Mobile payments: drivers, challenges and solutions in Africa

For 2009 and 2010, it is clear that Africa is one of the most fertile areas of growth in the world for the development and proliferation of mobile payments services.

Moreover, because of the unique sets of drivers that exist in Africa, operators here are experiencing an unprecedented acceleration in the “velocity” of the demand for these services as well as the need to deliver mobile payments solutions just as rapidly. Why is it so critical for operators to meet this “race to deliver mobile payments offerings?”
Arnaud Chevalier, Director of New Domains and Technical Sales for Kabira Technologies, a leading provider of mobile payments solutions states, “The answer is clear. Mobile payments, in Africa today, are high priority services so operators need to position themselves with highly visible, highly reliable and highly credible payments network. Only after a payment network has achieved this positioning will an operator be able to attract a critical mass of subscribers – and once a payments network reaches this critical mass, the inherent “stickiness” of mobile payments services within the market environment in Africa will make it exceptionally difficult for later entrants to also gain critical mass and compete effectively.” What Chevalier points out is that in essence, operators who attain true first-mover advantage can build themselves a formidable defense and dominate the market.

Key drivers
The problem with cash transactions is that the very nature of any real “currency” makes security, accounting and portability across great distances very difficult. Even more critical is that traditional banking in Africa cannot address the mainstream population because they are predominantly low-income. This economic profile of the population creates a high cost of entry barrier for traditional banking entities because of infrastructure and regulation costs they have to sustain. This is true even if you don’t take into account the additional burden that, in many rural areas, the geographical coverage of traditional banks doesn’t allow them to physically reach this population.
Operators are supremely suited to fill this void because they already have an established reseller network that reaches across Africa and into rural areas where the unbanked and underbanked population exists, and their network of Point of Sale (POS) transaction points – the mobile phones – is low-cost and already exists, and that the lower value of those electronic wallets is working toward lowering regulatory constraints in many of the African countries, subject to approval from the central banks. And the positive effect of mobile banking is already evident for these countries. For example, this population places a high value on money transfer and electronic account top-up services since these types of services enable much easier and more reliable ways to engage in the commerce of their daily lives. After operators launched their mobile banking networks in Eastern Africa, mobile payment services have been seen to increase household revenue by 30 to 40 per cent.
Another key application that is rapidly rising to the top of the mobile money service suite and driving the proliferation of mobile payments is cross-border remittance. No longer a “nice-to-have” service, it is becoming a critical “have-to-have” service for any operator attempting to build the critical mass of subscribers needed to establish themselves. In addition, it appears that very soon money transfers ‘across payment networks within a single domestic market’ will become necessary and even encouraged by regulatory authorities. Furthermore, because this type of international money transfer represents such a huge potential for the operators in Africa, they understand they need to build simple and immediate access to as many different countries as possible. This is true for both developed and emerging economies and through powerful local channels – such as other mobile network operators (MNOs) or remittance agents and prepaid card entities. This also is creating additional urgency for operators to find partners that can deliver payment hubs with interoperability, interconnectivity and settlement facilities as key features.

Benefits for operators
So yes, it is very evident that operators have opportunities to become new, very influential players in the payments market in Africa and contribute directly to their country’s GDP. Apart from philanthropic motivations, operators have direct interests for entering this field:

1. Generating direct revenues

Access to new, very significant sources of revenue – It has been speculated that mobile payments could contribute up to 5 to 10 per cent to operators’ revenues within five years.
Increase recharge volumes through a new and more convenient channel

  • 2. Generating indirect revenues

Launching mobile payments enables operators to provide a differentiated service, so they can capture greater market share, at a lower the cost of acquisition for new customers
Operators will be able to also employ up-sell marketing strategies

  • 3. Creating service ‘stickiness’ in a volatile, multi-SIM (subscriber identity module) market

Dramatically reduce churn: 68 per cent of the mobile money users in Philippines use their primary SIM for mobile money transactions

