Africa's mobile money boom
When it comes to mobile money, much has been written about how Africa is leading the way. Here at African Business Review, we like to speak to the people in the know – and having been instrumental in the development of Africa’s first mobile money transfer service M-PESA, Paul Makin is one of those.
“Back in 2004, I was asked by Nick Hughes of Vodafone to help him to explore the potential for using mobile phones in the financial sector in East Africa,” Paul says.
“I’d been developing the idea of a non-bank payments scheme for some time, and I took the opportunity to develop it further to use the mobile phone as the principal means of transaction, and to minimise service costs and maximise the service security by utilising the unique capabilities of the mobile phone. It is this concept that underpins M-PESA.
“I was involved with M-PESA until 2008, developing ideas such as the management of M-PESA agents through hierarchical financial relationships, and ensuring the service remained secure.
“Since then, I’ve been involved with mobile money strategy development across Africa in a number of capacities, and the development of a number of mobile money initiatives in Europe.”
We asked Paul his thoughts on why Africa has experienced the mobile money boom.
Why is it that mobile money is so much bigger in Africa than other continents such as Europe? Why was this trend not present in these economies when mobile internet coverage was also poor years ago?
Until very recently, there was no perceived need for mobile money in Europe. With a banking infrastructure that is considerably more advanced than most in Africa – though with many shortcomings – what Europe had was ‘good enough’, and the shortcomings weren’t sufficiently a problem to motivate people to consider alternatives.
This is now changing, and a plethora of recent developments backs up this view. People in Europe have become very mobile-focused, and expect their mobile phones to do everything. The last step is to integrate their money into their handset. Since this is, unlike in Africa, an entirely optional step for most people, it is one that takes considerable confidence. We still see people worrying about the security of their mobile phone, particularly if their money is on it, but this is gradually fading.
Provided a few simple steps are taken, the great majority of smartphones are rather more secure than the PCs people use for transactions every day.
Of course, in an environment such as Africa where conventional banking services have not been available to the majority of people, mobile money is not just an optional extra. Instead, it brings financial services to most people for the first time. From the perspective of most Kenyans, M-PESA is the bank for ordinary people – of course, it is not strictly a banking service, though it certainly has the potential to become one.
Where do you see the trend being in five years’ time?
The trend in Africa towards the mobile phone will only strengthen, with cheap, low-end smartphones becoming commonplace.
Mobile money will be the dominant financial service for most people. Most successful schemes will continue to be operated by mobile operators, with a greater or lesser involvement of banks; the considerably greater agility of mobile operators, combined with their reach to ordinary people, will continue to leave them in the driving seat, whilst banks will provide the necessary financial integrity.
M-PESA will continue to stand out as one of the few schemes with very little involvement from the banking sector. Again, its position has been achieved as a consequence of mobile operator agility, and the banking credentials of the M-PESA team will ensure that its integrity will match that of any bank-led scheme. Nonetheless, M-PESA – and all of the other mobile money schemes – will have completed, or be well on the way to, proper integration with the conventional banking sector.
There is currently a misapprehension, principally in the banking sector, that mobile money is somehow inherently different to bank accounts; beyond regulatory status (which will have been sorted out within this five year timeframe), this belief exists only in the minds of bankers and regulators. Ordinary people see little difference, and even this will vanish as the capabilities of the mobile money services develop.
What do you think is the next step for the African mobile market?
Beyond the obvious (improving speed by fully embracing 3G and 4G, improving security), the key step is to fully embrace the mobile internet. This is not something the mobile operators can do alone. Instead, they must work with others, such as international telcos, undersea cable operators, etc) to ensure reliable, fast Internet access for their customers. This is a key opportunity for Africa, for the mobile operators and for their customers.
How can the deployment of mobile money technologies help the continent to grow economically?
