How Mobile Money Could Explode in Africa

“I have a tendency to go on for a while,” Osarumen Osamuyi told me as we began our discussion about financial inclusion in Africa. He was right. Every question I asked spurred a sprawling and detailed response that took into account the past, present, and future of the technology scene in Nigeria and other African markets.

The Nigeria writer and editor of the popular technology website The Subtext began his career in the tech industry at the Nigerian technology publication Tech Cabal as an intern in 2015. Rising through the ranks, he started writing a daily newsletter after getting bored with reviewing mobile phones (“They are all the same,” he told me). He quickly discovered his passion in closely watching the startup scene develop in Nigeria.

Although Nigerian tech companies used to be clones of larger international brands, he noted, new startups are charting their own path and creating products suited to local markets. Osamuyi also serves as the head of investments and research at an early-stage pan-African venture capital firm called Ventures Platform. You can’t talk about technology in Africa without a conversation about financial inclusion and the explosion of mobile money accounts. What follows is a lightly edited and condensed version of our conversation about this space.

Joseph Dana: There is much discussion about how financial inclusion and bringing people into formal financial services is a positive and transformational development. Do you share the optimism?

Osarumen Osamuyi: The general attitude towards financial inclusion tends to be: “We have people who belong to an unbanked class and what we need to do is move them to a banked class”. This view treats global standards as objectively good and they should be foisted on people in the informal economy. I find it to be simplistic for a couple of reasons and I will give you a few examples.

Take the Bebapay experiment, when in late 2013, the Kenyan government announced a ban on cash payments for bus fares in an attempt to move consumers from physical cash to a prepaid card that relied on Google’s NFC technology. It was going to provide visibility for matatu (minibus taxi) owners and make the experience more seamless — in theory. It failed in large part because the two sets of stakeholders who mattered the most — end users and bus conductors — had little incentive to use it. The prepaid card was inflexible and often locked in value, while cash could be used to buy other things. It was a worse experience for them because they were not the primary consideration.

The same applies more broadly to other payment products. In Nigeria, Mastercard has been marketing a QR-based payments product called MasterPass, and Visa has been marketing one called m-Visa. They have gone to merchants, got them to put up QR codes, and in theory consumers should come in and scan the codes to pay for goods and services. But I find that to be ridiculous for a couple of reasons. In China, this makes sense because the average Chinese consumer understands what a QR code is and scanning QR codes is often a show of intent to either move forward in a user flow or to accomplish something.

That isn’t necessarily true in Nigeria. So you find a couple of merchants who have these things put up and nobody ever uses them. There is no incentive to use them because the benefit in terms of user experience is not justified by the cost of downloading one more app or bringing out your phone to scan the code. For the most part, cash is still the preferred means of conducting transactions.

I am skeptical that solutions assuming going cashless is, in itself, objectively good are going to work because many people in the informal economy aren’t convinced that going cashless solves any of the problems they care about. They are mostly right.

JD: Would there be widespread adoption and use of cashless platforms if the process was less annoying and cumbersome?

OO: Part of the problem is a network issue. If I took, say, NGN500 ($1.40) today and went to the pharmacy to buy a Red Bull, no matter what happens the merchant will accept my NGN500 because it’s a cash-based economy. That doesn’t necessarily apply to debit cards, or even bank transfers. There is often friction introduced because for many people their mobile phones are primarily communication devices and there has not been a massive shift to seeing them as utilities. They’re mostly operating on communication infrastructure at the present moment.

Another challenge is reliability. There is no guarantee that if you’re using unstructured supplementary service data (USSD) systems, which have become wildly popular in Nigeria, they’re are going to work. There have been times when I needed to pay for something via USSD and the transactions failed. Uber drivers, for example, would not receive their bank alerts of my payment until 12 hours after the transaction was completed. It’s a hard problem to solve, but I’m convinced that we can figure out approaches to building these services that empathize with the customer as opposed to trying to impose what we see as objectively better technology.

JD: Do you think the Chinese are eager to make a play in the financial inclusion space based on their footprint with smartphones and infrastructure in Africa?

OO: Yes, and I wrote about this in The Subtext recently. Three of the most popular phone brands in Africa — Tecno, Infinix, and iTel — are manufactured by a Chinese firm called Transsion Holdings. The company is now venturing into financial services by bundling a payments app with their phones that lets users access loans, transfer money, buy airtime, pay bills, and so on. In a similar way, Opera — which is now owned by a Chinese consortium and recently took in a $50m investment from Bitmain — operates the most popular browser in Africa, and has launched OPay to provide many of the same services.

That’s an interesting thread to pull on. Why are global companies trying to develop a relationship with the average African consumer and starting with financial services? In my view, this is because it’s a good way to gain value immediately, but also because financial services or payments are about trust. So, it’s a way for these firms to insert themselves into the lives of consumers who do everything offline. I like this approach. As opposed to apps like Uber, which are convenience functions, these services are solving problems faced by low-income consumers today.

“Developers need to be much more focused on the consumer and what their needs are.”

The way I like to describe it is that if my house is dirty, I don’t need a cleaning app, I need a cleaner. Without focusing too much on what the technology is, developers need to be much more focused on the consumer and what their needs are. In other words, studying user behavior patterns and sitting down with them and being humble enough to accept the ways they complete daily tasks.

JD: It’s hard to predict the future, but based on the trends you see and are familiar with, where will financial inclusion be in five years?

OO: I am generally bullish about the space, and I strongly suspect that because of the entrepreneurs I am meeting today we will see some acceleration in the adoption of technology products. Let’s talk a bit more about China or international players like Opera. Opera is trying to replicate a Chinese news aggregator app. Part of the play there is trying to get users comfortable interacting with their services and then slowly introducing ways to make payments. That’s why I find their OPay interesting. Within the browser, users can already pay bills, and send and receive money. Soon they will likely be able to request, receive, and pay back loans, so it’s essentially a wallet within the browser. That will enable e-commerce in a frictionless manner.

Part of the reason I think mobile money accounts and bank accounts are dormant for many users is that the platforms don’t do much besides receiving money, store money, and enable users to send money somewhere else. That makes sense for someone in the formal economy, but, again, the mechanisms of the system that bank accounts or mobile money accounts will have to replace have trading networks integrated with them. They are social networks and ecosystems of activity that go beyond the ability to store value and transfer that value to multiple wallets.

We are moving on from stage one innovation, which is copying things that look interesting in other markets, and beginning to develop solutions that take local nuances into account. So, I expect that in Nigeria and Kenya especially, we should begin to see many more people integrated into organized financial ecosystems.