Serving up the broadband alphabet soup

If you want to put your finger on the pulse of the digital divide, look no further than television. No, not the migration to digital transmission, which is occupying broadcast authorities across Africa. We’re talking about TV content via broadband connectivity. While Africa wrestles with getting networks in place, and every new roll-out of a local 3G network is big news, in the developed world that is old hat. The latest announcement from Hutchison 3G UK is a case in point: a deal to provide access to episodes of American channel HBO’s television shows to British viewers through Hutchison’s subscription video-ondemand service. Not that HBO is a big deal, or that Africa should be rushing for on-demand subscription content. It merely highlights what is made possible once 3G networks are mature. And this, in turn highlights how far back we are kept when we hold back on communications technology. In fact, just as 3G begins to spread the benefits and challenges of wireless broadband across Africa, the next generation of connectivity is joining the alphabet soup. 4G is not an official standard, but is broadly accepted as including WiMAX (fixed and mobile broadband), LTE (Long Term Evolution, a highspeed mobile broadband) and UMB (for Ultra Mobile Broadband). The standards are approved, equipment is available, but both business strategies and government regulatory sloth holds it back. World Wide Worx research in South Africa has shown that mobile broadband grew four times as fast as fixed line broadband last year. And there is a single reason: South Africa boasts one single supplier of fixed line broadband, while it has six suppliers of mobile broadband. The more competition, the greater the supply, the greater the competitiveness, and the greater the take-up. More important, the greater the regulatory openness to competition, the healthier the market. A new Africa-wide research project from World Wide Worx reveals great expectations for prices of connectivity to come down and competition to increase as new undersea cables begin to connect the continent. These expectations are beginning to be met in some countries, notably Kenya, Morocco and Mauritius, where the emphasis is not only on getting the country connected, but also on doing so in a way that will reach as many citizens as possible and, in the case of Morocco, using the best technology possible. The missing ingredients continue to be the next generation of customer access equipment for those who are connected, and affordable availability of access for those who are not. But, once Africa is getting connected, there is no excuse for regulators to keep that connectivity to old alphabets, or for networks to do so using technology that will date faster than you can say “1-2-3-4G please”.

The mobile financial services space is one of the most exciting sectors of the technology sector to be involved in, mainly because there’s massive demand for these services and what matters to users in different regions and cultures, differs substantially. We take a closer look at where this market is and where it’s heading in the coming years.

While as a general rule, Africa lags behind the rest of the world as far as technical innovation, access to vital amenities and potential customer base are concerned, m-banking and m-payments are the one area where Africa is the worldwide pioneer. This sentiment is well borne out by the GSM Association’s most recent edition of the Mobile Money for the Unbanked (MMU) Tracker, which shows Africa as the owner of 51% of the m-banking and m-payment solutions in the world that are worth mentioning. It goes without saying that the African condition as described by so many publications, tertiary professors and academic journals is the primary reason for the ready adoption of m-banking and m-payment solutions in Africa.

Where need exists

One of the largest portions of the world’s population lives in Africa and it’s no coincidence that the vast majority of those people are poor and disenfranchised, and one of the reasons for this is that there’s a shortage of financial services capable of meeting their needs. The majority of these people live in rural parts of Africa and because it’s virtually impossible for a bank to have branches in each rural village of the country in which it operates, those people have in the past simply fallen by the way side. Adding to this difficult situation, most of these people aren’t employable, since the majority of employers require their staff to have bank accounts. And it’s probably worth mentioning at the same time that the vast majority of Africa’s population is precluded from renting property, buying a vehicle or any of the purchasing activities you expect a successful individual to engage in, since most of these require access to a bank account. 

Electronic Solutions

The first step to solving this problem is to allow for these people to make payments to each other, without having ready access to one of their banking institution’s branches. And to a great degree this is where the majority of success has been achieved in Africa. But mobile payments can only take the market so far. True mobile banking is required if the world is to make any dent in extending financial services to the masses. “It’s important to draw the distinction between m-payments and m-banking,” says Arthur Goldstuck, managing director of World Wide Worx. “Mobile banking is where customers are able to access their bank accounts from a mobile device, from looking at their balance through to making transactions. “And South Africa is one of the leaders here,” he says. M-payments on the other hand are mobile money transfers between individuals that don’t necessarily need to have access to a bank account. “And this is where Africa is a dominant player,” he adds.

Horses for courses

“Because South Africa has access to more advanced services in m-banking, it doesn’t have as great a need for m-payment solutions as its African counterparts do,” he says. But then again, Goldstuck says, South Africa has a much higher proportion of banked individuals per capita than most of its African counterparts – and a bank account is a prerequisite for m-banking. Goldstuck says that it goes without saying that solutions need to be appropriate for the market they’re targeted at. “Part of the Kenyan success story with M-PESA stems from the pervasive need across the population – and the fact that there was an overall shortage of banking/payment solutions, even in urban areas,” he says. In fact, Goldstuck says, the captive market in the urban parts of Kenya was the original reason M-PESA took off to the extent it did. “The need for a certain type of solution is the primary reason I think that over the coming years, the Asian market will leapfrog the African market when it comes to the uptake of m-banking solutions, but that the solutions rolled out in the Asian market will be far more comprehensive than the m-payment solutions being used so pervasively in Africa,” he says. “Another reason M-PESA took off in Kenya to the extent it did,” Goldstuck continues, “is cultural.

