Toby Shapshak is an award-winning technology journalist based in Johannesburg, where he edits the South African edition of Stuff magazine and writes a column on technology trends for The Times newspaper. He has been an editor at the Mail & Guardian, GQ and ThisDay. He also runs Maven Media, an internet and publishing consultancy, whose clients have included Nokia, Microsoft, HP, and several of the country's largest banks. In "Mobile banking – the next phase in Africa's mobile revolution" he portrays the impact of cellphone banking and mobile commerce on unbanked regions and migrant economies in Africa.

http://www.mavenmedia.co.za

  

Artwork by Long Wen

All artworks in this receiver issue are part of a student project by the Central Academy of Fine Arts, Beijing, China

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Johannes is a farm labourer in South Africa's Mpumulanga province, far away from a major town and further still from the country's world-class banking infrastructure. Working for cash, Johannes had never opened a bank account before banking consultant Beyers Coetzee flew a two-seater plane to the farm he worked on and opened his first account.

The remarkable thing is not the admittedly rare fly-in service, but that Johannes' bank account is entirely opened and operated through his cellphone. The bank is Wizzit, a division of The South African Bank of Athens Limited, which is turning banking on its head using the ever-present mobile phone. Cellphone banking is growing markedly in a country where far more people own cellphones than they do computers.

Wizzit is a remarkable success story of innovative thinking, clever and appropriate solutions and satisfied customers. Most of its users have never owned bank accounts, but they have cellphones. Linking the bank accounts to the cellular subscriptions not only gives them an account, but use-anywhere, anytime mobile banking. After the spread of the mobile propelled the continent into the global communications village almost a decade ago, this is the next phase in Africa's mobile revolution.

Wizzit is starting in the farming heartland of South Africa and in under-serviced urban areas, while Kenyan network Safaricom's M-Pesa service has revolutionized mobile payments in that east African country, and 40%-owner Vodafone is sure to roll it out in the other countries it operates in. Already its 50% subsidiary Vodacom, which is the largest operator in South Africa, has launched it in Tanzania.

By early this year, M-Pesa's payment mechanism was threatening to change the nature of payment in Kenya. By December 2007, it had 1 million customers who had made $7 million in transactions, and by January 2008 it had 1.6 million customers, according to Balancing Act, an African telecoms research house. Balancing Act's Russell Southwood is right on the money when he says, "This looks as though it will be the breakthrough moment for mobile-enabled cash transaction services in Africa."

The principle difference between Wizzit and M-Pesa is that the latter works without a bank account. This payment model only allows payments to another cellphone user, without all the value-added benefits of banking services, but it allows person-to-person transfers, which is sorely needed in Africa with its massive migrant workforces.

Mobile payments present a lifeline to Africa's so-called unbanked, those who earn too little or are out of the catchment area of banking infrastructure.

Wizzit

M-Pesa

  

  

Good signs

The portents for mobile banking are very good. At the end of 2005, Africa had 135 million mobile subscribers. By the end of 2010, it will have 400 million subscribers according to some projections. Such growth is impressive, given how far Africa's telecoms has come, with cellphone users growing from 2 million in 1997 to 30 million in 2000, according to the International Telecommunications Union (ITU), the United Nations telecommunications regulatory body.

With an estimated $93bn in remittances sent home to and in Africa each year, according to figures quoted by the BBC, there is massive potential for the money transfer industry. The World Bank says remittances sent from nearly 200 million migrant workers to developing countries totalled £102bn last year.

"The GSM Association, which represents more than 700 mobile operators worldwide, believes this could quadruple by 2012 if transfers by SMS become the norm. Vodafone has entered a partnership with Citigroup that would soon allow Kenyans in the UK to send money home via text message. The charge for sending £50 is expected to be about £3, less than a third of what some traditional services charge," the Guardian reported.

Meanwhile, in South Africa, "Mobile banking should overtake our internet client base in the next two years," says Christo Vrey, the managing executive of digital channels at Absa, South Africa's largest bank and a Barclays subsidiary. According to Vrey, South Africa currently has 2 million online bankers and about 1.3 million mobile bankers.

Cellphone banking in South Africa more than doubled in one year, according to the Mobility 2007 research study by researchers World Wide Worx, as another large SA bank, FNB Cellphone Banking, last year reached the significant one million transactions per month mark. The survey found that mobile commerce – purchases and payments via a cellphone – also increased significantly. "However, most of these purchases are for prepaid airtime top-ups – simple to do on a cellphone – as opposed to product or service payments," says World Wide Worx MD Arthur Goldstuck.

