Africa paving the mobile money trail

Sometimes, being late to the party is a good thing; you can leap ahead to the good part, bypassing all the setup. In the world of technology, the leapfrog effect refers to bypassing previous iterations of a technology and jumping to the most current version. This saves considerable time and money — and can achieve quick results.

That’s what is happening in regards to mobile money. Countries that haven’t built up huge brick and mortar infrastructures are leading the way when it comes to mobile transactions.

In Kenya, already 60% of people have a mobile banking account. Much of this is attributed to the success of Mpesa, which allows users to deposit, withdraw, transfer money and make payments with their phone via SMS (text messages) and PINs to enable transaction on inexpensive devices, as opposed to using mobile apps, which typically requires a smartphone and a data plan.

Paying utility bills via text messaging means no waiting in line or long journey. Transferring money doesn’t require handing money to someone who can drive it to the closest bank or Western Union. Money is kept safe in an account, not hidden away in some unsecure location. Mobile money makes tangible differences in people’s lives.

Due to its ease of use, low-cost and widespread adoption by users and retailers, Mpesa has become a powerhouse for transactions in Kenya. It now accounts for $52 billion in annual transactions and now offers additional services such as medical insurance, bill payments and small business loans. Its success has drawn attention from the big payment companies; recently mVisa launched in Kenya with the backing of four major Kenyan banks.

According to the IMF, the mobile banking adoption rate across Africa is 11%, as opposed to the 2% for the rest of the World. The IMF Deputy Director for African Department notes the reason for the high level of adoption: “The reason is twofold: One it lowers costs, and of course it lowers costs for everybody, it lowers costs for the financial institutions and it lowers costs for those who use the services. And that is why, and this is the second point, why it’s so good for inclusion because many poor people are excluded from financial services because it’s just not worth it for banks to reach out to poor people.”

This rapid adoption of mobile banking might enable Africa to lead in providing many other financial innovations, in effect, leapfrogging the need for a traditional financial infrastructure. One example, cryptocurrencies; the unbanked in Kenya and Tanzania already have access to bitcoin-based services such as BitPesa that allow them to affordably send and receive funds without the need of a bank account.

Blockchain expert, Bellaj Badr, says, “I am 100% certain that the Bitcoin revolution in Africa is starting there and it will meet a great success similar to the success of the mobile payment where Africa has become a reference in this field.”

These developments are great, both for the local citizens and for society. As the recent Financial Inclusion Week points out, there are huge benefits to providing banking to the under and unbanked, from healthier and more productive families to growing GDP to the tune of $4.2 trillion dollars.

It also provides a living laboratory for using new financial innovations. Mobile money is not theory in Africa, it’s in wide use, changing lives and changing the nature of payments, banking and commerce in general.