Out of Africa: Why NFC will fail and simplicity will be the winner
Despite the much publicized consumerization of IT and the growing domination of mobile in the online world, progress with mobile payments always seems pretty slow. Sure, we see high growth numbers but from a low user base. The sight of someone actually using a mobile device at a till is an exception, like seeing an electric car plugged in at the curb. Everyone in the industry is well aware that the exception is East Africa. Yet collectively, we seem determined to prove that this is a product of circumstances and cannot be repeated in the developed world.
It is true that Kenya, Tanzania and so on are in different stages of economic development and financial sophistication from say, Western Europe. But I believe that ignoring the lessons of outstanding success and persisting with complex, costly and unproven options goes against all sense. After all, if Telesom with Zaad can garner over a million users in Somaliland, surely with a bit of common sense we can achieve growth in the U.K. or Germany.
There are many dimensions to consider but let me focus on just three areas where the consensus thinking seems way off target.
M-Pesa and its imitators are most valued by the financially excluded who make up the bulk of the population in most of Africa: In the West, only a small proportion of people don’t have access to a bank account, so logic says such a product would not work here. The reality is that many sections of society are very poorly served by traditional banks. If you live in the U.K., the unceasing stream of publicity about the payday loan industry should demonstrate this clearly. The problem is that mobile payment solutions currently are aimed at young affluent consumers, not at the large population that is suffering real pain. Remember, lesson one for any startup: identify a real-world pain to solve.
African mobile payment systems work well because societies are cash dependent: In fact, the majority of payment transactions by volume in virtually every country are made in cash, including places like the U.S. where card transactions are supposed to dominate. NFC and similar products are designed to replace credit cards. Often, the business case is built around managing the entire cost chain within the boundaries of the current costs charged by card networks, banks and merchant aggregators. Why not skip the incumbents and aim at the cash sector?
Things will take off once NFC chips become common in phones and especially when the iPhone has the technology: Read any of the current material about Apple's plans for mobile payments and you will see no mention of NFC. I suspect Tim Cook and his team have concluded the benefits are not worth the costs in terms of space, power and design compromise. Meanwhile in Africa tens of millions of consumers are using mobile payments effectively with basic SMS-based systems. Design something that addresses a real-world pain and works with simple, well understood and widely available technology.
Mobile has already brought tremendous benefits to societies and economies around the globe. Mobile payments can be a platform for unlocking tremendous further gains in areas like social inclusion, health and welfare. Forget about a technology-driven approach and concentrate on simple, user-friendly solutions, exactly what the mobile ecosystem does best.
Kenny Fraser A Non Executive Director, board level advisor and mentor with over 20 years experience in mobile and digital strategy. Helping startups and established business take advantage of mobile and digital technologies. Until recently, an equity partner in PwC operating in the UK and internationally. www