  

  

Migrant workforce

An estimated 60% of Africa's one billion inhabitants are under 30 years old, meaning they are 'born free' into an age where mobile use is widespread and acceptable. Such technological adoption can help with the continent's perennial curses: lack of infrastructure, poverty and acute underemployment.

Millions of Africans work as migrant labourers in their own country, or in neighbouring ones; while many make the perilous journey, often as illegal immigrants, all the way down to South Africa. This migrant economy needs to send money home to wives and children, elderly parents and younger siblings. Zimbabweans in South Africa, for instance, can keep extended families of up to 20 alive with both money and food shipments, as societal breakdown, hyperinflation and shortages in foreign currency mean not even basic foodstuffs are available.

To send money back to a small village often requires physical cash to be sent via a chain of bus and long-distance minivan drivers, all of whom take a cut along the way. This transport fee can be as much as 20%, sometimes more if police roadblocks are encountered. By comparison, M-Pesa costs about $1 to send or receive money, and is an almost instantaneous transaction, unencumbered by the delays associated with money transfers and postal money orders.

No wonder M-Pesa was an instant success. "Within two weeks of the launch over 10,000 account holders were registered and more than $100,000 had been transferred," Michael Joseph, Safaricom's chief executive, told the BBC. M-Pesa grew out of a trial for a money transfer service in the micro-finance industry three years ago, demonstrating how much of a need there is for such transfer, and perhaps even micro-lending, services.

  

  

Overcoming challenges

But there are pitfalls and challenges that are endemic to Africa. Infrastructure remains the biggest obstacle to uptake, as banks or payment services require identification and verification on sign-up. South Africa, for instance, has adopted stringent money laundering requirements, in line with global anti-terrorism legislation, which include proof of residence before a bank account can be opened.

Wizzit solves this problem by using what it calls Wizzkids, who help new subscribers sign up and show them through the system. In cases such as Johannes', a pilot like Coetzee flies in to do the paperwork. Coetzee was invited to Elandslaagte Farm by its co-owner Marisa van der Heever. She not only wanted to give her employees access to banking, but also to reduce the hard cash in circulation, which is often a target for rural criminals. It also allows workers to save their money more easily, she says. What's more, Coetzee was able to open accounts for her 54 workers in less than an hour.

Once a Wizzit account is open, deposits can be made electronically and transferred to other Wizzit users or to pay accounts, including such things as utilities accounts. Wizzit has a range of retailers and stores who accept payment from it, as well as Maestro debit cards and access to internet banking and ATM-based banking.

M-Pesa uses Safaricom's network of retail stores to 'deposit' money, and subscribers are given electronic vouchers with a security PIN code, which is how Kenyans transfer money to distant relatives. Safaricom's agents, who already sell pre-paid airtime and other services for the cellular network, function as 'branches' for the physical cash to be withdrawn, using the banking infrastructure effectively provided by M-Pesa.

Another concern is that handsets may well be shared and people other than the primary owner have access to the phone. The services offered by Wizzit and M-Pesa require a user to input a PIN code, much like an ATM card. However, like early ATM use, there is the potential for scamming and hustling of first-time users, the elderly or those who don't understand the technology, or simply cannot read.

A lot of Africa's poorer population, especially in rural areas, suffer from illiteracy. However they are functionally numerate. SMS services in Senegal, for instance, include small pictures of fruit and vegetables in an astounding operation which lets farmers find out, via text message, what prices they can expect to fetch at various markets. Farmers then decide which market will yield the higher rate before they transport their goods.

In spite of all the challenges that still lay ahead, analysts and observers are bullish about mobile payments' prospects. As the London-based Digital Money Forum concluded, "M-Pesa is a valuable case study of digital money in action. It involves replacing cash with electronic money, it is for the mass market, it radically reduces transaction costs (for the least well-off), it provides new functionality including remote payments and, most of all, it provides an infrastructure that delivers capability and efficiency to the microfinance world, allowing them to stimulate new growth, new business and new opportunities."

It's the next phase in the mobile revolution in Africa and might even be more significant than the first which opened up communications to all.

  

  

This article was written for receiver

Contact: Toby Shapshak

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