Singapore played host for the World Smart Cities Summit and it was time for Mastercard to demonstrate its footprint for cities that want to become smarter.
A ‘smart city’ is an urban region that is highly advanced in terms of overall infrastructure, sustainable real estate, communications and market viability. It is a city where information technology is the principal infrastructure and the basis for providing essential services to residents.
Africa.com spoke to the Senior Vice President for Market Insights, Sarah Quinlan, about Mastercard’s vision in Africa, where people spend their money and why Africans in the informal economy need to digitise. Quinlan is known for her expertise in dissecting data and drawing insights that will help businesses grow. The candid interview reveals Africa’s secret weapon in growing their economies.
Your talk centred around data, what data have you collected from Africa and what do you see coming out of Africa that interests Mastercard?
I think the most important thing to recognise is that Africa is driven by small business, and the headlines come out for the big exporters and the other parts of the economy, but frankly it is a small business economy and it’s something we do well. We focus in on and we want to support that economy because we know that small business drives economic growth. And I will give you an example from a big market to understand how we are applying it in a small market.
In the US the first two months of the year, the government reported that spending dropped, actually that was completely inaccurate. Consumer spending grew robustly for the first two months of the year because what they missed, when the big retailers do their survey, is that 37% of spending in the US is now in businesses with 10m or less in annual sales, and it’s growing in double digit rates. Because the consumer wants to be known and wants to be unique and the really important insight out of that, is that they are willing to pay for that.
If you go to a small business they can’t volume discount like a very large retailer can. The same thing holds true in Africa, why does a small business still exist if there is a big retailer down the road? Because they have that relationship, shopping is social, it fulfills a utilitarian need, but we do it in person because we want that relationship. Especially nowadays when we are mostly behind computers during the day, and Africa is no different from anywhere else in the world with this, and this is why we feel so strongly about the continent.
What differentiates Africa versus the rest of the world? You have a young population and you should be so happy about that. The rest of us are going to have a real problem. We forgot to have kids (that’s what I say). The interesting thing about it, is that you have this young, up and coming group of people who want to participate in the economy and this is the case where we can communicate with the people who are already mobile literate.
This is why we work in conjunction with the governments down in Africa for them to really understand (not from a sense of a foundation or a charity) how to fundamentally support the small businesses there that are starting out. That is where we work with financial institutions there, because this is where becoming digital as an economy is critical. It creates that initial transparency that everybody can see i.e. a farmer can demonstrate how they buy their seeds, planted it, harvested and delivered the crops etc.
In a non-digital environment the time that it takes to physically demonstrate all of that wipes out the profit. One of the things that people don’t recognise or a drawback of digitisation is that pricing is transparent, so that extra margin that used to be there because people didn’t know is now gone. We know that even in Africa the margins are tight and this is the other case for digitisation, because we know markets are tight we need to accelerate the velocity of that transaction so that the business can be sped up so that it can make enough profit for everyone. And that’s really the important things that we think about.
How will Mastercard tap into the informal economy in Africa?
It’s a very challenging part of the economy…
This has to be done in an educational way that shows them why this is good for you and why as a part of society we are going to advance into the formal economy, this is the important thing we are looking at, that is why we critically partner with governments, financial institutions and with informal financial institutions (like the fintechs of the world) as well as the merchants.
We have that whole circle and we try to get everyone together and play as a catalyst, to show them that they are all part of making this work (this is why when someone wants to start a payment system, we tell them that it took the industry 50 years to get the trust needed to get people on board, that just does not occur, it takes time because you will never become part of the world economy unless you become formal.)
We are asked about blockchain technology and we say we have more than 30 patents in this space; it’s something we believe that will continue to add on, not replace existing financial systems. The difference in the currencies (Bitcoin etc.) is a different issue; there is no central bank in the world that agrees that it is a formal currency, because there is no transparency. We have worked years to get rid of money laundering around the world and every country has signed on to anti money laundering requirements.
Mastercard will not do any sign-ons that will pull us back with the partners that we have already made. I want Africa and the developing world to take this next step, there is a lot of developed world that is still informal and that’s the part of the economy that’s held back the most (because they have no way to prove that they sold a certain amount per month).
Cash is king in business, what are the sectors that we can see easily convert to Mastercard’s vision of cashless transactions?
We initially worked on debit cards and what we saw was that people would immediately withdraw cash, but what we did was get people to use their phones as cash management tools to track the cash they spend, and this helps them realise their spending habits. And this is where we work with our financial institution partners on the education efforts to really recognise the difference between saving and spending and really understanding that cash spends faster than digital, we have a much better awareness of how we are spending when its digital.
And this is where we work with our financial institution partners on the education efforts to really recognise the difference between saving and spending and really understanding that cash spends faster than digital, we have a much better awareness of how we are spending when it’s digital.
We work with merchants to help them understand that they don’t have access to credit if they do everything in cash they will not be able to grow their businesses fast. We are trying to educate them on the importance of speed in growing businesses and this is where digitisation is key. We know that e-commerce will never be the most dominant way of how people spend (the hype around e-commerce is bigger than the reality) there is no country that has made more than 15% of their total retail sales online. But is a digital space that a merchant misses out on if they are not digital.
One of the things that we do know is that 82% of people in the world use a mobile device while they are in the store, not because they are comparing price instead they are comparing options and curating (does this dress come in red?) We are educating merchants that in order to become an omni-channel business and reach the consumer on all touch points they have to become digital. It won’t happen overnight however those people who adopt that technology faster will grow their business faster and have a larger chance of being successful versus their competitors who are not.
And finally, with regards to the trends of where people spend their money, in Africa where should businesses be looking?
We are experiential spenders and Africans are no different. It’s really about how do we spend time with the people that we love and care about, and it one of the most sustainable things that Africa can continue to develop, is that service side of the business where we actually see inflation, where people will pay more for it than they will for goods.
So it’s sustainable as a business model by continuing to develop the things that enhance people’s experiences of what they want to do in social gatherings and places together. Also recognising that over time Africa will continue to evolve towards more urban areas because people don’t want that distance of commuting away from their children and their families. The services that support that kind of lifestyle (as Africans become wealthier and no longer want to do certain activities) where we will be outsourcing things that we don’t want to spend our time on.Those are the businesses where people can continue to grow and grow with the economy’s growth.