Ali Ndiwalana, an IT specialist, had just finished an interview with The EastAfrican at Dormans Coffee House in Kampala, just across where he works, when he handed the waiter a Ush50,000 ($20.80) note in payment for a forest cake and two sodas taken in the course of the conversation.
The waiter could not easily get change, which amounted to Ush38,000 ($16). So, for nearly 10 minutes we stood around waiting until Mr Ndiwalana asked if he could pay by mobile money. The waiter, his back towards us, did not hear him. Mr Ndiwalana was, of course, joking.
Although, he said, he would have paid through mobile money were it possible.
“Convenience,” he replied, a short and straightforward answer to the question as to why he would prefer to pay by mobile money compared with cash.
The conversation, which lasted for an hour, had been all about whether or not mobile money payment solutions could evolve to cater for such “micro transactions” of about a dollar or less.
Mr Ndiwalana has a wealth of knowledge on this topic. He is currently leading research at Grameen Foundation in Uganda, a global non-profit organisation that works to replicate the work of Bangladeshi Grameen Bank, about what else can be done over the mobile money platform beyond their commonplace uses: money transfers, paying utility bills, and salaries in some rare cases.
“Small transactions will really have to be consumer driven,” Mr Ndiwalana said. “If enough people came in here and asked if they could pay by mobile money, the attendant would be compelled to decide whether to lose that money or not.”
If this happens, it would depart from the introduction and uptake of the credit card in the US and much of the West, which was merchant-driven in much the same way mobile money has been telecom-driven. When, for instance, Kenya’s telecom giant Safaricom pioneered its mobile money platform M-Pesa — Pesa being a Kiswahili word for money — it was not because its customers asked for it. Rather, it saw it as an innovative way of growing its subscriber base and keeping subscribers on its network.
Even if Mr Ndiwalana could not put a timeline to mobile phones evolving as points of sale, he predicted it will be faster than the uptake of the cashless system in much of the advanced economies.
“In a credit card system, you would have to install hardware and the technology that supports it. But mobile phones are hardware in themselves and can easily be used at points of sale,” he said.
South Africa has already begun experimenting this. In December, Absa bank and MasterCard inserted a chip on phone handsets of the bank’s staff to enable them pay for goods at coffee shops and canteens. The trial went well.
According to Benjamin Lyon, the Vice President Business Development at the Nairobi-based Kopo Kopo Mobile Financial Services, “In order to make mobile payments the new norm at the point of sale, consumers need an incentive to pay via mobile money and merchants need an incentive to accept mobile money.”
Kopo Kopo is focused on enabling merchants accept, process, and analyse mobile payments in real-time. The firm is working on how one can use his or her mobile phone at points of sale.
However, these requisite incentives are not there yet.
Margie Jobanputra, the Director of Dormans, has not had anybody at her coffee shop ask to pay by mobile money. The concept of hard cash for such transactions is still strong, she said. But later, when there’s demand for such a form of payment she’d have no hesitation in making it available.
In an analysis of the national payment systems in the region, the value of transactions done through cheque and other debit and credit instruments is far larger than the payments through credit cards.
In Uganda, payment by real time gross settlement (RTGS), which allows for funds in accounts in two different banks to be transferred in an hour or less, posted the highest value as a payment option with over Ush117.8 trillion ($50.4 billion) transacted through this method according to the latest figures from the Bank of Uganda in the 2010/2011 financial year. Electronic funds transfer came second with Ush8 trillion ($3.4 billion), cheque transactions had a value of Ush5 trillion ($2.1 billion) and mobile money transaction had a value of Ush300 billion ($127.8 million).
A similar trend can be noticed in the payment systems in Kenya, Tanzania and Rwanda, where EFT and other payment options are far greater in value than payments through mobile money. This shows that mobile money transactions still lag behind other established forms of payment, and that the micro transactions might still be a long way to go.
Even if one cannot yet pay for a cup of coffee by mobile money, the service has already transformed Uganda, and indeed East Africa, into a pseudo-cashless society if one considers that it enables the payment of utilities like water, electricity, Pay-TV and lately tuition fees.
“Cash will always have a place but the idea of cashless is more about the proportion. The focus would be on at least half of the transactions being cashless,” noted Jackie Namara Rukare, the Head of Marketing at Stanbic Bank.
Kopo Kopo’s Lyon agrees.
“When we frame the conversation, we focus more on creating a “less cash” society than a “cashless” society.”
The advantages when this happens can’t be overemphasised. George Wilson Ssonko, a researcher with Bank of Uganda, says it not only minimises the dangers associated with carrying cash, it also, for the Bank, reduces costs of printing new money and shredding old notes.
So far, the sort of pseudo-cashless society mobile money has created caters, in large, to middle and high class people.
To be able to make low value payments like, say, a kilo of sugar, a bar of soap, or a pack of salt at one’s nearest kiosk, Stanbic’s Namara, like Dorman’s Jobanputra, believes people will have to have greater faith in mobile money as a form of payment for such goods in the same way they believe in cash.
To grow such faith, though, mobile money will have to evolve in speed, efficiency, and user friendly costs, all of which the service still scores badly on, including in Kenya, says Kariuki Gathitu, the team leader at his start-up Zege Technologies, which processes mobile payment transactions on demand as opposed to scheduled processing.
In a truly cashless society, these efficiencies will have to move in tandem with a healthy relationship between telecoms and financial institutions, which is still fraught with tension but is mutually beneficial to both.
“Banks must decide at what point and how much they want to interact with mobile money,” noted Stanbic’s Namara.
Her bank and MTN are developing linkages so that the telecom’s mobile money subscribers are able to access money through the bank’s ATMS. But Namara could neither deny nor confirm this work in progress other than to say once it’s ready the media will be the first to know.
Airtel, however, has already beaten them to it. The telecom has established partnerships with a number of retail service providers and banks so its customers, on its revamped Airtel Money platform, can make purchases as well as access their bank accounts and withdraw money from their ATMS and all other inter-switch ATMs across the country.
Of course, both MTN and Airtel are learning from Kenya, which has fashioned itself the hub of everything possible about mobile money. In 2010, Safaricom developed M-Kesho, a full-fledged mobile bank account, with Equity Bank.
Other banks in Kenya, and in other markets as well, are negotiating varying levels of collaboration with telecom companies if for nothing else, to ease the competition telecoms are mounting on their core business — extending banking services to the large number of unbanked people in the region.
Numbers don’t lie. Mobile money services have provided a form of savings accounts to many more people than the total number of savings accounts in all the banks in the region.
The transactions are mind boggling. MTN, for example, transfers close to Ush500 billion (about $208 million) monthly, according to its CEO Themba Khumalo. While in Kenya, M-Pesa transfers close to Ksh2 billion (about $24 million) daily and this is only in person to person transactions.
If banks are worried about mobile money’s evolution so are outright credit card companies like Visa and MasterCard. Both are aggressively scaling their presence in the region.