Martha Oluwatobi is the proud owner of a market stall in Lagos, Nigeria. She sells minerals used for health benefits by expectant mothers who routinely buy small amounts of clay-like ingredients a few times a week. She doesn’t make much but, after she covers expenses, Martha is able to put some savings aside every day. Her challenge: keeping those savings safe.
There is a bank in the neighbourhood, but she cannot take the time to walk to the bank and line up to make deposits. As a result, she until recently had little choice but to hide her savings away in places she hoped would be safe. But a better solution came her way. Today, a Diamond Bank agent visits her every day, receives the money she would like to save and deposits it directly in a “no frills” bank account via mobile phone. Martha receives an SMS confirmation that the deposit has been made along with her current balance. At least she does when the mobile network is up. If not, she has to trust the agent to make the deposit later in the day and send her an SMS later.
This solution from Diamond Bank ‒ a basic bank account issued by agents in markets like Martha’s across Lagos ‒ was designed as the result of a grant from Visa to Women’s World Banking, which worked with the bank on the product design and training of the agents. These kinds of solutions are growing in number across Africa, and are equally applicable to village savings and loan type groups.
They are representative of the kind of innovation that can occur when banks, mobile-network operators and NGOs like Women’s World Banking are motivated to work together to help people like Martha, who otherwise would remain excluded from formal financial services. And payment systems like Visa’s are a key part of the solution, not only of seed funding to underwrite development costs, but also in terms of providing affordable access to its technology backbone, VisaNet, which can process thousands of transactions a second and connect people, merchants and financial institutions everywhere.
But driving financial inclusion in Africa is a major challenge and, while we see many promising examples of technology and product solutions, we also see constant problems related to scaling these initiatives. And that’s important because of the need to drive value for each player (bank, network provider, merchant and consumer) in the chain and accelerate inclusion more quickly across the continent. Challenges abound, but mostly come down to price, product design, infrastructure reliability and regulation.
The pricing of services defines the prevailing system economics and is a difficult balance to get right. On the one hand, we need to ensure transaction prices are low enough to motivate both the consumer and a merchant to adopt electronic payment services (as an alternative to cash). On the other hand, there must be sufficient value in the system to incentivize infrastructure and product-service providers to invest behind solutions for population groups who are simply not able to provide balances that make them viable customers. As a result, we need to look at opportunities that provide adjacent services, such as (micro)credit provision to drive more value in addition to cracking the code on interoperable mobile wallets.
This has implications for product design. It is noticeable that many mobile-money schemes rarely provide more than basic services, such as mobile top-up, basic cash-in, cash-out or P2P transactions. These typically do not provide enough value in the system to merit sustained investment, nor do they encourage wider adoption of digital financial services that should include bill-pay, access to credit, point-of-sale facilities and insurance.
And the frustrations that Martha and her Diamond Bank agent face in Nigeria with mobile-network outages are not untypical. Network reliability is fundamental to building trust and motivating usage of accounts. There are few easy solutions to these challenges, which are widely acknowledged and discussed at every World Economic Forum meeting. Yet, solve them we must.
Which brings us to the role governments have to play to ensure these infrastructure challenges are tackled and that regulatory frameworks that foster accelerated financial inclusion are developed. This, too, is widely recognized; it is significant that some of the most progressive regulators ‒ those who are most committed to tackling market-enabling issues such as proportional KYC, interoperability, consumer protection and network security ‒ are here in Africa. Thanks to the work of groups such as the Forum and the Alliance for Financial Inclusion, we can be confident that the right issues will continue to be surfaced and discussed.
*Stephen Kehoe, Senior Vice-President and Head of Global Financial Inclusion for Visa in the USA. He is and is attending the World Economic Forum on Africa 2015, which takes place in Cape Town, 3-5 June.