Archive for the ‘Airtime’ Category

Lessons from African Fintech for the Gig Economy

Earlier this week, I had the opportunity to share my research on the past decade of mobile ecosystem development across the African continent with Dr. Antti Saarnio, founder of Zippie; co-founder of Jolla (developers of the Sailfish OS, among other things).

“We want to test our product first and foremost in Africa because there is an extensive and established informal economy,” he said.

That captured my attention immediately, since few think of the Africa’s vast “informal” commercial operating environment as a strength to be leveraged for competitive advantage, preferring to hope against hope that it will disappear into thin air to be replaced by the more familiar structures of the formal and organized sectors.

And, it got me thinking about the African fintech space, and the lessons it may hold for the rapidly proliferating gig economy in the ‘developed’ world. And, since at this point of time, all I know of Zippie, Dr. Saarnio’s latest venture, is that it’s a blockchain based mobile OS – not the kind of thing that you’d expect to be piloting in Africa – I asked him to elaborate on his thinking a little further.

Easy, he said. Not only does the informal economy dominate, with established norms and coping mechanisms, but its a mobile first and mobile only environment where people are already comfortable with the exchange of value in digital form, be it airtime or currency. People are already incentivized to think about boosting their productivity through newfangled digital tools on their smartphones. More often than not, the younger urban population is educated and tech-savvy, and in places like Kenya, ready to try something new.

I couldn’t argue with his assessment. In fact, I’d take it a step further, based on my own decade’s worth of research into the informal sector’s financial behaviour and cash flow management practices. The developed world economy is beginning to show signs of convergence, in pattern and in the types of challenges faced when attempting to manage in highly uncertain situations, on irregular and unpredictable income streams, often with the very same elements of seasonality – time of abundance and scarcity – as seen in rural Phillipines or India or Malawi.

For instance, Finnish farmers are being driven to use high interest payday loans to tide over the lean times because few other coping mechanisms exist in Finland’s highly formal commercial operating environment. Wedded to the land, they face the same challenges as a farmer in India, Kenya, or The Philippines. Yet no microfinance institutions catering to farmer needs would dream of showing up in rural Finland. Similarly, in the UK, lower income workers, dependant heavily on gig economy apps to generate revenue, can face significant differences in their cash flows from month to month, but again have no recourse but to use their credit cards or high interest payday loans to tide them over. The systems in their operating environment are designed for the past generations’ periodic and regular wages and paychecks, and cannot cope with the irregular cash flow patterns, as prevalent in the informal economy.

That is, the characteristics of the gig economy and the informal economy, when seen from the perspective of the end-user, are more or less the same. Ironically, however, those in the developing world have numerous solutions available to them – albeit informal, social, local – available to them to cope with shocks and volatility. These coping mechanisms have developed over decades (and centuries, in the case of India), hence the well known resilience of the local rural or informal economy.

As uncertainty increases globally, there are numerous lessons to be learnt from the mostly ignored informal economies of the developing countries which have provided incomes and employment for the vast majority of their populations, in times of conflict or peace, making sure that food reaches the urban table from the farms out in the countryside, regardless of the adequacy and availability of either systems or infrastructure. This is one situation where the formal economy’s inbuilt rigidity and dependence on predictability and periodicity are its embedded weak spot at a time when flexibility and negotiability are required to ride the shocks and volatility.

From the Caterpillar to the Butterfly: Africa’s Mobile Boom Years Are Over, Here’s What Next

For the past 15 years, Africa watchers have been waiting for her mobile phone industry to reach a critical landmark – almost full saturation of the market. This milestone may be close at hand, as recent news and data show. In June 2018, Kenyan mobile subscriptions reached 98% penetration, a 13% jump over the previous year, the highest ever recorded, even with all the caveats of youthful demographics and many users owning more than one line.

