Opportunities and Challenges of Mobile Payment Platforms in Rural Africa
In the past couple of years, there is a growing focus in the tech world on the topic of mobile payment platforms. The idea is to use smartphone apps loaded with money as replacement of cash in everyday business transactions. Paying for groceries, restaurant bills, and transport will no longer involve searching for petty cash, not only reducing time and hassle for digging through small change, but also dramatically decreasing possibilities of errors, frauds, and thefts while making it all the easier for tracking spending, checking available balances, and splitting bills across multiple people.
While people in other parts of the world remain mesmerized by the possibility of cashless society with this concept of "e-wallets," little known (and perhaps all the more surprising) to them, Africa has already gone through the "e-wallet" process. Interestingly, mobile payment platforms here has happened years and years ago without the advent of fancy mobile phone and suave app developers. Instead, mobile payments happen in traditional cellphones, using menus that resemble real-time back-and-forth of an SMS conversation.
In some ways, this traditional cellphone mobile payment, which is called "M-Pesa" (short for "mobile money" in Swahili) in Tanzania and Kenya, supersedes in functionality when compared to these hot mobile payment apps in more developed markets. With a widespread network of mobile money agents serving roles akin to banks, users are allowed to put in and take out cash at all, smoothing out any transition in what developed markets will call Online-to-Offline/Offline-to-Online (O2O) process. This O2O flexibility complements the usual functions of C2C/C2B transactions.
But just as amazing as the advanced capabilities of M-Pesa on a traditional cellphone is just how little these advanced capabilities are taken advantages of by the local population here. The presence of M-Pesa has not at all helped the local economies even inch toward becoming cashless ones, as mobile payment apps are gradually allowing advanced economies to do. Instead, M-Pesa is used more or less just like Western Union: a mere function to remit money to a friend or relative at relatively low fee. Cash is almost always taken out, in full, when the remittance is received.
The author's previous conversation with locals on the topic bring up what they see as bottlenecks for M-Pesa to be used as a vehicle for cashless transactions. The first is logistics. M-Pesa Agents always have finite amount of money available to put into M-Pesa accounts when given cash (termed as "float"). This prevents money to be put into the phone for remitting when necessitated. As such, in short-(geographic) distance transaction, people much prefer handing over cash rather than going through different agents for float.
The second is cost. Sending money via M-Pesa incurs certain transaction fees. The smaller the amount of transaction, the larger (in percentage of the among transacted) the fee becomes. The argument goes that for the rural poor, who bears the brunt of the skewed fee system, simply cannot afford to pay out high M-Pesa transaction fees for small daily expenses. Moreover, taking out the cash from M-Pesa incurs another "chukua fee" that is of even higher percentage than the sending fee. As such, they much prefer handing over cash for payments, which obviously has no transaction fees.
The two lines of reasoning noted above just shows how behind the average user's mentality is compared to the elegant yet simple sophistication of the M-Pesa system. Both reasoning is given under the assumption that at some point, somebody will still need to take the money out as cash from M-Pesa, and then proceed to put the cash back into M-Pesa when needed. Yet, in a true mobile payment platform, the O2O process only involves exchange of goods, and not exchange of currency that is used to pay the goods. I.e. there is technically no need to ever take out cash from M-Pesa.
Sure, if all business transactions are conducted in M-Pesa, the absolute amount of sending fees incurred by each user will increase. But because the sending fee is much smaller in percentage than the chukua fee, the increase in sending fees can easily be offset by a complete eradication of the need to pay any chukua fee. Businesses, as measure of improving their own competitiveness, can even think about moving some of their savings on chukua fees to subsidies for farmers to offset sending fees. This would in turn greatly reduce the need for constant availability of "float" by agents.
