This week, news from Nairobi, that hotbed of mobile money innovation, opened up a Pandora’s box of reflections on payment plans, service design issues and the challenge of technology adoption in the mass markets of the African informal economy. None of these are ‘bad’ things in their own right, but taken together, they have resulted in a perfect storm for innovation planning.
Standard Digital published an article on the 23rd of February, titled “Matatu operators opposed BebaPay“, viz.,
Matatu operators are opposed to the BebaPay — a cashless payment system for commuters. The platform, launched last April by Equity Bank in conjunction with Google, is facing challenges.
A single sentence. Yet when parsed further, it contains many implications for what exactly has been happening in the informal transport sector in Kenya and the potential opportunities as well as possible repercussions for players in the mobile payments space.
Back in September 2013, the Kenyan government announced a ban on all cash payments for bus fares and this will go into effect on July 1st, 2014. By January of this year, there were debates by reputed bloggers on whether this move was even one that could conceivably be implemented realistically speaking, given that top down imposition of a technology has rarely prospered. Kachwanya said,
Yes cashless payment is much better and I personally have campaigned for it for years. But you can’t say you outlaw cash payment. There things which are good and need to be done but the society needs to evolve before going out right into some of those things. At this point in time cashless payment will be great for some in Kenya, but unfortunately majority of Kenyans are still not ready for such drastic shift. To start with, this should be left for market forces to determine the time and speed of adopting cashless mode of payment and not some sort of directive from the Government.
This is a move to formalize a sector of the informal economy, and conceptually a worthy one where benefits to multiple stakeholders – transport business owners, banks, payment service providers, the tax authorities and the government – are immediate and obvious. The real world challenges of attempting to bridge the formal and informal economies I will cover in a subsequent blogpost.
The Business Case
This has the potential to become an extremely lucrative opportunity for service providers and application platform owners, not to mention the intermediary banks. The formalization of an entire industry, public transport, has meant a new scramble for this legislated pie. Safaricom, the service provider behind MPesa, didn’t need investment in developing new services and simply started signing up bus operators and here are the numbers on the potential ROI,
The Economic Survey 2013 values Kenya’s road passenger transport business, which is dominated by matatus, buses, motorcycles (boda bodas) and three-wheelers popularly known as tuk tuks, at Sh205 billion. This means that providers of electronic payment systems as demanded by the Safaricom and Equity Bank stand to potentially earn upwards of Sh2 billion annually assuming a transaction processing fee of one per cent for payments.
And for Google and Equity Bank, who launched their product 6 months earlier, the opportunity is manifold:
Equity Bank said it is targeting the more than 1.5 million Nairobi residents who use public transport daily.
“This system will help eliminate the cost and risk of handling cash. It will also help formalisation of the transport sector because as banks, we can now fund this sector without fear since we will have the financial status statements of the industry players at hand,” said Equity Bank CEO James Mwangi.
The public transport sector is a key economic driver whose growth could power the economy, but has been held back by the disorderly nature of the industry.
Furthermore, stakeholders such as the matatu owners, are said to be pleased with the aspect of the payment system directly depositing passenger fares into their bank accounts, bypassing the crew of the matatu, eliminating opportunity for fraud, theft, corruption and loss of income.
The Technology and Process
From the same article linked above, here are the relevant snippets about BebaPay:
Equity Bank has partnered with global IT giant Google to introduce a cashless commuter fare payment system that involves the use of pre-paid plastic cards to settle public transport bills. The partnership marks Google’s first introduction in Kenya of its Near Field Communication (NFC) technology, which it has been promoting in some developed economies.
The card-based system dubbed BebaPay is based on Google’s NFC technology, which runs on the Android mobile phone operating system. Users will swipe pre-paid cards against android-based smart phones [with a special app] that will be given to public transport customer attendants.
The cards, Mr Mwangi said, will be available free of charge at Equity Bank service agents, where they can also be loaded with money. The cards can also be reloaded with cash through the bank’s mobile banking platform, without incurring additional cost, or through M-Pesa Paybill.
Matatu owners will be able to access the money paid by commuters immediately, and can access records of their bank accounts in real time through a system interface, allowing them to track the inflows from their vehicles.
The public service vehicle operators will be required to have the BebaPay application on smart phones in order to accept payment from commuters. Commuters on their part will receive free SMS receipts once they make payments.