And, it isn’t just Kenya, long known to be early adopters of innovation and technology. The African mobile market, as a whole, maybe reaching saturation point as the latest IDC data shows. Phone sales continue to show signs of decline. Unlike previous slowdowns of smartphone sales1 which were economy related and feature phones continued selling, this time the decline can be seen in both categories, implying the great African mobile subscriptions growth boom may now be over.

Even Nigeria, recently found to have more people living below the poverty line than India, has achieved more than 80% mobile phone penetration, with hopes that the end of 2018 will see 100%.

The number of mobile subscribers grew astronomically in 2017 and its penetration increased to 84% in comparison with 53% in 2016. With an increase in the number of affordable phones entering the Nigerian market and looking at the trajectory of growth between 2016 & 2017 (31% growth year-on-year), there is a strong indication that by the end of 2018, there might be a 100% penetration of mobile subscriptions.2

Healthier West African economies such as Ghana and Ivory Coast have already crossed the magic 100% threshold, as has conflict riven Mali.

Achieving this landmark has not been consistent across the continent, and some countries like Malawi and Chad are still below the halfway mark. However, it is known that Africa may never achieve the same level of penetration as seen elsewhere, given that 40% of the continent’s population is under the age of 163. And so, the current decline in new phone sales can already be considered the signal of a mature market, showing signs of saturation.

From the caterpillar to the butterfly

In a very short generation, Africans have gone from being mostly isolated – from each other, and the rest of the world – to being plugged in, all because of this very powerful device in their hands. The decline of phone sales, or the slowing down of subscriber growth numbers, should be cause for jubilation. The continent is now connected to the rest of the world, and Africans are talking to African across the span of mountains and deserts. Traditional pastoralists receive satellite data informing them of the best locations for forage for their livestock, and they can access insurance in times of famine and drought. Urban youth are trading bitcoins, while their mothers gather in social media groups to trade in goods and information. The entire operating environment of the African economic ecosystem has been transformed.

Where just over ten years ago, Nokia’s greatest concern was how to design ever more affordable and robust mobile devices which could connect people across languages and literacy barriers, now we have a population that has a decade of experience in information technology, regardless of their education levels. Even the most remote or marginalized have seen the phone, and can access its use, through intermediaries and access points. Digital Africa has become a daily matter of fact rather than an unusual achievement for the development crowd. You can see it in the tenor of the research articles, and read the difference between the way the growth of the mobile ecosystem was covered in 20054 and the way its taken for granted now.

The end of an era – double digit growth of the African mobile market – signals the beginning of a whole new phase of development and opportunity – a connected continent, ready for commerce and communication with the world.

Ten years of transformation

Over the past decade, mobile phone ownership has gone from a novelty to commonplace. It has bridged the rural – urban divide, strengthening linkages, both social and commercial. In turn, innovation diffusion pathways have proliferated from the urban centers, and the adoption of new ideas and goods has accelerated, changing aspirations and expectations, particularly among the younger generation. The global African does not need to leave her childhood village in order to speak to the rest of the world or be recognized for her achievements. Social media is there to give him a voice, and a platform.

It is this new reality that has not yet be recognized by the long established experts on Africa and its many varied challenges and unmet needs. The mindset, worldviews, and the consumer culture have changed far more rapidly than the now obsolete snapshot of the poverty stricken, marginalized African that media and researchers base their assumptions and their writing on. Policymakers and programme designers are even less in the know, and the gap between generations has never been wider.

On the upside is a whole new playing ground – my friend and colleague Michael Kimani calls it the informal economy’s digital generation. Young people like himself, graduating with university degrees into a business landscape without the jobs to hire them, are turning to the platform made available by their smartphones to establish themselves and earn a living. In the four short years I’ve known Michael, I’ve seen him grown and evolve into the voice of African blockchain and cryptocurrency, soon to be an educator on the subject, and already organized as the Chairman of the Blockchain Association of Kenya.

“What a great time to be alive,” Michael’s joyful voice still rings in my ear after our call last week. The digital future is all around him, a playground for him to build and make whatever his mind’s eye can envision.

