The main talk of mobile payments is in reaching the unbanked, as if they are a market just waiting to become banked, and the reason they don’t use a bank is a lack of access to them, or some kind of fear of ATM cards.

Surely the issue here is not one of regulatory frameworks or technology, which seems to be what everyone thinks is the issues holding back the adoption of mobile payments and banking, instead it’s the core question for any business, why? Why should a customer use the system, what is the benefit to them?

More than 90% of Nigerian’s population is unbanked, a huge number, but equally Nigeria only currently has 59 million mobile subscribers which even if you optimistically presume that is 1 phone per person is  just 50% of the population, also don’t forget that 50% or more of Nigeria’s population is under the age of 16 so doesn’t need a bank account yet anyway. 

So the mythical unbanked population that is left, which as we’ve proved just isn’t as large as most people think (typical top down not bottom up business model assumptions) have to have a reason to use mobile payments. In effect they have to have a reason to put their money with a mobile payment provider. For someone who currently lives on cash, they earn cash (perhaps through trading, retail etc), and then exchange that on a daily basis for items such as food, transport etc.

So there needs to be a driver to make people move to mobile payments, to move away from cash to something else. People talk about the movement in recent years in Nigeria to ATM usage, but people forget that the key area that this has changed behaviour in is how people withdraw cash, most people still use cash rather than ATM cards for making actual transactions, staff are still paid by cash or cheque, food is still brought in cash, fuel is paid for in cash, dashes are made in cash. 

M-Pesa, the great m-payment example of Kenya worked because it was about transferring cash in an environment where there was no alternative to move money from one part of the country to the other. It was a simplified version of buying a safaricomm scratch card for credit and sending that code to someone else who would then exchange it for money with someone else. There was a a clear driver for people to use it, and it worked out cheaper for them as well.

There has therefore clearly been no real driver for a movement to cashless transactions (of which m-payments are just one type) for the general populous, in fact when I wanted to buy a television I had to buy it in cash because the shop didn’t accept my type of ATM card, and most people thought I was strange to want to buy it on a card.

We are seeing this issue with our own mobile payment system and our demonstration product of betting by mobile. Uptake has been significantly lower than expected for a number of reasons, but I think one of them is that we have not been able to prove a benefit to users to place bets themselves rather than using a betting shop. Their question is that if they must charge their account, buying a recharge card / top-up card then why can’t they just place their bet at the same time? 

People are further stopped by the cost of making mobile payments, the networks always require payment, they are lets face it greedy. They want a huge percentage of a premium SMS (60% plus) meaning that you can’t use this as a payment channel. So instead you must take a percentage of any transaction if you want to use SMS, on top of this transaction cost there is the cost to the user of sending an SMS, which for most unbanked low income individuals is significant (how many drivers, gatekeepers and even lower income individuals have no credit on their phones).

So at the moment a transaction made using a mobile payment is:
1) More complicated than a cash transaction (particularly for less aware low income individuals)
2) More expensive than a cash transaction

So the two main benefits of using technology, that is makes it cheaper and makes it simpler aren’t there.

So what’s the real challenge? It is to find a solution and process that uses technology to make things simpler and cheaper for the end user, not more complicated. It’s as simple as that, but as with most simple things its simple to say but not simple to execute.

The problem is that cash is simple and it is cheap, the cost of handling cash here in Nigeria is not significant as it is in developed worlds (where banks will charge more to handle cash than electronic payments) so there is no reason for a merchant to reduce costs for an individual paying with mobile payments.