For Others, a Very Different Story

But, here’s what exclusion looks like. In third-world or developing countries, for those living at the base of the economic pyramid, cash still reigns supreme. Buying something requires carrying cash around or hiding it somewhere around the house at the risk of being robbed. Sending money to a friend or relative in need can mean taking a day off from work without pay, or, perhaps, taking a child out of school or not bringing the child to school at all if that can’t be arranged. Delivering the cash in person is dangerous because a robbery could happen along the way. Trusting someone with delivery carries the risk that it might never reach its destination. In an emergency, borrowing money incurs extortionate usury rates from moneylenders. Investment means buying another chicken or goat which will lose value over time. If your money is tied up in investment property like animals or jewelry, how do you make a payment?

Africa Heating Up as a Mobile Money Market

For purposes of this report, we spotlight Africa as an example. Of course, fintech comes into play in other emerging markets as well. However, although those populations and opportunities are sizeable, including them here skews our discussion with dissimilar variables.

Why is Africa a good example? With its young demographic, it has successfully integrated mobile financial technology into daily living. Africa has a very young population. They are digital natives whose average age is 18 (by comparison, in the United States, the average age is 37) and we know that population age is highly correlated to speed of technology adoption. Another factor is infrastructure or lack thereof. African precincts are not dotted with brick and mortar bank branches and so legacy banks, regulations, and habits have not gotten in the way of penetrating this market. African populations are extremely receptive to mobile tech development. Even in sub-Saharan Africa, about 12 percent of adults already have mobile bank accounts, compared to about 2 percent globally. Lastly, a large percentage (about 80 percent) of Africa’s adult population does not use formal financial services. The upside potential is enormous.

In a recent report, the Consultative Group to Assist the Poor (CGAP) recognizes stand-out opportunities for fintech companies in four African countries (see Figure 2-1): Kenya, Tanzania, Ghana, and Rwanda. Kenya and Tanzania had previously been identified as mobile money success stories because more adults there had mobile money accounts than had bank accounts. According to new information, technology can also be effective in other African markets like Rwanda and Ghana. Key factors in Ghana include: 1) 92 percent of adults in Ghana have the required ID necessary to open an account, 2) a 95 percent rate of numeracy, and 3) 91 percent of Ghanaians already own a mobile phone. Poorer populations in the developing world often do not have a formal financial history or identity records. Some don’t have identity documents (like birth, graduation, or marriage certificates). As mobile subscriptions have risen dramatically across Africa, the cost per device has dropped, making phones very affordable and allowing widespread use of smartphones to bring more people online across the continent. Along with declining price, improved infrastructure, faster transmission speeds, and better connectivity for popular social products like Facebook and Twitter, financial services too, can now reach a growing middle class as well as Africa’s remote rural areas.

Figure 2-1. Fintech mobile money opportunities in four African countries. (rendered by Cornelia Lévy-Bencheton; source: http://bit.ly/2cpTKgn, page 4)

Mobilizing with Financial Data

It’s all about the data. And mobile data is the silent engine driving financial inclusion and the new products that will certainly emerge in the future. Even at a very early stage, there is much promise and potential in the data being gathered, mined, and analyzed. Analyzing data from mobile wallets and cell phone usage is the gateway to product innovation. In developed countries, people are already storing money digitally on their phones and using them to make purchases, as if they were debit cards. By 2020, 2 billion people who don’t have a bank account today will be doing the same thing. And after that, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts to credit, insurance, and other facilities that we can only imagine.

It seems unlikely that the lack of traditional financial infrastructure will change anytime soon because the cost of creating it would be prohibitive and unnecessary—millions of people don’t even have access to cash machines or bank branches. It also seems unlikely that this will stop the pace of progress. What is more likely is that mobile money transfer transaction volumes and revenues will rise, purchasing power for consumers will increase through online access, the standard of living will continue to improve, tax revenues for governments will grow, and banking and telecom companies will have increasing opportunities to grow their businesses.