The end of the world for a caterpillar (the decline of sales & subscriptions) is the birth of a whole new one for a butterfly (the global digital African with a powerful computer in his hands).

We need to throw a party and celebrate!

 

1 Smartphone sales, driven by more affordable Chinese brands, may continue to see growth, but as the IDC states, this growth may come from those transitioning from featurephones.
2 Jumia Mobile Report 2018 in Nigeria
3 The Mobile Economy: Sub-Saharan Africa 2018, GSMA Intelligence
4 Cellphones Catapult Rural Africa to 21st Century, August 2005, New York Times

Pondering India’s Cashless Future

Chhotu here accepts digital currency payments via the mobile platform on a daily basis.

His QR code is prominently displayed upfront next to the bottles of sauce, and a sticker displays the icons of all the payment apps acceptable to his Bhim app.

The Bhim system, launched by the Government of India, is a godsend to micro businesses like Chhotu’s – it allows him to accept payments from a wide ranging variety of apps and systems with the use of just one QR code.

Mr. AutoRickshaWallah on the other hand, preferred to negotiate with me in cash, agreeing to an amount upfront, based on my destination than to go through the hassle of using his digital meter.

By law, he must accept digital payments, if asked by a customer. But, he says, this is very rare; he might accept a Paytm fare once a week. The balance is all in cash.

One size does not fit all

The need for cash in hand during the course of each of these service providers drives their payment acceptance behaviour. Chhotu may not need as much cash on hand once he has set up his inventory and supplies for the day, barring the need for change whereupon he can suggest the customer move to a digital option if required. Plus, at the end of his shift at 10pm he’s happier if the bulk of his sales is in digital form for safety and security.

Mr Autorickshawallah, on the other hand, feels the need for cash available to purchase fuel, food, and pay out wherever required for parking or other purposes (like the police!).  He’s on the move and the signal may or may not work when the time comes for him to accept payment.

Digital adoption is unevenly distributed

Their customers are also from different demographics. Where Chhotu is set up, the market is full of young people with disposable income, out for the evening with their friends. Hearsay has it that mobile apps are selected and used based on their marketing incentives – most offer cashback on digital payments as a driver for user acquisition, but users have gotten clever and download them all so that they can take advantage of different promotions and offers to maximize their benefits.

Mr Autorickshawallah’s customers come from a wider range of demographics, and not as likely to be as comfortable juggling digital payments as Chhotu’s youthful crowd. He’s in his vehicle and on the move, and must ensure the payment gets made, unlike Chhotu who can take the risk of waiting since he and his stall aren’t going anywhere.

Is Cashless in India’s Future?

While digital payments, cards, and mobile apps were certainly far more visible than ever before, and definitely since the demonetization of two years ago, there is a very long way to go before cashless becomes as broadly accepted and mainstream as mPesa in Kenya. Unlike mPesa, the Indian digital currency ecosystem is linked intimately to bank accounts, and thus, there’s an entire ecosystem of services and goods providers that needs to shift over to the formal economy and its financial institutions before cashless becomes seamless at the borderlands of economic strata and demographics.

The current formal financial ecosystem is not designed to address the needs of the informal and unorganized sectors. And this is the iron that post demonetization analysis shows was not struck while it was hot enough to enable the broader change in culture and behaviour to stick once currency was back in circulation.

Chinese investments in African tech will transform the fintech landscape

A recent article brought to my attention this report on the pattern of funding experienced by fintech startups in East Africa and India with rather damning results. 90 percent of the capital invested by “Silicon Valley-style” investors went to startups, technically in East Africa, with one or more North American or European founders.

These results put an entirely different spin on more recent articles on the rise of African fintech and the millions of dollars raised by startups in Africa. Village Capital, too, has been making an effort to promote their recommendations for structural change in the ecosystem in order to enable the emergence of hundreds more fintech and DFS (digital financial services) startups deemed necessary to transform the economic landscape in Africa.

