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Emerging Payments

Emerging Markets 'Leap Technologies' to Adopt Mobile Payments

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Compared to the U.S., many countries in Africa have a less developed financial services and payments ecosystem — but are far ahead in mobile payments adoption.

The lack of brick-and-mortar banks and branches has allowed parts of Africa to surpass most advanced regions by "leaping technologies" and embracing mobile commerce as a way to transfer money with person-to-person payments and eventually make point of sale payments, says Mark Richards, head of financial services for Actis, a London-based private equity group concentrating on payments in emerging markets.

Richards, who was in New York this week to work at Actis' U.S. fundraising office, predicts African nations and other emerging markets will fully adopt emerging payments at the point of sale with smartphones in about five years.

Image: ThinkStock

This is about the same time cycle as many predict for U.S. consumers to more commonly embrace mobile payments. 

"In the U.S., mobile simply represents another payments method," Richards says. "In Africa, it is an evolution."

Actis mostly invests in upgrading financial services and developing plastic-card issuing and mobile-payment adoption in emerging markets. The company evolved from a British government agency that worked exclusively in Africa, Asia, India, China and Latin America, Richards says.

"In many of these countries, only 10% to 15% of the population has bank accounts," Richards says. But nearly everyone has a basic mobile phone, he says.

Emerging markets have an advantage when it comes to adopting new payments technologies, mainly because it is far less expensive for banks and processors to establish mobile commerce than to "replicate what the U.S. has with all of the physical banks and branches," Richards says.

Such an infrastructure does "not exist in Africa, so Actis looks at where an opportunity sits," he says.

For emerging markets, Actis operates with two broad strategies for payments — establishing a payment card-issuing network and advancing money transfers, and eventually payments, through mobile phones, Richards says.

Debit cards improve security in areas where "95% of transactions are cash payments," he says.

Visa Inc. developed a joint venture with Egyptian banks to establish a chip-and-PIN card in central Africa. In 2009, Actis bought that venture, called the Mediterranean Smart Card Company, and developed it into an open-loop payments architecture, Richards says.

Actis developed a system to accept MasterCard, American Express, Visa, China Union Pay and JCB cards and to operate in 40 countries across the continent.

It helped set the stage to concentrate on a mobile commerce strategy, Richards says.

Kenya was slightly different, with far fewer regulatory bodies and far less Central Bank supervision, Richards adds.

But 80% of Kenyans had basic mobile phones through Safaricom, which has relationships with Kenyan banks and helped establish the M-Pesa method for drawing money or transferring money through codes from a basic mobile phone, Richards says.

"Smartphones are not in Africa yet, but ownership of a basic mobile phone has exploded," Richards says. "It is the most basic form of mobile payment."

Kenyans can transfer shillings to another person or a merchant through the M-Pesa codes or by submitting cash to Safaricom agents, located throughout the country, and having it converted to funds represented through the phone codes.

Nations such as Kenya have been quick to adopt mobile money transfers and payments, whereas developers in the U.S. continue to search for ways to garner consumer attention.

As such, some technology experts in the U.S. have gone as far as to say the U.S. should adopt a similar mobile commerce plan as Kenya because of its effectiveness and simplicity. 

Visa acquired South African mobile payments technology company Fundamo in June of 2011, with the intent to help the card brand establish its place in the developing payments ecosystem in Africa, says Richard Oglesby, senior analyst and mobile pay expert with Boston-based Aite Group.

"There is a high level of interest in payments in Africa, and Visa and MasterCard both have made investments in trying to facilitate its development," Oglesby says.

Mobile phones "took over" Africa because the continent lacked development of a landline system, Oglesby says.

"Even though there are significant differences between the U.S. and those emerging markets, it obviously is very interesting that we may get to the same path in mobile payments at the same time," he adds

The timetables for mobile adoption may be similar, but the underlying reasons for the U.S. and emerging nations reaching that level of payments through mobile phones is dramatically different, Richards says.

"Mobile pay is not really needed in the U.S. yet," Richards says. "But in Kenya it is a method that, despite not being leading-edge in technology, represents a cheap, cheerful and effective solution."

While Kenya is mostly a "cash-and-phone" country for payments, Actis sees the country and others like it eventually embracing a "plastic-and-phone" payment system, Richards says. In that way, the foundation would be established for the introduction of smartphone technology and the creation of mobile wallets, similar to those being developed in the U.S., he adds.

"I suspect smartphones will penetrate quite quickly into Africa because they will serve as the computers in those countries," Richards says. "And that would trigger numerous new payments models."

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