The challenges
One particular challenge in the African mobile payments market is the fact that there are large numbers of low value transactions, which means operators are faced with the need to tightly control per-transaction costs while still being able to scale to serve the large numbers of subscribers they need to be successful. Additionally, the potential success for different mobile payments services varies significantly given local contexts and regulatory impacts.
Because of this, it is crucial for operators to select their mobile payments enabling technologies carefully. They must ensure they have the ability to rapidly launch new services that can generate revenue today, while still maintaining the flexibility to introduce new products to meet diverse, evolving subscriber demands. Getting this service mix wrong would be a costly mistake, and could cause an operator to lose first-mover advantage in the fast-moving market.Arnaud Chevalier, Director of New Domains and Technical Sales for Kabira Technologies

Also, due to the current constrained financial climate, operators looking to deploy new services and the infrastructures to deliver these services in a manner that delivers a clear and accelerated “Return on Investment” (ROI). “We refer to this concept as accelerating the “Pace of Return” (POR),” states Kabira’s Chevalier. “And to accelerate POR, the operator needs to conquer three variables. They need to not only deploy the most cost-effective solution, they also need to be able to implement and scale their solution as rapidly as possible in response to transaction growth. Plus their system needs to be flexible enough to slash time-to-market for any new service offerings the market demands.” In neighboring countries, the initial business cases to kick-start those services can be very different: from reducing the queues to pay electricity bills, to lowering security risks, to paying salaries electronically - all with numerous cash points. Having the flexibility to localize these applications is a definite requirement.

Chevalier’s point about preparing for future growth is an important one. Investments made today must clearly take future growth into account, or operators will soon find themselves stranded with a legacy platform unable to scale with their business. By taking scale into account up front when they launch their initial revenue generating services, operators will be able to grow their mobile transaction revenues two-fold, by both adding incremental subscribers and by launching new products in a manner that mitigates the financial risks of new services. For example, an initial deployment of an electronic top-up service can be seamlessly augmented with mobile wallet and money transfer products only as long as the enabling platform is able to provide the necessary extendibility, flexibility and scalability. Since the mobile transaction market in still in its early stage, it is crucial that platforms are configurable enough to support a number of new products and services which may not currently be on the roadmap, or even invented yet.

Solution considerations
Clearly, operators must seek solutions that deliver Pace of Return, scalability and flexibility to be successful. Additionally, since they will be dealing in actual financial transactions, the solution must have iron-clad reliability. Because of these stringent requirements and the need to simultaneously deliver flexibility and reliability, operators are finding that an infrastructure-based solution can be one of the most effective strategies to employ. Kabira Technologies is implementing just such a solution for a major operator in Africa with presence across multiple countries.
Chevalier explains, “The main objective of one of our customers was to build a single unique payment gateway platform that was able to handle all types of payment transactions, including airtime purchase, e-money transfers, and bill payments. Their major, primary focus was to implement a solution that already had a field-proven ROI that could justify the investment in this new software infrastructure while still delivering the reliability, scalability, and flexibility they needed.”
“With Kabira’s long history of expertise and experience in both the telecommunications and payments markets,” Chevalier continued, “we proposed a platform solution with the high levels of security and reliability required for mobile payments transactions. Additionally, the Kabira solution allowed the customer to take an iterative approach in the deployment of their payment services - leveraging each project phase, always building their services portfolio at an increasing pace.”
It was important to this operator that this same Kabira solutions technology is currently deployed across multiple geographies and targeting huge subscriber-bases. Kabira Technologies has substantial experience in the mobile payments market, with more than 700 million subscribers already served by Kabira mobile transaction solutions, and with individual operators handling traffic of over six million transactions per day. This assured the operator that the Kabira solution could easily handle the levels of traffic produced by Africa’s most densely populated countries.

Kabira is also preparing for the future of mobile remittances. Kabira’s mobile Payment hub is particularly suited to support high volume flows in real-time and with a security level proven in the financial markets. Kabira is currently establishing a partnership to build the payment eco-system needed to attract MNOs in Africa with leading corridors and payment points in countries into which their populations are migrating.

Solutions for mobile payments like those from Kabira are built on a highly available mobile payments platform that is proven to scale to extremely large volumes of mission-critical transactions on standard commodity hardware. What this enables is a pragmatic and agile approach for operators to address the emerging and fast-evolving mobile payments market. By adopting a leading-edge infrastructure platform approach operators can meet the velocity of growth and innovation required by the mobile payments market in Africa, while at the same time addressing the marketplace challenges. Consequently, operators who choose this type of mobile payments solutions approach, can better position themselves to grow their business while accelerating their pace of return.

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