But the challenge, as framed by this snippet from the report, will remain, as it “reflects deep cultural trends in American life”, of bias, stereotyping, and inbred prejudice. So called “first world” technology such as artificial intelligence is already dealing with the problem.

China’s interest in African tech, particularly trade related such as in commerce and payments, is being noticed

Simultaneously, and recently, I came across this op-ed for the WEF making the case for why the tech sector is China’s next big investment target in Africa.

Given China’s position as a leading and rapidly accelerating technological superpower in the world, making strides especially in the fields of logistics (smart cars, drones, e-commerce) and energy (solar panels, smart metering, etc), it makes sense that the most logical industry for the next stage of Sino-Africa collaboration is technology.

But that’s not fintechs and DFS startups, you say, comparing these apples to the Village Capital’s report on oranges?

Perhaps this is why Alibaba Group, the unparalleled pioneer of e-commerce and payments in China, has started to show an interest in Africa. Not only did they collaborate with UNCTAD on the eFounders programme to train over 100 African entrepreneurs in the next couple of years, they recently announced a fund of $10 million to invest on the continent over the next 10 years. Furthermore, Alibaba’s subsidiary Ant Financial has signed a partnership with the United Nations Economic Commission for Africa and the IFC to promote digital financial inclusion. While these are preliminary steps, we are hopeful for more serious commercial involvement in Africa from a company with a $500 billion market cap.

DFS, DFI, what’s the difference between digital financial services for financial inclusion and digital financial inclusion? The target is clear. And been noticed from the other side, as this rival opinion piece in the Financial Times shows, albeit with a greater sense of urgency and panic in the tone and style. It may also explain why Village Capital woke up this week to trumpet the results of their analysis on funding patterns from over a year ago. From the FT:

The Trump administration has made a perceived global rivalry with China the centre of US foreign policy. This competitive stance has coloured the view of African countries in Washington and a tale of Chinese mercantilism in the region has come to dominate the narrative, under which China greedily demands privileged access to Africa’s natural resources in exchange for no-strings-attached infrastructure financing.

But that story is outdated and fails to capture an emergent area of true competition — that among US and Chinese tech giants.

Given what we’ve seen in the Village Capital report linked in the first paragraph, will Chinese funding patterns be any different? Two key factors are being highlighted by both sides:

Read On…

Primer on African Fintech: Myths, Misconceptions, Opportunities, Hotspots and Roadblocks

As we prepare to start work for our third African fintech client, I thought it was time to quickly and briefly introduce the opportunity space and clear up some misunderstandings around fintech in Africa.

  • The first point is the common confusion between Fintech and financial inclusion. Investopedia’s definition of Fintech says financial inclusion, that is, affordable and accessible financial services to the underserved and unbanked is only one of the many areas fintech is actively addressing. While technology helps provide cheaper solutions for emerging markets such as those on the African continent, all fintech cannot be said to be equivalent to financial inclusion.
  • This leads us to a clarification on what exactly is Fintech. I prefer to quote Investopedia since the entry in Wikipedia defines it as the industry itself. “Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century. Originally, the term applied to technology applied to the back-end of established consumer and trade financial institutions. Since the end of the first decade of the 21st century, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies.
  • Thus, while financial inclusion is a key untapped opportunity space for fintech innovation of all kinds, there are numerous other opportunities along the entire value chain of financial service provision both B2B and B2C, including intermediary services, which are ripe for disruption in the African context.
  • Beyond the conventional preference for disruption of the existing context, there are as many if not more opportunities for meeting the unmet needs of African businesses and consumers. History, geography, economics and conventional wisdom have together combined to create a vacuum of solutions and services that address the unique circumstances of the African operating environment which still tends to be heavily cash dependent and is described commonly as “informal”. And this commercial environment has lagged in custom designed tools and services for small business productivity or household enterprise management.
  • Hotspots: Kenya overwhelming leads in mindshare as the leading fintech innovation market on the continent, and grabs the lion’s share of investments in East Africa. However, the GSMA’s latest report implies West Africa is rapidly catching up, and may outspend East Africa. The WAEMU region is a hidden hotspot, and Ghana leads the anglophone countries.
  • The largest market opportunity, by population, remains a challenge however, for a variety of reasons including policy and regulation. Nigeria’s payments innovators have made a name for themselves but their domestic market has not felt the impact of their efforts. Even mobile money, introduced more than 5 years ago, has only achieved 1% penetration. On the other hand, it took India years and years before digital payments reached visibly transformational critical mass. There’s hope.
  • Lastly, Chinese investment has just entered the African fintech space, talking up financial inclusion – a clear sign of its economic importance for the future development of trade and industry.