I am not one of those who believe that the advent of mobile money schemes is the panacea for economic development in Africa. However, it’s true that it has historically been difficult to conduct financial transactions – not the big, high value ones, such as transfers between corporations, for which the conventional banking sector has been shaped, but the smaller transactions; companies paying their staff, shop owners buying stock, builders buying supplies, even people buying goods in shops. For all of these, the lack of a proper payments infrastructure, and the extreme reliance on cash, has for a long time acted as a brake on economic development.
Of course, there are many other barriers to economic development in Africa, but at least the advent of mobile money means that this particular brake has now been taken off.
Billionaire Kumar Birla Champions Regional Supply Chains
As the head of the Aditya Birla Group, a US$46bn firm that operates in 36 countries, Kumar Mangalam Birla is no stranger to splashy strategic moves. Yet his recent announcement that he no longer wants to acquire globally distributed supply chains stood out. While many companies have struggled to cope with shipping backlogs, his firm has chosen to pivot and focus on regional networks. Said Birla: ‘We wouldn’t look at a company or a business where you source in one corner of the world and sell in another’.
He cited protectionism, the pandemic, and the limited movement of products and people around the world as ABG’s primary causes of lost profits. And they aren’t alone. Over the past year, 900 of the U.S. and Europe’s biggest IT, defence, and financial services firms have lost an average of US$184mn apiece.
An Era of Global Disruption
Over the past few decades, low shipping rates and rapid delivery times have lulled multinational firms into a false sense of security. In the early 2000s, companies chose to take on significant global supply chain risks in exchange for increased profits. First, it made sense to manufacture higher-value goods, such as electronics, in low-cost regions throughout Southeast Asia, India, and Africa. Second, first-tier suppliers started to outsource the manufacturing of specific components to second-, third-, and even fourth-tiers—leaving supply chains with extremely limited visibility.
So when COVID-19 disruptions struck certain regions, companies were caught unprepared. Usually, these events come few and far between. But over the past ten years, we’ve seen a number of ‘black swan’ events that have thrown the supply chain industry into chaos. Here’s a quick history of the most significant events in recent years, thanks to the MIT Sloan Management Review:
- 2010. China creates export quotas for rare earth elements.
- 2011. The Tōhoku Earthquake hits East Japan; flooding sweeps throughout Thailand.
- 2016-present. Trade wars between the U.S. and China hurt suppliers.
- 2020-present. COVID-19 pandemic shuts down international shipping ports.
Now, Kumar Birla is one of many who want to re-evaluate how we run our supply chains. Though his company has acquired 40+ companies in the last quarter decade, Birla intends to build up local hubs rather than expand operations.
Why Pursue Regionalisation?
Combine Chinese economic dominance, global supply chain vulnerabilities, and major government policy shifts around the world, and you have a storm brewing on the horizon for big multinational firms. As Brookings noted, ‘the biggest risk for trading opportunities in the developing world is growing protectionism in more advanced economies, often dressed up as national security protection’.
Altogether, from the U.S. to the European Union, governments are trying to protect their domestic supply chains, secure adequate stockpiles of materials, and build world-class local networks. Consider Biden’s recent executive order, which seeks to bring semiconductor manufacturing back to home soil, or Japan’s bid to open more memory chip fabrication factories near Tokyo. The Aditya Birla Group intends to react in kind. Said Birla: ‘We’re looking at regionalism as a very big theme’.
Will Others Follow Suit?
In the post-pandemic economy, global businesses must decide whether to expand or contract. On one hand, the Alibaba Group’s Cainiao Smart Logistics Network recently launched a direct flight between Hong Kong, China, and Lagos, Nigeria. On the other, the Japanese government is desperate to make its chip manufacturing domestic. Indeed, as two supply chain strategies diverge in a post-pandemic world, the one businesses take may make all the difference.
Yet Birla is confident that regionalisation is the right call. According to his words at the Qatar Economic Forum, even necessary cross-border transactions should be smaller in scope. And as the Bloomberg Billionaires Index now lists his net wealth at US$10.4bn, up 52% from 2020, he may have the cash to test his theories out. ‘Regional hubs, regional presence, regional employment, catering to regional demand’, he stated. ‘We’re a global company rooted in local economics’.