Cashless is king: building a financially inclusive Africa with digital technology
Mastercard’s innovative solutions are driving the move towards a cashless continent
The emergence of digital technologies is driving unprecedented change across Africa. At the forefront is Mastercard, with its commitment to connect more than 100m Africans and 500m people worldwide to formal financial infrastructure by 2020.
At the recent bi-annual Payments Association of SA (Pasa) International Payments Conference (PIPC 2018), two Mastercard representatives spoke about the digital innovations empowering merchants and consumers in emerging economies.
Empowering survivalist and micro-enterprises with technology
Gabriël Swanepoel, vice-president of product development and innovation at Mastercard SA, says financial inclusion is about more than setting up payment systems – it’s also about social upliftment, infrastructure creation and empowering people.
“It’s the empowerment of the consumer; it’s the ability for consumers to exercise choice; it’s making available micro-finance opportunities; it’s laying the foundation for the delivery of payment roles from an acceptance perspective; and it’s providing efficiencies to make sure that goods and services can be extended and micro- and survivalist enterprises can have access to marketplaces that they traditionally wouldn’t have.”
Swanepoel explains that in Africa and the Middle East, 95% of retail transactions use cash, which locks merchants and consumers into unnecessary risks and high transaction costs.
However, the 84% mobile penetration is creating new opportunities.
“Barriers to entry for survivalist and micro-enterprises are things like connectivity, access to infrastructure, access to account-based functionality and general financial services, the ability to access niche markets, and the ability to grow their enterprises from the closed communities that they operate in,” he says. In its quest to drive financial inclusion, Mastercard is finding solutions for:
- prioritising customer choice;
- taking cash displacement seriously;
- giving micro-enterprises tools for growth and access to finance; and
- infrastructure cost.
What would a financially inclusive Africa look like?
“A financially inclusive Africa would have to have no cash,” Swanepoel says.
“We talked about the building blocks and prerequisites for driving financial inclusion – one of them is to take cash displacement seriously. By taking it seriously, it means we can understand the purchasing behaviour of the consumer a little bit better.
“By that we can support the micro-enterprises by understanding what they can qualify for potentially from a micro-finance perspective. We can enable new marketplaces for those types of operations, and none of it is possible if you don’t understand the granular data and environment in which people operate. And for us, it’s about understanding how we enable that. And once we’ve enabled it, how do we really optimise and scale it?”
He adds: “Any solution we come up with has to mimic cash, and it has to come as close to real-time as possible from a settlement perspective.”
Goodbye cash – hello real-time payments
Paul Stoddart, CEO of Vocalink, a Mastercard company, defines real-time payments as “the ability to send money and for it to be received instantly and be available for the recipient to use”.
SA was one of the first countries to adopt the first generation of real-time payment systems, along with the UK and Japan. In the past 10 years, there has been rapid adoption of real-time payments on a global scale.
Generation one of real-time payment took place primarily between large banks that could invest in and implement the technology and infrastructure. This meant money could move instantly between banks via their electronic ecosystem.
“In South Africa now there’s a healthy and exciting debate around payment modernisation: the next generation,” Stoddart says.
With the next generation of real-time systems, which has already been implemented by Vocalink in countries like Thailand and the UK, you can send money from your phone using the bank’s mobile app or by scanning a QR code. The person on the other end will receive (and can use) it immediately and you’ll get a notification from the bank showing the money has left your account. How this differs from card or cash transfers is that there is no delay while you wait for banks to speak to one another, and you don’t have to belong to the same bank.
“Combined with mobile phones and the internet, the way I can make and receive payments has been much simpler and clearer and much less complex,” Stoddart says. “Now, eligibility requirements and the ability to connect mean that even a small business with much less funds available to invest in how they make payments can simply and easily connect to a real-time payment service.”
Real-time payments hold myriad benefits for all stakeholders in the payments ecosystem:
In his presentation, Stoddart spoke about PromptPay, a real-time payment system that launched in Thailand in January 2017. By April 2018, PromptPay had 40m registered users, enabled 173m transactions and generated 700bn baht (R2.8bn) in money transfer value. PromptPay taught Stoddart three lessons:
- You need a healthy ecosystem of banks and application to drive adoption. “It’s not good enough to put the infrastructure in; you have to build the ecosystem in its fullest.”
- People will use technologies in ways you can’t anticipate. “When we launched the service … [we] only envisioned certain use cases how people would make transactions, but in 12 months, it’s being used in many different parts of society for lots of different things nobody thought of when we launched the service.”
- Aliases or proxies comfort individuals and businesses around the security of the transaction. “I think part of running a secure and safe payment system is the ability to manage in a safe and secure way the data that is being shared between those two participants.”
“It is absolutely vital that a national payment system can meet the needs of its people,” Stoddart says. “If I need to give you money and I have cash in my pocket, I don’t need to know anything about you other than that you accept cash. Now, for an electronic payment or digital payment to be as ubiquitous as cash, we have to make it as easy and simple for me to know very little about you in order to pay you money.”
This article was paid for by Mastercard.