Next steps for m-banking in Africa

I saw John Gage, Sun Microsystem’s official international man of mystery, in Arusha last week, and now at the World Economic Forum in Cape Town. The man is clearly travelling too much. (It’s okay, John. Me too.) John pulled me aside this afternoon and asked whether I’d learned anything useful at the afternoon session on mobile banking.

I did, actually. Two of the most interesting projects in Africa were represented at the meeting – Celpay and M-PESA – as were an African banker and a central bank governor. Lazarus Muchenje, the CEO of Celpay, a company that’s spun out of DRC’s remarkable Celtel, has been so successful in providing business to business services, his company hasn’t even started marketing to ordinary consumers. Businesses use the service to pay their suppliers, moving money from one mobile phone to another. Celpay works as an intermediary between a set of Zambian banks – they’re not licensed to provide banking services, just to offer information services to these banks.

Muchenje tells us that most customers “get it” with two transactions and become regulars, trading the system for carrying piles of cash to transact business with suppliers. Talking to him after the presentation, he told me that the system processes $10 million USD per month, which he says represents 2% of Zambia’s economy. That’s a pretty amazing achievement for a very young company. The next frontier for Celpay is cross-border transactions – Zambia to South Africa and Zambia to DRC.

Susie Lonie of Vodaphone represents M-PESA, an amazing mobile money transfer solution from Vodaphone and Safaricom. Like Celpay, M-PESA isn’t authorized to operate as a bank – all the money lives in a single account, and a transaction simply changes computer records of how much money belongs to which user.

Over 450 merchants now sell mobile money cards that support M-PESA – you can purchase a card, enter the code from the scratch off card into your phone, then transfer all or some of the money to another mobile user. That user can come to a M-PESA merchant and transfer her codes to the shop operator and receive cash in return. The cost of transferring money is split between the sender and recipient, and costs less than a dollar in total for subscribers. Most users are transferring money from big cities to rural areas – that’s actually a good ting for the merchants, as urban merchants (receiving cash) have good access to banks while rural merchants (issuing cash) often have poor access to banks, and this reduces the cash they have on hand.

Lonie tells us that M-PESA doesn’t compete with other banking services – it competes with giving money to a trusted friend, or hiding it in a package on a bus going to your village. The users of the system are usually unbanked and often illiterate – they learn the system from trainers, and from the merchants who sell the product – organizers have trained 50 trainers to train vendors, and they plan to train ten times as many in the near future.

The exciting news from M-PESA is that they’re expanding into the remittance market. Many development professionals believe there’s more money sent to Africa via remittances than via all foreign aid – it’s a many billion dollar market, one that many banks are anxious to tap into. In late June/early July, Vodacom will be launching a test service enabling remittance from the UK to Kenya. Users in the UK will be required to register and provide identification, minimizing the possibility of using the service for money laundering or terror financing. They’ll make payments via the web, including the name of the recipient – recipients will need to show ID to claim the payments. If they can prove it is technically feasible, the next target market is the UK/India remittance corridor, followed by other lucrative markets like Greece/Albania.

Inexpensive, convenient remittance is a big deal – it provides critical fiscal support for millions of families around the world, and allows thousands of new microbusinesses to be funded by families abroad. My fingers are crossed for both M-PESA and Celpay as they explore new frontiers.