U.S. bankers and telecom providers seeking to crack the code on how to successfully implement and accelerate mobile payments can take a lesson from their peers in Kenya. This country is at the forefront of a mobile banking revolution that is empowering its citizens and opening up new lines of commerce.
U.S. bankers are just beginning to harness the power and possibilities of mobile banking, but their Kenyan counterparts are using it as the centerpiece of a growth strategy that is succeeding beyond most expectations.
Retail banking is the fastest growing financial services segment in Africa, with double-digit growth expected through 2020. Much of it can be tied to wholesale adoption of mobile banking technology — which is bringing banking to the previously unbanked, and simplifying transactions for the continent's growing middle class.
In Kenya, most banking transactions were manual just a decade ago. Workers would make day-long trips to visit their local bank branches and endure long queues for hours to fulfill their monthly needs – cashing checks, checking balances, withdrawing savings etc. Along came the M-PESA mobile money transfer service, which introduced a new branchless banking service designed to allow users to complete basic banking transactions without the need to visit a bank branch. The technology underlying the M-PESA service was developed by Vodafone, and then carried by Kenya's leading mobile phone carrier, Safaricom, with the support of my company's global services division. When it launched in 2007, M-PESA signed up 900,000 subscribers in Kenya. Today, M-PESA has registered more than 17 million customers.
The success of the mobile payments revolution in Kenya came about because cell phone services grew to be more accessible and convenient than traditional banking services. It used to cost a farmer a half day’s worth of wages to cash a paycheck at the local bank. A farmer can now do this task at virtually no cost and within minutes.
Another important factor is that the Kenyan banking and telecommunications industries coalesced around an innovative, new business model and partnered to build a working ecosystem. As it is now evident, both consumers and providers have benefitted from the region's rapid, wide-scale adoption.
In Africa, where the 400 million mobile phone users dwarf those with access to landline-based Internet technology, businesses and consumers are skipping steps on the traditional technology development path — and in the process, beginning to elbow their way to a seat of power in the global marketplace. African mobile money transfers are expected to exceed a total value of $200 billion in 2015, accounting for some eight percent of the continent's gross domestic product, according to a report by Pyramid Research.
Following Kenya's lead, we expect to see more African countries embracing this technology to deliver money services to simplify transactions in the daily lives of consumers. For example, it will become even more pervasive for users to request advances on their salaries, make rent payments and pay for their groceries on their mobile phones.
The commerce opportunity is both ripe and real: farmers and rural traders in Kenya are connecting with urban sellers on pricing for their commodities via their mobile phones as a best practice. Neighboring African countries are seeing all the social and economic benefits of the mobile payments influence, and wanting to get involved.
It is a time for banks, telco's and other relevant institutions in the U.S. to focus on the future of mobile money. The Western world should pursue a course of "reverse innovation," whereby IT professionals, telecommunications experts and bankers immerse themselves in the African-spawned technical and marketing innovations around mobile payments and engineer them to work in other countries and geographies to deliver new services. With simpler transactions and technology-enabled applications, mobile payments can emerge as one of the world's great innovations.
Consider that there are more than 5 billion cell phones in the hands of the vast majority of the world's adult population. The exchange of value using mobile phones is poised to be the biggest undisputed revolution in payments history. And Kenya is already there.
While the U.S. continues efforts to bridge the "digital divide" between those who have access to the Internet and those who don't, Kenyan businesses and governments seem to have conquered that conundrum. From our experience in supporting mobile money services in Kenya, we have witnessed firsthand how the rise of M-PESA has facilitated stronger society connections, fostered new innovations and promoted economic growth. And now the region is basking in the warm glow of opportunity.
The rest of the world should rightfully take notice.
Mark E. Dean is chief technology officer of the Middle East and Africa for IBM and is an IBM Fellow.