Implications of Mobile Money Interoperability in Kenya?

Mobile money pioneer Kenya, has finally gone live this month with account to account interoperability between mobile money services. Neighbouring Tanzania pioneered interoperability between the mobile money services offered by local telcos with a soft launch back in 2014. Fears of cannibalization and zero sum scenarios were unfounded, as documented in an early evaluation report by the GSMA. On the other hand, perhaps that assessment of impact was far too early as little else is mentioned in the rather thin report. Fellow East African Community member Rwanda too has had interoperability for a couple of years now. Now, its Kenya’s turn.

In a market where mPesa services posted a market share of 80.8%, what, if any, will be the impact of this newfound ability to send money directly from wallet to wallet without cashing out?

Talking points in news media articles and various interested non profit bodies point to “increase in financial inclusion” and “increase in competitiveness” with lower transaction costs as the benefits to end users, but these seem to be just that, talking points.

Safaricom, the telco behind mPesa, has long maintained a stranglehold on the market, and even now continues raising barriers to frictionless payments. In the decade since mPesa’s launch and unchallenged dominance, the vast majority of Kenyans have had no choice but to set up their own account even if it means using a separate SIM*.

In a different market, such a move would be cause for a celebration- the potential benefits clearly outweighing any drawbacks to individual service operators, and the future potential for digital commerce and trade enabled by a frictionless payments platform to be realized in time. In fact, mobile money usage is only growing in both Tanzania and Rwanda, though in each the numbers of subscribers is less unevenly distributed across the telcos.

But in Kenya, beyond providing ~20% of mobile subscribers with the ability to send money to mPesa (more or less) seamlessly, the overall impact on platform and service innovation within the local economy is likely to remain limited. Providing the service takes the edge off Safaricom’s issues with monopolization of the market but will in no way change much of the daily transactional reality on the ground. Habits are hard to break. And mPesa has become a Kenyan habit.

 

*  mPesa has a penetration rate of ~81% as compared to Safaricom subscriber penetration of ~72%, as of January 2018

 

Connectivity, Communication, and Commerce: The 3 Cs of Africa’s Smartphone Led Future

Recent headlines touted the decline in marketshare being seen by smartphones on the African continent, and the concurrent increase in sales of basic devices. Yet a closer look shows that this shift might only be numerical due to the opening of new markets in heavily populated DR Congo and Ethiopia – first time buyers are likely to start with entry level phones.

In fact, role of smartphones in Africa is not only likely to grow and evolve over the coming 3 to 5 years but its very likely that it will be connectivity apps driving their adoption. We Are Social’s latest report shows Africa’s internet user numbers have been growing by over 20% year-on-year.

The 4th C – the Challenge of Unquestioned Assumptions and Great Expectations

With connectivity and communication, commerce was expected to take off but anyone tracking the headlines would notice the challenges faced by African e-commerce platforms. Some point fingers to connectivity as the issue, expecting to reap benefits from scale of penetration. Others point to high costs of data and devices, or challenges with completing the transaction online.

