When futuristic Hollywood sci-fi films and rapid rotations of iPhone models constantly influx our reality, it’s not hard for an average human living in the 21st century to imagine a future where the cash system has become passé. Imagine going to dinner with friends and instead of fumbling through the wallet for the right amount of dollar bills or collecting a tray full of seven credit cards, a simple few swipes on the phone will do the trick. It’s the future of mobile money.
Well, that has become the reality of sub-Saharan Africa, one of the earliest mobile money adopters in the world. Since 2012, mobile money– aka. digital payments – are emerging as the leading finance system in over ten African countries like Kenya, Tanzania, and Ghana. Launched in 2007, M-Pesa, a phone-based money transfer service developed by Safaricom, Kenya’s major telecommunication firm, has transformed day-to-day payments, moved money from mattress to virtual account, and brought millions into the formal banking system. The continent that still struggles to provide clean water, electricity, and basic infrastructure to the majority of its population has beaten Silicon Valley in embracing digital transactions.
There are a lot of reasons that can account for the explosion of mobile money in Africa. From the moment cellphones entered the mass market around the early 2000s, mobile phones have become ubiquitous in Africa as the continent skipped over the landline. A vast majority of phones were the basic $25 models, and all apps work via SMS with a wide reach, creating the potential market for virtual transactions. In Kenya, nearly all households owned a mobile phone. Yet, what wasn’t ubiquitous is a highly accessible banking system. Kenya had one ATM for every 18,000 people – comparatively, the number was one for every 740 in the U.S.– and more than 75 percent of the sub-Saharan African adult population had no bank accounts as of 2011, the year when M-Pesa started to ascend to popularity. Mobile money provided life-changing alternatives to countries that poorly manage the flow of cash.
Before mobile money, money transfers had been a problem in countries like Kenya. Despite a growing number of city workers who wish to send money to families and relatives in the rural area, the methods to do so remain limited, unsatisfactory, and often delayed. People could buy a money transfer at a bank, which takes multiple days to process and requires the recipient to travel to the nearest town to retrieve it, or press an envelope of cash to a friend or a bus driver who happens to be heading home. Often, the money either didn’t reach the recipient, or it was less than the intended amount. For millions of informal-sector workers who have no checking or savings account, no credit card, money transfers were difficult, and the cash economy tended to lock people in poverty.
The genesis of mobile money changed the game. Platforms like M-Pesa, Orange Money, MTN Mobile Money, EcoCash, Tigo Cash altered the way Africans interact with each other economically, granting access and opportunities to rural communities that were often under-developed. For a small fee, mobile money could be sent to any other phone number in the same network, and people could easily withdraw the digital balance in cash from a local agent. Instead of face-to-face interactions, payments and collections of debts turned virtual as daylong queues to pay utility bills disappeared. As of 2012, 86 percent of Kenya’s mobile phone owners used some form of mobile money. In 2013, daily transactions on M-Pesa amounted to approximately $35 million, making up more than a quarter of Kenya’s GDP. Access to M-Pesa not only created robust consumptions that stimulated the economy, it also lifted 194,000 households, around 2 percent of the country, out of poverty. Before mobile money, the rural populations who didn’t live near banks lacked credit histories and collateral to own bank accounts. M-Pesa brought millions into the formal banking system by introducing an alternative called M-Shwari, a bank that offers basic saving accounts and allows the users to earn credits by, for example, paying the water bill on time.
Mobile money is pushing countries like Kenya forward by providing a public safety net and pushing female financial independence. Since the M-Pesa was first introduced, it has been the public’s emergency cushion. When disasters happen, if a child needs medicine or a car breaks down, people can reach out for help anywhere in Kenya through the platform. M-Pesa also encourages female independence. According to a recent study, it improved the lives of many female-headed households, helping women graduate from subsistence agriculture to small businesses. Having an M-Pesa account gives a woman agency to control her finances, rather than depending on her husband or parents. In the long run, mobile money might be the key to a modern Africa.
By facilitating commerce and introducing millions of people into the formal banking system, mobile money transforms Africa’s major payment venues onto digital platforms and pulls rural areas out of poverty. In a continent used to making do with little, African countries embrace mobile money as a radical leap of faith into the future. And it may be working out just fine.