Beyond Banking: Africa’s March To Financial Inclusion Is On

Written by Tom Jackson

Africa’s lack of formal banking is well acknowledged. Cash is still king on the continent, with only 23 per cent of Africans having a bank account.

In Kenya, according to McKinsey, Nine out of ten transactions are made in cash, while in most parts of the continent it is eight in 10.

Movements have been afoot for a few years though – both governmental and private sector – to reduce this dependence on cash and bring the continent more into the formal banking fold.

Some are becoming established, some are very new, but the end goal is the same. Making mobile money more accessible

“Mobile Money”

Mobile money is Africa’s flagship financial services success. Since the launch of M-Pesa, the concept has spread across the continent, and aside from cash, it is the most common method of payments.

In Kenya, this is especially the case. Central Bank of Kenya figures report Kenyans transferred over $11 billion using mobile money services in the fast half of 2014, while Safaricom, the country’s largest telecom company, estimates up to 43 percent of the country’s GDP flows through its mobile money service M-Pesa.

The services have, however, had their limitations.

One problems has been the inability to send money from a mobile money account held with one operator to an account held with another. After years of competing, operators in the last year have accepted the need for interoperability, which will vastly increase the amount of money transacted through mobile.

Tanzania initially took the lead on this, with Airtel, Tigo and Zantel partnering last year, while the country accelerated the process recently, bringing Kenya’s M-Pesa into the fold.

The move means Tanzanians are the first people in Africa able to transact with users of all the country’s mobile money networks.

Mobile money is also making inroads in new areas where it had not seen much uptake before.

Uptake of mobile money among Nigerians has been limited, but mobile banking and payments firm eTranzact last year invested $350,000 in the PocketMoni 500 project, which is aimed at driving adoption through education.

In Sudan last year, the Bank of Khartoum and Zain launched the country’s first mobile money service – Hassa.

Paying via mobile has also been applied slightly differently in South Africa, where the likes of SnapScan and FlickPay allow users to link their credit cards to their smartphones and pay by scanning QR codes. Whatever the method, mobile has been the primary driver of greater financial services adoption on the continent.

Is Bitcoin the next mobile money?

Bitcoin has had some negative publicity globally, from its fluctuating value to the collapse of the Mt. Gox exchange.

But increasingly Africa is being seen as a great opportunity for the adoption of payments using the digital currency. Speaking to the likes of BitPesa, BitX and Beam, it is clear they are banking on huge growth for Bitcoin on the continent.

Part of this uptake is predicted to be due to the huge costs of remitting funds to and between African countries through dominant services such as Western Union and MoneyGram.

According to the Overseas Development Institute (ODI), Africans in the diaspora pay an average fee of 12.3 percent to send $200 home.

Fees with Bitcoin are lower – BitPesa and Beam charge just three per cent – and those starting Bitcoin businesses in Africa sense an opportunity in the lack of credit card penetration, the fact PayPal is blocked in many countries, and the cost of remittance corridors.

Uptake is expected in the diaspora, merchants wishing to accept payments from foreign customers, and ordinary Africans, though the process may take some time. The willingness of Africans to adopt alternative forms of payments in the shape of mobile money is a reason for optimism.

Visa, MasterCard pushing card adoption

The fact that Africans have shown a propensity to adopt alternative forms of payments, however, does not mean that credit and debit cards have no future.

As noted, almost one quarter of Africans are formally banked, and the likes of Visa and MasterCard have launched a number of initiatives to roll out their cards across the continent.

The two companies are making a concerted effort to upgrade cards from magnetic strip to EMV, with penetration 77 percent and climbing. EMV cards are more secure, and the companies hope they will generate more trust in banking services.

Meanwhile, both Visa and MasterCard have launched a number of partnerships across Africa to boost uptake, with MasterCard payments functionality notably included within the e-ID cards being rolled out in Nigeria.

Financial institutions – such as Equity Bank in Kenya – are also using more innovative methods to bring people into the formal banking sphere.

It is not easy or even possible to see 100 percent of Africans formally banked within the next 15 years, but what seems clear is that through a number of different initiatives  more Africans than ever before will be able to access some form of financial services.