Looking at the patterns exposed by all the reports and the articles makes one wonder whether it’s the underlying assumptions and expectations that are the real problem. The untapped market is hyped out of proportion by each new entrant who rush in with their disruption to revolutionize the African consumer, only to rush back out again when the traction fails to succeed. This has been muddying the waters of what could have been a considered thoughtful opportunity to transform the social and economic landscape.

Yet its not all negative. If someone was to ask me about how connectivity and communication are driving commerce in the African context, I’d point to the plethora of informal trade in goods and services being conducted daily across social media platforms. Everyday there’s a new product or service launched with a tweet. Groups on Facebook encourage and support the entrepreneurial journey. Cryptocurrency trading is making Kenya famous as a first mover.

The difference in traction seems to be that which is self organized and organic vs that which is institutionalized and/or introduced from elsewhere. The external pressure to succeed in the same terms as that visible in the Silicon Valleys might actually be a greater barrier to the sustainable development of the African online community led commerce, increasing pressure on founders and startups with every negative headline. Maybe the lesson from the informal organic growth online is that might actually be a matter of throw the technology at them and see what emerges without lifting the lid every other second to check progress?

Maybe all that is needed is more locally relevant content, such as already being seen emerging from Nigerian and Kenyan tech blogs, rather than the imposition of metrics and heuristics from developed nation contexts.

Mobiles at the Border Post: Anti-Atlas of Borders Exhibition Slides (Jan 2016)

In January 2016, our submission for the Anti-Atlas of Borders Art Exhibition in Brussels was accepted for a commission of 500e. We were thrilled and surprised since we’d never imagined our work on mobile platforms, technology, and the borderland biashara could be considered from the arts and culture point of view.

Here is our story in the form of slideshow – each of these was printed in full size and hung on the walls.

Some Highlights from Reviewing the African Consumer Market 2014-2017

Photo by Niti Bhan in Busia market, Kenya in January 2016

Recently I was reminded of the cover story in the Africapitalist magazine published back in 2014 on the theme of the true size of the African Consumer market, that is, the hidden and untapped purchasing power embedded in the continent’s vast informal and unrecorded sector. Today I’ll start by reviewing some of the consumer trends, particularly in FMCG, that have become rather obvious over the past three years.

    1. Airtime is now a Fast Moving Consumer Good (FMCG) With the advent of a wide variety of different voice and data bundles, as well as affordable smartphones, airtime in Africa, while still prepaid, can be considered along side tea or sugar its distribution and sales patterns. In fact, smartphones and in-app purchasing have made it so that airtime voucher sellers are rapidly going out of business in key markets like Nigeria. In early adopter markets like Kenya’s this digitization has led to barriers lowering for the adoption of crypto-currencies like bitcoin and ethereum.
    2. Hair is a huge business across the continent. This goes beyond cosmetic products like shampoos and creams, to include hair extensions, weaves, services, and add-ons. Hair care related services are mostly in the informal sector while products themselves might be both formal (Unilever, Godrej, Marico) or informal (recycled weaves, imports from Indian temples, etc). Services are also traded and Maasai experts often travel around working and sending money home from providing weaving services. There is a gap in the market for local players and branded chains of retail outlets for the Maasai moran to leverage.
    3. Women’s hygiene and well-being products. This market has been valued at USD 800 million annually and is virtually untapped by formalized solutions. There is literally a gap of products priced for women who are neither beneficiaries of NGO donations, nor can afford urban supermarket prices of imported brands. Otoh, this FMCG product has finally become visible as a market opportunity.
    4. Social Biashara. Smartphones and free-to-use social media networks such as YouTube and WhatsApp have transformed the entrepreneurial opportunity space for unemployed youth struggling to earn in challenging economies across the African continent. In subsequent posts I will consider the impact of e-commerce and changing consumer behaviour on existing markets, both formal and informal. For now, assume that these apps have lowered the barrier to finding and providing trade goods and services and giving rise to an entire demographic of freelancers in cutting edge services including Ethereum/Bitcoin to Euro brokerage.