envision Africa’s Digital Revolution. The article is written by Chipo Mushwana (Head of Emerging Payments, Nedbank South Africa) and to read the full article, please download by clicking: INTO AFRICA PUBLICATION: APRIL 2019 EDITION.