How Mobile Money is Disrupting Africa

When you think about disruptive technologies, Uber, AirBnB, Netflix, the iPhone, and IoT come to mind. These technologies have forever reshaped the tech landscape, forcing us to rethink how we interact with our personal devices and the world around us.

While disruptive technologies are often thought about as occurring in developed nations, where the media is trained to tout even the most insignificant development as a matter of course, we rarely learn about truly disruptive technologies taking place elsewhere – especially if these technologies and developments occur in less developed nations.

The whole concept of a ‘disruptive technology,’ is attributable to Clayton Christensen, the Harvard professor who coined the expression. It refers to innovation which creates new markets or value networks and eventually disrupts or displaces established market leaders, existing markets and value networks.

As quiet is kept, Africa is a hotbed of disruptive technologies and the rest of the world is actually struggling to keep pace.

Case in point: mobile money.

Africa has been leading the mobile payments movement for the past few years driven by the sheer proliferation of mobile devices on the continent. Unlike most developed nations, where bank branches and ATMs are readily accessible, Africa is still struggling to provide adequate banking institutions and electronic banking machines for it’s population. Mobile money in Africa sprang from the need to enable people to perform monetary transactions in the absence of a reliable banking infrastructure.

One of the most recognized mobile money or mobile payment solutions in Africa is M-Pesa. M-Pesa is “branchless banking”, which enables it’s users to take advantage of mobile phone based money transfer, financing and micro-financing services. Launched in 2007 by Vodafone for Safaricom and Vodacom in Kenya and Tanzania, M-Pesa provided its users with a safe reliable way to complete transactions, without the associated risks – to one’s actual personal safety.

M-Pesa lets users deposit money into an account stored on their mobile phone, send balances using PIN-secured SMS text messages to vendors, family members and friends, and redeem mobile deposits for cash. M-Pesa users pay a tier-based fee per transaction, and can deposit and withdraw money from a wide network of agents including airtime resellers and retail outlets acting as banking agents.

What makes M-Pesa such a disruptive technology is the fact that it enables money transfer more quickly and efficiently than any of the West’s current branch-based banking models.

An article in The Atlantic noted that when M-Pesa launched in Kenya, the experience was “life-changing.” Overnight, millions of people, who were formerly constrained to cash transactions only, were able to pay their bills, send and receive and save money virtually. More importantly, the infrastructure supporting this capability, was secure and reliable – something critical to it’s success and expansion almost a decade later.

While many note that M-Pesa and it’s progeny are not bound by typical banking rules and regulations, this nuance opens up the world of possibilities for other telecom operators and financial institutions who cite M-Pesa as a revolutionary way to approach traditional problems that uniquely impact African transactions. Nigeria’s Paga ewallet is one such example. Paga allows users to send money, pay bills, purchase airtime and deposit money into any bank account, marrying technologically forward mobile money movement, with traditional brick-and-mortar deposit capabilities. Nigeria has also begun using biometric technology for identity verification, and layering payment technology on top of this.

M-Pesa’s success has been so significant (contributing to about a quarter of Kenya’s GDP according to one 2014 report) that other countries have started to take note. Countless imitations have sprung up in other parts of Africa, seeking to capitalize on M-Pesa’s unquestioned stickiness with the masses. But the impact of M-Pesa extends beyond the continent. Western financial institutions have started to take note.

Although America and Europe have had credit cards, digital payment systems, mobile banking and e-wallets like PayPal and Google Wallet for years, the sophistication of their mobile money systems lag far behind Africa’s innovative approaches to enabling monetary transactions. Using a standard mobile banking app or website, you can check your account balance, make a deposit, and in some instances pay bills. But few banking apps or mobile sites allow you to send or receive funds from other app or mobile site users directly. Nor can you make purchases or pay vendors directly from a banking app or site. PayPal has only recently implemented a service allowing users to pay vendors using PayPal at the point of service.

This disruption is significant because traditional payment operators, Visa, MasterCard and American Express, don’t have the foothold in Africa that they have in other more developed countries, and this is forcing them to rethink their approach to breaking into the African money market. M-Pesa works because Africans are used to dealing in cash, and mobile money lets them still control their money, without interest rates, credit checks, and an unnecessary piece of plastic.

M-Pesa is just one example of the myriad of disruptive technologies being developed in Africa. There are countless incubators, entrepreneurs and universities, investing in leveraging technology to solve problem unique to Africa – solutions which will have wide application outside of the continent. Who knows what the next technological innovation will look like? Chances are, it will come from Africa.