As we witness the era of mobile payments take shape, the thing that strikes me is the fact that mobile payments is poised to take off in the developing world more so than the so called developed world. M-Pesa’s success is case in point. It succeeded in Kenya, a sub-saharan country that for the most past even lacks basic infrastructure. And now, it has become the poster child for mobile payments.
So, why is it easier to mobile payments in whatever form, to take root more so than the western world. There are many reasons and I’ll try to enumerate a few…
1) Lack of infrastructure is a boon –
- Most of the countries in the developing world still lack basic infrastructure. Be that good roads, nationwide IT, good banking systems (financial inclusion is still limited in developing nations), lack of communication infrastructure etc. Let’s look at communication – Many countries had a centralized communication infrastructure, meaning it was managed by the central/federal government typically under the auspices of the Ministry of Communication (or its equivalent). It was primarily land-line based and the penetration rate was poor. Due to limited capacity of the telecom network, usage of the infrastructure was rationed and therefore not everyone had access. While some countries experienced telecom revolutions where access to communication become more affordable, there were others that lagged behind.
- The mobile revolution was amazing in that it allowed for an infrastructure build out that was independent of the centralized infrastructure.
- As more handsets were put into the hands of folks who never would have had a chance to own a telephone under the centralized system, the demand grew even more.
- Long story short, the intersection points between the legacy land-line system and mobile carriers were few and far between. There were no legacy issues for the most part.
2) Pent up demand – In most developing countries, the demand for affordable services is very high. Some of the reasons are obvious –
- Lack of basic services in the first place.
- Corruption/graft and lack of government oversight – Frustrations with lack of good programs that allow for ‘inclusion’.
- Migrant labor – As more people leave villages and towns to cities in search of better jobs, they bring stories about the various amenities in cities that their home towns/villages lack.
- Television/Media/Movies – The vast reach of media in its various forms fuels the desire to, at the very least have basic amenities. Despite poverty, research has indicated that people are willing to pay nominal amounts for services.
3) Propensity for cash transactions –
- In the context of mobile payments, this fact is playing out real well. Cash is central to economic transactions in most parts of the world, more so in the developing nations than in developed nations.
- Cash transactions fueled preference for pre-paid and in many countries more than 95% of the subscribers are pre-paid.
4) Pre-paid have several characteristics that make it more favorable for adoption in the context of mobile payments.
- Flexible – Allows subscribers to load their account with denominations that are convenient to them (micro-payments).
- Pay as you Go.
- Not captive to one provider – Gives subscribers choice. If they don’t like the service, theycan switch.
- Allows for sharing the phone – While phones are very affordable now, many still don’t have a phone. In the context of the mobile-wallet, folks who don’t have a phone can send money to their family or vice-versa using phones that are not theirs (meaning a friend or even the agent can help).
Net-net, these factors and more allow for an environment that is ripe for mobile-payments/wallets etc. It is just a matter of bringing the right product to the market and executing well.