Cultural fit

“Kenya has a remittance-based economy, meaning that a high portion of the economy works away from home and sends funds home on a monthly basis,” he says. “Western Union has built a strong presence throughout Africa by facilitating this exact process,” he says. “The fact that M-PESA allowed this to take place from the convenience of a cellphone and the experience was furthermore reliable and convenient, made it successful,” Goldstuck says. Goldstuck says that those same drivers don’t necessarily exist to the same extent in South Africa, where the M-PESA service was recently launched and because the population is far better banked in South African than what it is in Kenya, the service might not be as successful here. “Similarly, the Asian market is far better banked than Africa,” he says, “and there’s no remittance economy in Asia. That means, m-payment solutions will not have the same impact in Asia as they have had in Africa.” While there are similarities in need from one African country to the next, the point is that each solution needs to be unique in that it appeals to the needs in a specific country. “The M-PESA model can’t simply be superimposed into the South African market – or any other African market for that matter – and be expected to succeed. “There are different factors at play and I question how much the solution has been adapted to suit the South African market,” he says. For starters, Goldstuck says that there are two partners involved in the South African implementation, namely Vodacom and Nedbank, where only one party, the operator in Kenya, namely Safaricom was involved in the original rollout. Adding to this difficult situation, most of these people aren’t employable, since the majority of employers require their staff to have bank accounts. And it’s probably worth mentioning at the same time that the vast majority of Africa’s population is precluded from renting property, buying a vehicle or any of the purchasing activities you expect a successful individual to engage in, since most of these require access to a bank account. worth mentioning. It goes without saying that the African condition as described by so many publications, tertiary professors and academic journals is the primary reason for the ready adoption of m-banking and m-payment solutions in Africa. “Another worry for me is Nedbank CEO, Mike Brown’s prediction that because M-PESA quickly garnered a user-baser of 13m in Kenya it should achieve the same success in South Africa relatively speedily too. “I think the factors are quite different and that’s a leap of logic Mr. Brown needs to explain more thoroughly,” he says.

Looking ahead

While mobile payments are in the spotlight in Africa today, it’s safe to assume that these services will in time move towards offering more banking centric functionality Looking forward, Goldstuck says there will undoubtedly be innovation in this space, since you can’t ignore the fact that every cellphone equipped adult in Africa has a potentially useful financial instrument in their hand. “The trick will be to find models that work in every territory,” he says. “For example, MTN mobile money is taking off like wildfire in Uganda and Ghana. What we need to do as an industry is research why certain things work in certain territories and be cognizant of factors such as choosing marketing and go-to-market-strategies that appeal to users in each of those territories,” he says. Hannes van Rensburg, CEO of Fundamo says the innovation will be focused on two specific areas, namely international or cross-border remittances and the provision of more advanced financial services. “Fundamo was the first vendor certified as a Western Union integrator and with Telinor in Pakistan, we’ve launched an inbound remittance service that supports 35 countries,” he says. “In the next decade this will become a more common practice and where we have node-driven solutions today – for example Pakistan supporting inbound remittances from 35 countries – these will be combined with other nodes – like Bahrain’s support of inbound remittances from 12 countries and Qatar’s support for inbound remittances from two countries – so that the ‘spokes’ interconnect and create a cloud-like effect. “Ultimately this will mean instead of the ‘remittance-hubs’ that so many players are predicting, all of these nodes will interconnect in a cloud-like environment and allow users to pay money in one currency and have it delivered in another, purely because of the number of different nodes involved,” he says. “After all,” he says, the Internet is a cloud, not a hub and it makes sense that the m-banking and m-payment markets evolve in the same way.” The second big area of innovation, says van Rensburg is more advanced forms of financial service, such as insurance, risk and loan-based products. “There’s a great deal of work going on in this space,” he says, “and obviously, they’re centred around how you as the provider perform the risk scoring of the individuals. “There’s also the difficulty around how you set-up repayments and physically do the payout of the loan,” he says. “When it comes to assessing the individual’s risk profile it’s not just the fact that you know very little about the individual, it’s that you don’t have a payment history to go on. “As you get people involved in the m-payment space however, this problem solves itself, since they start building up a payment history,” van Rensburg adds. “And let’s not forget that since they have an instrument in the field, they can contact you easily and are easily contactable too. More importantly, it’s a device that can be used as collateral and easily switched off remotely, thereby increasing the likelihood of loan being repaid,” he says. Goldstuck believes that although these are noble and interesting ideas, the risk is too high and the bad debts untenable. “Where efforts have been made to address poorly-vetted target markets, the consequences have been disastrous. And I don’t believe the technology will make it any easier. Adding to this difficult situation, most of these people aren’t employable, since the majority of employers require their staff to have bank accounts. And it’s probably worth mentioning at the same time that the vast majority of Africa’s population is precluded from renting property, buying a vehicle or any of the purchasing activities you expect a successful individual to engage in, since most of these require access to a bank account. worth mentioning. It goes without saying that the African condition as described by so many publications, tertiary professors and academic journals is the primary reason for the ready adoption of m-banking and m-payment solutions in Africa.