Collaborative Innovation Driving Financial Inclusion in Africa

“Africa is the next frontier,” says Raghu Malhotra, Mastercard’s Middle East and Africa President. Speaking to Africa.com at the recent Mastercard Innovation Forum in Budapest, Hungary, Malhotra says that in emerging markets you don’t have the same infrastructure (as more developed markets). That’s not necessarily a bad thing, as it creates the opportunities for innovation.

We’ve already seen examples of this innovation continent. Take Kenya for example where M-Pesa, a mobile money wallet service that was started nearly a decade ago, has changed the way citizens make and receive payments. It later spread to other parts of the continent, with mobile money transactions in Sub-Saharan Africa reportedly hitting over $650 million in 2014, and is set to double to $1.3 billion by 2020.

Kenya was included in the recently released Mastercard Impact of Innovation Study, along with South Africa and Egypt, among 23 countries surveyed. In both Kenya and South Africa, 95% of respondents use their smartphone as their primary device, with the preference for mobile payments at 87% in the East African country.

Despite the high rate of adoption in some parts, globally more than 2 billion people still don’t have access to formal accounts, be it via mobile or otherwise. A recent McKinsey report put the emerging economies count at 45 percent of adults without access, in sub-Saharan Africa it’s up to 66 percent.

It’s a subject Daniel Monehin, who drives Mastercard’s financial inclusion efforts, is very passionate about.

His vision is to move Africa beyond cash.

Collaboration, he says, is key, highlighting  Zimbabwe’s EcoCash, a mobile payment solution that allows customers to complete simple financial transactions such as money transfers and bill payments with their mobile phone. He says it’s the second most successful mobile wallet after Kenya’s M-Pesa. “We worked with Ecocash and Steward Bank to create the first in Mastercard where a physical debit card is linked to a mobile mobile. We’re not competing with the mobile wallet, we’re actually complimenting the financial services, and expanding it.” They expect to see up to 3 million cards being rolled out in the country over the next 3-5 years.

Driving conversion to digital payment is not without challenges, particularly in Africa where cash remains king. This is commonplace in informal markets on the continent. “Consumer education is critical; it is critical to have that. But even before it happens, that’s where the success or failure of the solution is determined. At the point it is being designed, at the point where it is being developed is to ensure that that solution meets Mastercard’s vision, which says everyday, everywhere, we use our technology and expertise to make payment safe, simple and smart.

There are many other examples of collaborations that have seen more people in Africa gaining access to financial services through innovative technology.

Malhotra recently signed a Memorandum of Understanding with Rwanda that would see Mastercard spending up to $1 million over the next few years in various initiatives, including a partnership with the Bank of Kigali and RwandaOnline on the government-drive online payment gateway, Irembo, that allows everything from paying your utility bill, to applying for a visa. “It’s a government that has great policy. It has a government that has intent, from what we can see. They are making economic progress, they are trying to include large parts of the population into the financial world. What they lack today is infrastructure from a technology stand point, products and services. Our partnership with them is all about that.” Inclusive growth, he adds, comes from government, private, public, and other international companies coming together to participate in those value chains. “Africa will lead that, just because of where it stands today,” says Molhotra.

The potential impact of these kind of partnerships across the continent, and in other emerging economies, is substantial. It could raise the level of GDP of emerging economies by 6%, or $3.7 trillion, by 2025 according to the according to McKinsey’s Digital Finance for All report.

“Digital finance could give 1.6 billion individuals access to a financial account for the first time, 45 percent of whom would come from the poorest two quintiles of the income distribution. More than half of the total – 880 million – would be women… Digital payments create an electronic record of sales and expenses, enabling businesses to improve their tracking and analysis of cash flow, streamline management of suppliers, and enhance their understanding of operations and customers… Digital finance offers significant benefits – and a huge new business opportunity – to providers. By improving efficiency, the shift to digital payments from cash could save them $400 billion annually in direct costs.”

That potential, coupled with Mastercard’s Impact of Innovation study finding that African consumers are hungry for more digital services and have a positive attitude towards digitilisation and its impact on society, puts the continent on the right path to greater financial inclusion.

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