For providers, mobile is the gateway to innumerable financial services delivery such as money transfer, cash deposits and withdrawals, third-party deposits into a user account, retail purchases, prepaid cards fueled by cash, and other services, all of which have a much higher adoption potential with and on mobile. Mobile applications provide a common development and ready-made distribution platform.

Just M-Pesa Me the Money

Professional photographer and photojournalist Wendy Stone, who lived in Kenya for 24 years starting in 1988, witnessed the breathtaking life style and cultural changes brought about by M-Pesa as she traveled throughout Africa working on projects for numerous NGOs, international organizations, and creative and media outlets. Initially launched in 2007 in Kenya by Safaricom (a subsidiary of Vodafone) as a means of facilitating microfinance to avoid some of the inefficiencies of the country’s cash economy, M-Pesa took off. It was an immediate hit. During our interview, Stone recalls:

It changed our lives in a very dramatic way. The average Kenyan does not have bank accounts. But they do have mobile phones. It’s a rural society, they’re agriculturalists [see Figure 2-2 and Figure 2-3]. The majority of the people still live on tiny homesteads called in Kiswahili “shambas.” M-Pesa works on a very basic level. If they want someone to send money, they’ll say, “M-Pesa that, please.” Nobody uses a bank check. Credit cards are extremely rare. People want to be M-Pesa’d because it’s an easy and safe way to move cash. And it’s instantaneous. Instantaneous! That’s the thing. It doesn’t have to go through the banking system.

Figure 2-2. An entrepreneurial woman farmer engaged in a thriving microbusiness in Kisumu, the largest marketplace in Western Kenya (photo courtesy of Wendy Stone/Getty Images; used with permission)

Figure 2-3. M-Pesa facilitates transportation and sale of vegetables and produce from remote villages to thriving commercial markets like the one above in Kenya (photo courtesy of Wendy Stone/Getty Images; used with permission)

With M-Pesa, a few taps on a cellphone enables people in Kenya to send and store money, pay bills, or even run a business from the palm of their hand. With more than 20 million users currently, M-Pesa enjoys the distinction of being the world’s most widely used mobile money transfer and financial network, and Kenya leads the way in mobile money. A variety of circumstances contributed to Kenya’s success, not the least of which is access to fiber-optic cables running under the sea from the Arabian Peninsula.

Safaricom’s far-reaching M-Pesa network strategy laid the foundation to broadly expand the market, allowing connecting partnerships with more than 140 financial institutions and revolutionizing the ability of banks to scale up fast. M-Shwari, an account combining savings and loans, and M-Changa, an app for lending and crowdfunding, are examples of highly networked products that reach millions of people quickly. Previously, money exchanged hands (largely via cash—in person or remotely) in a centuries-old practice known as harambee (Kiswahili for fundraising) without transparency. All that is changing.

Many m-payment services have sprung up with collaboration between banks, mobile network services, and payment providers. As of this writing, it is not known whether there is one network that can connect the entire African continent and all its countries with network interoperability. However, the activity and product potential make Africa a giant experimental laboratory in defining the future of money, banking, and mobile technology. It is remarkable that Africa has so quickly caught up to the developed world, skipping over the stages of brick and mortar infrastructure and accompanying red tape, and going straight to mobile tech.

The Gender Differential

An unexpected consequence of the success of mobile technology in countries such as Kenya is the spectacular improvement of individual and household welfare and the spike of activity in micro-, small-, and medium-sized enterprises and in cottage industries, many of which—surprisingly—are run by women (Figure 2-4 and Figure 2-5). Stereotypical casualties of the gender gap and certainly cast as underrepresented minorities in tech, women are now taking the lead as both beneficiaries and drivers of economic development in this new business model. Women have become emboldened as entrepreneurs by the handheld mobile phone. In our interview, Wendy Stone explains how the dynamism of women is very much a cultural and historical artifact:

Women have always been the workers in developing countries, not the men. It’s a cultural difference. Traditionally, a man’s job was to take care of the livestock and settle any clan or tribal disputes. That was the role of men. The women are the real workers. They take care of everything else.

