What the papers say - post 6

The review covers a paper by Mckinsey titled, Mobile financial services in Africa: Winning the battle for the customer, by Mutsa Chironga, Hilary de Grandis and Yasir Zouaoui dated 7^th July 2017 (7 pages) available here. The paper focuses on Africa as a global leader in mobile money and how this success can be accelerated by the participation of banks. While most of the information covered is accurate, a few departure points have been identified that would perhaps capture the cross-cutting challenges at the micro level that have inhibited this growth which is not necessarily due to the absence of participation by banks. The title also assumes that the battle is only about the customer as the end-user, but really, the last mile service providers (those who interact with customers using cash to make payments) are also an integral part of mobile money success. There’s been an argument that the slow response by banks could be the reason for this success by non-bank institutions but no substantive research has been put together to support this. The paper fails to capture the efficiency of cash which is often assumed to have failed its users and that the ‘real’ issue, is the absence of providers, banks included, to recognize that they’re up against an existing efficient service called money. While mobile money services have thrived, person to person payments will continue to dominate. This means that money will only be digitized during transmission and reconverted back to cash at cash out and go ahead to make many transaction hops in similar form. ('Cash be cowed; Electronic payments in Africa,' 2013). This is not really digitization in its best form. The ideal is to have it remain within the ecosystem when payments are completed. This paper has failed to recognize the very well documented mobile money adoption curve which addresses the phases that users must undergo before they can be confident enough to fully participate in a digital ecosystem. To illustrate this, the merchant payments use case will be used as an example.

A staggering amount of cash is paid to retail merchants worldwide. In 2015, this was estimated at USD 34 trillion. More than half of this was in cash or by cheque. Most of these cash and cheque payments were made in low and middle-income economies(Gupta et al.). East Africa has shown some early signs of merchant payment uptake, but cash remains the dominant form of payments.

A 2015, state of the industry report -SOTIR- (GSMA, 2015) attempted to cover the life of an average active customer. 2.1 deposits led to 2 cashouts, 0.5 bill payments, 5 airtime top-ups and 0.1 merchant payments. This example illustrates that merchant payments are proving more difficult than expected and uptake is till slow, even for leading DFS providers in mature markets. Merchant payments is a two-sided proposition, you must have buy-in from the merchants and customers. They both must-see immediate value in changing an age-long habit of transacting in cash which works just fine. The value does not necessarily have to address profit since the merchant business model makes the merchant pay for transactions. However, since most of these small and medium enterprises have no form of record-keeping, the option to have this at no additional cost is perhaps an attractive proposition for them. With transaction records, it’s easier for them to attract credit since their business records can act as proof of their credit worthiness. For customers, the study by SOTIR shows that airtime purchase was the most attractive use case with 5 transactions completed. Why was this the case? MNOs usually attach some bonus to airtime purchases completed using mobile money. Since they save on printing and distribution costs of printed recharge vouchers, they’re able to pass on these benefits to their customers in bonus airtime. This method could be replicated for merchant payments where providers pay a commission to merchants from savings made from having to pay cash out commission. This business model is the exact opposite of the international (e.g. Visa, Mastercard) business model where the merchant pays to receive payments. This approach would incentivize merchants to accept payments via mobile money, keeping the funds flowing within the ecosystem. Current mobile money services lack a strong value proposition for either customers or merchants.

While the paper concludes with tangible steps for advancing mobile money, how to digitize the entire value chain/cash flows is still missing and the dominance of cash transactions will continue to prevail until the last mile is addressed (Anath, Bindu, 2016, 2016). Similarly, the SOTIR report showed that most money was getting into the system in cash (though cash deposits). While tackling this would also serve as a catalyst to payments digitization, it requires a macro-level approach with multiple partnerships focused on digitizing bulk payments such as government to person (G2P) and business to person -B2C (Vaidya, 2011).
References

'Cash be cowed; Electronic payments in Africa',  (2013) The Economist, 408(8853), pp. 79.

GMSA, 2015: State of the Industry report, www.gsma.com

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