On the look of its, given the context of the regulatory changes in the operating environment, the lucrative opportunity for a successful service and the ease of use and accessibility of the technology, the solution seems like a no brainer. In fact, both MasterCard and Family Bank have announced the impending launches of their own solutions during this past month as well. A scramble in a teacup, one could say.
So why does the news that matatu operators are unhappy with the system continue to make me hesitate to state that its just a matter of time and people are always unhappy with change and everybody will settle down and stop complaining and get used to it by the time the deadline in July rolls around?
The original article quotes some matatu operators as saying that the system leaves them with no cash in hand at the end of the day, or that they end up in the lockup due to some unhappy cop. Additionally, some are ‘losing’ their android smartphones as a way to revert back to cash transactions.
These are all ‘bad’ things – I use the air quotes deliberately as I am not in the habit of making value judgements on observed and existing user behaviour, merely documenting them as elements of the operating environment in which this system must succeed – and from the matatu owner’s perspective, per the article, the new payment systems will eliminate them.
Matatu Owners Association chairman Simon Kimutai, speaking during the launch of the card in April 2013, said the cashless system would help investors in the industry to control their cash flows and reduce losses that they incur from theft by matatu crews.
Yet, in an aside to a tweet by Emrys Schoemaker requesting a comparison of news articles against reality, one does note how everyone seems to be saying the same key talking points. Whether its the public relations person quoted in the very first article, or other major stakeholders in the subsequent ones, the benefits stated are not only all sounding alike but none of them benefit either of the end users – the operators of the transport vehicles and the commuters.
Where is the user’s voice in this huge shift that will impact their daily bread? And what is the benefit to commuter?
This all too common oversight in traditional approaches to product and service innovation, based as they are on opportunities created by top down regulations, is what has been bothering me all day about the news. The implications throughout have been that because commuters will have no choice but to adopt this new system of payment, all the various providers have to do is throw their services out there and make a big fanfare around the launch whilst signing up as many routes as possible.
The reality, which Kachwanya highlights,
There things which are good and need to be done but the society needs to evolve before going out right into some of those things. At this point in time cashless payment will be great for some in Kenya, but unfortunately majority of Kenyans are still not ready for such drastic shift.
is that even while the public transport industry might be regulated into the formal economy using the technology of mobile payments, there is still the rest of the informal economy, on which the majority of the commuter’s depend upon for their income, to take into consideration. And this one, which is being regulated, is one of the main arteries pumping blood into the that system, as matatus transport those informal business women and men to their markets, transport goods and materials and act as a conduit to the hubbub of the hustle.
Should a Google be thinking of phasing in the payment plan, taking behavioural change and the economic operating environment of the majority of those who must use their service into account?
Have these prepaid commuter card services given a thought to the way cash flows in the informal economy and the purchasing patterns of those who make their living within it?
If the matatu operators are refusing to adopt these services, were any alternatives offered in the system to replace the benefits that the existing cash based offered them?
You instantly remove all flexibility from an ecosystem, leaving it rigid and non-negotiable viz.,
“With the system, you cannot be left with some cash at the end of the day to even buy milk since we depend on salary,” said Peter Mwangi, a conductor on Route 33.
Despite aggressive marketing, BebaPay is still struggling with few matatus embracing it. Normally, the conductors and drivers only remit the amount collected from people who board the matatus at initial departure points.
Flexibility* in time and money is the characteristic that distinguishes the informal economy from teh formal for those who manage on irregular income streams from a variety of sources, and this is also why the prepaid business model is adopted by 96% of all mobile phone users on the African continent.*
Given the stakeholders are the government, the banks, the transport owners and the mobile payment service providers, whose responsibility is it to understand the elements of the informal economy that make it work and seek to identify the touchpoints to bridge the gap between the formal and informal successfully?
When a service fails to be adopted, such as BebaPay, is it the fault of Google’s service design process or Equity Bank’s? Is the problem with marketing or is it with “corruption in the system”?
Or, as I see it, are those the easy answers to this problem and a goodly dose of contextual understanding and user research to support the desk research and boardroom strategies could have offered insights on how to introduce formalization to a hitherto informal yet extremely critical industry?
*From my 5 years of user research documented here.