Figure 2-4. Ēmilienne, a successful peanut cookie trader and entrepreneur in Benin, West Africa (photo by Kakpota, Benin, courtesy of The Hunger Project; used with permission)

Figure 2-5. Microfinance at the Ndereppe Epicenter in Senegal (photo by Johannes Odé, courtesy of The Hunger Project; used with permission)

Megan Colnar, director of monitoring, evaluation, and learning at The Hunger Project¹ (http://www.thp.org/), who has lived in Kenya and is now working in the eight African countries where her organization has a presence, confirms, during our interview, the strategic importance of targeting and including women as a make it or break it success factor:

Women are less likely to own phones. But, even with mobile banking, if you’re not targeting women specifically and if you’re not really looking and caring for their needs, understanding why women don’t have phones as often as men and looking into some of those social factors as well as the physical and geographical factors, you might miss the mark in delivering the kind of services with the success you hope to achieve.

Because women are also 28 percent less likely than men to own an account at a financial institution according to a recent report by the Consultative Group to Assist the Poor (CGAP; http://www.cgap.org/about/faq) on adults in developing countries living below the $2/day poverty line, it would be easy to overlook how critical their involvement is.

The Hunger Project deploys mobile phones as though they were Internet of Things (IoT) connectivity devices to collect, manage, share, and document program inputs, outputs, outcomes, and especially impacts on its network. It uses sophisticated data-driven and digitized research techniques to measure progress on its many initiatives in eight African countries including Benin, Burkina Faso, Ethiopia, Ghana, Malawi, Mozambique, Senegal, and Uganda. Through iFormBuilder, a mobile data collection platform for iOS and Android, it has established that projects in rural, emerging, and sub-Saharan territories can be measured and monitored.

Through financial services provided as part of The Hunger Project’s Epicenter Strategy, rural women are better equipped to launch their own income-generation projects and invest the profits toward the financial independence needed to improve the lives of their families. Because mobile phone reception and computer literacy is expanding, the rural banks, set up in partnership with The Hunger Project, are increasingly able to digitally track loan and savings accounts.

Those living in poverty are even more so required to make strategic choices about the products they need. Megan Colnar shared additional insights from her work in Africa: “Poor people are just as savvy about buying things and knowing what they need. Conscious of value, they are interested in end products that meet those needs.” She cited a market research study in Kenya by Gamos: “The Next Generation of Low-Cost Energy-Efficient Appliances and Devices to Benefit the Bottom of the Pyramid” (known as the LCT [Low-Cost Technologies] project). The report uses discrete choice modeling with logistic regression to fit predictive models for the technology options proposed. Although not specifically about financial services, it clearly shows how poor people know exactly what they need and what they are willing to pay for products and services that meet those needs, even products that cost a bit more. Countries such as Kenya have created products ahead of many developed countries. Africans, for example, were texting money with M-Pesa years before Venmo arrived on the scene in the developed world.

Another organization that works in this space, Women’s World Banking, identifies the same trend of rural women transformed into micro-entrepreneurs, emboldened through computer literacy and advancing down the highway to financial inclusion. Its website is replete with stories, blogs, anecdotes, and research detailing how women—inherent savers and quite thrifty—when they are empowered, do the heavy lifting to create small enterprises, taking responsibility for the education, health, and welfare of their families.

Smartphone screens that replace bank tellers in our culture are replacing banks altogether in the developing world. With their built-in database and memory capability for audit and tracking, these also serve as IoT devices that capture data, record transactions, and serve as sensing dashboards to monitor activity. The rate of adoption is phenomenal as is the data-mining potential. It is the smartphone that has leapt over habitual structure and process to transform culture. And now the developing countries are leading us onward.