Financial Inclusion’s Two-Way Street

In discussing the latest edition of the Financial Inclusion Tracker, MPD CEO Karen Webster and Nirnay Sinha, Global Vice President for Mobile & Emerging Payments at Mozido, turned their focus to Africa. The market for mobile money on that continent is exploding, with substantial growth expected over the next few years.

In sussing out the whys and hows regarding global payments players taking advantage of the opportunity, Webster and Sinha hit upon a key notion: Improving the methodology of financial inclusion in Africa will be dependent upon focusing not just on one end of the global remittance transaction — the sender or the recipient — but on both, equally.

Recognizing that financial inclusion — in Africa or any developing region — as a “two-way street” is central to expanding its feasibility, be it through mobile money or any method.

KW: In the most recent edition of the Financial Inclusion Tracker, we made note of the fact that there was a lot of news being made in Africa, given a number of developments with respect to the market for mobile money in that region.

One of the statistics that caught our attention — and I’m sure it caught yours, too — is the growth in mobile money services that is expected there: about 40 percent over the next five years.

I’d love to get your thoughts as a player on the global stage: Why is Africa such a hotbed for mobile money innovation?

NS: I think you have the perfect storm of a high financial inclusion target demographic, a lack of existing infrastructure, and, frankly, the ridiculously expensive cost of remittance giving way to new players. In the latter case, companies like Orange and MTN — which were primarily providing domestic B2B services — found an opportunity to provide international remittances at much lower costs.

KW: Is that really the driver, in your view — figuring out a way to get money into the country in a way that is more affordable for the sender versus easier for the recipient?

NS: I believe it’s a two-way street, there. Certainly, the sender wants the end recipient to receive the majority of the funds that he or she expects. At the same time, the recipient can quickly become educated on ways to receive a higher dollar amount— and they can, in turn, share that knowledge with the sender.

In the case of a company like Orange, you see P2P services provided across multiple countries, so that’s one way for a receiver to educate the sender. Building that two-way communication is really the main driver.

KW: Of course, mPESA is a very famous example of a mobile money scheme in Africa that’s really grown tremendously. Just recently, it’s started branching into using its platform for business-to-business transactions, which I think is also really interesting.

One of the other things that I find — I don’t know if it’s “interesting,” or “amusing,” or maybe a little bit of both — is the topic of bitcoin, which has ignited some interest in Africa. What are your thoughts with respect to bitcoin and developing economies, and perhaps its application in Africa as a currency for mobile money?

NS: In terms of bitcoin, our interest has mostly been in how can we leverage the blockchain to produce safer transactions and the ways of exploring that. From a bitcoin standpoint, I think — again — a lot of it comes down to the cost of remittance.

You’re looking at costs that are normally 12 percent for the larger remittance players such as Western Union and MoneyGram in a normal transaction, while a bitcoin transaction can be processed for 3 percent or less. So the receiver has to be educated in a way to take that money and exchange it in a local bitcoin exchange to get it to their local currency. That’s a fairly easy task, but they’re given quite an incentive to do so by saving anywhere from 8 to 10 percent of the amount that they would otherwise expect.

KW: I think that a lot of times people forget that just because you may be given bitcoin, you can’t really do anything with it — so it has to be converted into the currency in the country that is used to conduct business.

I can imagine, in Africa, it’s probably very hard, especially since — even though mobile money is taking off — hard currency is in fact what people use to transact. Running around trying to figure out how to convert bitcoin to physical currency can’t be easy.

NS: True. One of the bitcoin exchanges has said they were hoping that merchants would adopt it and they would start accepting bitcoin as payment; I think we all know that that day is very far in the future.

The ecosystem can be built up in a way that receivers have some way of transitioning their funds into formats that some merchants would be willing to accept; that will make big strides.

KW: I don’t know… I think I’m going to be betting on some other things that Mozido is interested in pursuing, and maybe put bitcoin way lower on the list.

Let’s talk about things that are necessary to stimulate the need for using mobile money. You talked about one incentive – getting more money into the accounts of recipients; governments, too, I think can play a role. In many countries, we’ve seen governments adopt digital payments as a way of dispersing pensions or other state and country benefits; that helps get the flywheel turning.

What are you observing in Africa on that front?

NS: Government involvement does a few key things. It certainly adds a significant amount of funds into the ecosystem. For mobile payments that can accept government disbursements — whether it be emergency benefits, or pensions, as you mentioned — that certainly adds meaningful volume.

It also lowers the cost of disbursing funds. When you no longer have to write a check and send it through the mail, that’s obviously going to make it easier for the end recipient — especially for countries in Africa where they don’t have an extensive postal system like other countries such as the U.S. do. By disbursing the funds through the mobile payments scheme, it gives the end recipient their funds much more quickly, in a real-time basis. It’s a more efficient process overall.

We’re looking for partnership opportunities where there are government programs that are funding better disbursements through mobile schemes.

KW: I would think that there are also benefits from the security side. Certainly, people aren’t walking around with big wads of cash in their pockets. Also, when you talk about the cost to distribute, there’s probably a lot of corruption that stems from having piles of cash that people are responsible for distributing. I can imagine that this might cut down on those instances.

Are you seeing or hearing similar things?

NS:  We are — although we’re not yet involved in as big a way as we’d like to be.

What we are observing, though, is that any ecosystem becomes more powerful when the mobile payments scheme is validating the consumer’s ID. You can imagine a scenario where the mobile payment user’s validation method also serves as a type of national ID.

If the government can trust that the disbursement is reaching the end recipient, from a net dollar-sent or net dollar-received, it drives that percentage much higher and eliminates, as you talk about, the need for someone to carry cash and possibly become a target for theft after receiving their government benefit.

KW: What are some of the things that Mozido is exploring with respect to mobile money in Africa?

NS: Our largest involvement so far is our majority investment in the company NettCash in Zimbabwe. NettCash and Mozido together provide a powerful platform where we can handle P2P payments within countries, bill pay for prepaid electricity, and other services. It allows us to bring in international remittance partners, as well, and will hopefully do so in a more efficient way than it’s being done today.

KW: I know that you look after a lot of other areas of the world outside of Africa. What are some of the initiatives that you’re pursuing?

NS: There’s so much to talk about.

We are actively looking to really leverage our MoTEAF platform — which is our internal platform where we can partner with service providers as we continue to look for interesting distribution opportunities.

We’re about to launch our service in Sri Lanka later this year, which we’re really excited about, with key service partners as well as distribution partners — both financial institutions and a mobile network operator.

Beyond that, we’re continuing to actively look for opportunities across the globe.

To download the latest edition of the Financial Inclustion Tracker, click here.