The future of the digital financial system
Author and commentator Chris Skinner sees Africa as one of the most exciting regions for fintech development. He believes that the scope for using mobile technologies on the continent is enormous.
Speaking at an event in Cape Town hosted by AlphaCode, Skinner said that mobile fintech presents the opportunity to build entirely new financial ecosystems. This is most likely to happen in emerging economies, and Africa has the opportunity to learn from what has happened in China already.
“Legacy economies built everything in the industrial era in the last century and applied technology to it,” said Skinner. “But somewhere like China is very different”.
As this economy is emerging in the digital era, an entire ecosystem is being built without legacy systems and legacy thinking.
“Chinese mobile transactions topped $15 trillion last year, compared to a measly $150 billion in the USA,” said Skinner.
In many parts of China, credit cards are effectively obsolete. Merchants only accept cash or mobile payments using QR codes.
“Alipay is not the same as anything from the West,” said Skinner. “Basically it began as an escrow service so that buyers and sellers could trust each other, using the Alibaba platform, and it moved very quickly”.
“They are now building their fifth generation systems,” he added. “The fourth generation system supports 125 000 transactions per second on average. The new generation is to support 1 million transactions per second”.
This, Skinner suggests is a model that developing economies in Africa may follow.
“I've been coming to Africa for quite a few years now and every time I come I see something that is far more innovative,” Skinner said. “I see markets moving into mobile wallets and mobile services, reaching the unbanked and underbanked”.
This, he believes, is one of the most exciting aspects of mobile technology.
“The digital financial systems and platforms include everyone and process transactions no matter how small or big, for almost nothing,” said Skinner. “I can process a dollar transaction for the same price as a billion dollar transaction because it’s just a file transfer through an API”.
Dave Glass the co-founder and MD of Electrum says that while mobile's potential is unquestionable, there is, however, unlikely to be a universal solution.
“Just because everyone has a phone now, doesn't mean that everyone wants to bank through a phone,” he points out. “Mobile point of sale in South Africa has not been such a big thing. We have SnapScan, which is a big success story, but it’s unclear to me if that's a very viable business model for the banks”.
Glass notes that while all the local banks are looking at mobile payments, none have followed Standard Bank's lead in a significant way.
“If it was cut and dried everyone would be piling in,” he notes.
There are however other local solutions that have proved extremely popular, such as the Shoprite Money Transfer service.
“A lot of consumers aren't comfortable making transactions on their phones,” Glass says. “Even though Shoprite Money Transfer is very technology enabled, for the last mile to the consumer there is no technology at all. It's someone talking to someone over a counter”.
This indicates that it's not just about the technology, but its relevance in any specific context.
“EcoCash in Zimbabwe is really big because the problem in Zimbabwe is that there isn't enough cash around,” Glass says. “So you're pushed into a corner”.
Tshepo Moloi, the founder of Stokfella, says that his solution would not be possible without mobile, but while the potential for greater use of the technology in Africa is undeniable, entrepreneurs have to be aware that markets can be very different.
“Mobile is particularly effective in parts of Africa where infrastructure has lagged,” Moloi points out. “Where infrastructure is quite good, though, mobile payment tends to not do very well. One example is South Africa”.
The opportunity is, therefore, greatest where mobile is able to bring large numbers of new consumers into the financial sector.
“Suddenly, everybody's got access, everybody is able to change their lives, because they can trade, transact and talk globally, one-to-one, in real time,” Skinner said. “Everyone can get a mobile money service that's safe and secure”.
“It's not just mobile payments,” Skinner added. “It's moving into full financial service through the mobile telephone system. What we'll end up with is the ability to do micro-insurance, micro-loans, micro-investments, micro-savings, micro-payments in real time, globally, across borders, one-to-one, for almost nothing. And that means you can do macro-investments, macro-savings, macro-payments in the same way. That's what I think is the vision of the future of the digital financial system. It's radically different to the traditional one”.