However, making whole swaths of the economy cashless (i.e. strictly transacting by M-Pesa) takes collective effort that are not likely to be initiated or coordinated by individual small businesses that make up the rural African commercial landscape. Furthermore, the telecoms providing M-Pesa service has every incentive of block such efforts in order to maximize earning from M-Pesa transaction fees. Without actions by government authorities or market-dominating chain businesses, it is unlikely that the cashless scenario can spontaneously take place here.
While people in other parts of the world remain mesmerized by the possibility of cashless society with this concept of "e-wallets," little known (and perhaps all the more surprising) to them, Africa has already gone through the "e-wallet" process. Interestingly, mobile payment platforms here has happened years and years ago without the advent of fancy mobile phone and suave app developers. Instead, mobile payments happen in traditional cellphones, using menus that resemble real-time back-and-forth of an SMS conversation.
In some ways, this traditional cellphone mobile payment, which is called "M-Pesa" (short for "mobile money" in Swahili) in Tanzania and Kenya, supersedes in functionality when compared to these hot mobile payment apps in more developed markets. With a widespread network of mobile money agents serving roles akin to banks, users are allowed to put in and take out cash at all, smoothing out any transition in what developed markets will call Online-to-Offline/Offline-to-Online (O2O) process. This O2O flexibility complements the usual functions of C2C/C2B transactions.
But just as amazing as the advanced capabilities of M-Pesa on a traditional cellphone is just how little these advanced capabilities are taken advantages of by the local population here. The presence of M-Pesa has not at all helped the local economies even inch toward becoming cashless ones, as mobile payment apps are gradually allowing advanced economies to do. Instead, M-Pesa is used more or less just like Western Union: a mere function to remit money to a friend or relative at relatively low fee. Cash is almost always taken out, in full, when the remittance is received.
The author's previous conversation with locals on the topic bring up what they see as bottlenecks for M-Pesa to be used as a vehicle for cashless transactions. The first is logistics. M-Pesa Agents always have finite amount of money available to put into M-Pesa accounts when given cash (termed as "float"). This prevents money to be put into the phone for remitting when necessitated. As such, in short-(geographic) distance transaction, people much prefer handing over cash rather than going through different agents for float.
The second is cost. Sending money via M-Pesa incurs certain transaction fees. The smaller the amount of transaction, the larger (in percentage of the among transacted) the fee becomes. The argument goes that for the rural poor, who bears the brunt of the skewed fee system, simply cannot afford to pay out high M-Pesa transaction fees for small daily expenses. Moreover, taking out the cash from M-Pesa incurs another "chukua fee" that is of even higher percentage than the sending fee. As such, they much prefer handing over cash for payments, which obviously has no transaction fees.
The two lines of reasoning noted above just shows how behind the average user's mentality is compared to the elegant yet simple sophistication of the M-Pesa system. Both reasoning is given under the assumption that at some point, somebody will still need to take the money out as cash from M-Pesa, and then proceed to put the cash back into M-Pesa when needed. Yet, in a true mobile payment platform, the O2O process only involves exchange of goods, and not exchange of currency that is used to pay the goods. I.e. there is technically no need to ever take out cash from M-Pesa.
Sure, if all business transactions are conducted in M-Pesa, the absolute amount of sending fees incurred by each user will increase. But because the sending fee is much smaller in percentage than the chukua fee, the increase in sending fees can easily be offset by a complete eradication of the need to pay any chukua fee. Businesses, as measure of improving their own competitiveness, can even think about moving some of their savings on chukua fees to subsidies for farmers to offset sending fees. This would in turn greatly reduce the need for constant availability of "float" by agents.
However, making whole swaths of the economy cashless (i.e. strictly transacting by M-Pesa) takes collective effort that are not likely to be initiated or coordinated by individual small businesses that make up the rural African commercial landscape. Furthermore, the telecoms providing M-Pesa service has every incentive of block such efforts in order to maximize earning from M-Pesa transaction fees. Without actions by government authorities or market-dominating chain businesses, it is unlikely that the cashless scenario can spontaneously take place here.
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