Glenbrook’s own Elizabeth McQuerry and Joanna Wisniecka just returned from spending a couple of weeks in Kenya leading training on inclusive payments systems. 

While in the country, they got to play end-users of digital payments and experimented with M-PESA’s mobile money e-wallet. You may have been following their payments adventure on Glenbrook’s LinkedIn page. 

Listen in to hear more about their experiences, some quick insights into other learnings from Kenya, and what fast payments developments they are seeing on the continent.

 

Yvette Bohanan:
Welcome to Payments on Fire. I’m Yvette Bohanan, one of the partners here at Glenbrook, and I am a co-host of Payments on Fire along with George Peabody. Today, we are doing a special edition of Fanning the Flames, and I’m super excited because with me are Elizabeth McQuerry and Joanna Wisniecka. Welcome to this episode of Fanning the Flames. Welcome to you both.

Joanna Wisniecka:
Thank you, Yvette

Elizabeth McQuerry:
Fun to be here, Yvette.

Yvette Bohanan:
I always love talking with you, and I have to say, not just welcome to this episode, but welcome home. You have been on a big journey and just came back and that’s why you’re here. You’ve both been over to Africa, specifically to Kenya, and doing some work for some clients. But you were taking this opportunity to be feet on the street and get hands on and get your fingernails a little dirty with payments, and be payments geeks, and see what’s going on over there. So, I’m very excited that you’re here to share with everyone, all of our listeners, what you observed, what you saw. And let’s start with the basics, if you will, not everyone’s familiar with Kenya and what goes on with payments in Kenya, but there is quite a bit happening. So maybe you could take a step back and talk a little bit about the landscape, and the payment systems that are at play there in general, before we dive in.

Elizabeth McQuerry:
Well, I’ll take that one, Yvette, if that’s okay. Definitely it’s a little bit like asking, “What’s going on in the US?” Because there’s so much, right? It’s a very vibrant and varied landscape. We’ve got the central bank, of course, doing the real-time gross settlement between the banks. We’ve got multiple payments switches, three, if I’m not mistaken. We’ve got, of course, a vibrant fintech ecosystem with all sorts of players, and payments, and credit. We’ve got, obviously, the banks connected to the different payment switches and offering, of course, competitive services. Really, the big story would always be what’s happening with mobile money, e-money issuance, and telco money as some people say. Of course, they’re not telcos when they become mobile money operators, it’s a different license, but of that relationship with a carrier. And wow, there are multiple players, but in M-Pesa is the story.

Yvette Bohanan:
Okay. Let’s unpack that just for a second. You have the real-time growth settlement system, that’s not a big surprise, most countries have that, it’s important. And then you said there are three switches, which is a little surprising. Are they all the same? Are they all doing the same thing, serving the same purpose? Or are they sort of special purpose? Why three?

Elizabeth McQuerry:
Well, it’s how the market grew up. You find multiple switches throughout, I say, the major Africa economies. They serve the banks, they provide value-added services, they switch between the other switches and financial institutions. Sometimes they provide their own payment system, in a way. For example, you may have other things related to how banks can offer wallet accounts, as opposed to a traditional bank account. And then, we also have one of the switches, IPSL, offering instant payments between their clients, the banks, currently.

Yvette Bohanan:
All right. So, different purposes, different evolutions. And of course, M-Pesa has been the case study for mobile money, mobile wallets for many years. And I guess it’s still very much alive and thriving?

Elizabeth McQuerry:
More so than ever more.

Yvette Bohanan:
More so than ever. Well, I guess that’s a good thing. What did you observe about M-Pesa?

Joanna Wisniecka:
And I’ll take this one. For me, it was just such a treat that I was like a kid in a candy store, I guess in a payment store. When I first started getting into financial inclusion and following this space, M-Pesa was the case study. The articles kept popping up, and so it was just really cool to be able to actually be on the ground and play with it. It was launched in 2007 in Kenya, it’s expanded quite a lot on the continent since then. It’s in South Africa, Ghana, Tanzania, some other countries as well. It’s got a huge footprint in Kenya and, again, across the continent. The latest numbers I was reading was that there are more than 50 million users on the continent. Most of those, more than 30 million, are in Kenya. That’s a big number.

Joanna Wisniecka:
And it continues to grow. And the latest growth seems to be largely from the merchant side, so consumer to business payments. And we certainly got to see that and experience that. Really anywhere you go, any shop, gas station, you’ll see these till numbers, which are really a register number for that shop, and different ways that you can pay. But you pull out your mobile phone, whether it’s a feature or a smartphone, you put in that till number, you put in your info, like a PIN as you would with a bank account, and you make the payment to the merchant. And it was fun for us then to interact with the merchants and ask them to show us their own confirmation on their phone, that they immediately got the payment.

Joanna Wisniecka:
So, we got to test out a couple of those, the consumer to merchant payments. We also got to test out a P2P, or a person to person, transfer. That’s like our Venmo here would be one example. It’s interesting with P2P because it’s not just for, or at least it’s not being used just for purposes of moving money from an individual to an individual. It is for that, but we had a fun experience of buying corn, or maize, from a vendor in the outskirts of Nairobi. And he didn’t have a merchant till number specifically, but we said, “Well, we don’t have cash. We want our maize snack. Can we just pay you to your M-Pesa account?” And so, we made a P2P transfer.

Joanna Wisniecka:
So, P2P C2, C2B, M-Pesa also supports a lot of government payments. So, as an individual you can pay for various government services, taxes, drivers license, and other services too. There are global elements, so either through M-Pesa accounts or their partnerships with money transfer services, you can make cross-border payments as well. So, it has a massive market share in the country. It really is just hugely ingrained in day to day lives of people.

Yvette Bohanan:
So, this plays a huge role across Africa. I think when we were prepping for this conversation, the Global Findex 2021 report that was published by the World Bank states that Sub-Saharan Africa in 2021 has 33% of the adults with mobile money accounts, which is the largest share of any region in the world. And three times larger than the average of 10% across different countries. Why is that? What is going on here that other countries should be paying attention to? Or other providers should be paying attention to? And are there, apart from M-Pesa, anything going on in other countries that really jumps out? Because we talk about M-Pesa quite a bit, there’s a lot on there about that, but not so much about other alternatives in this space.

Elizabeth McQuerry:
Yeah, that’s an excellent question. I think there’s a couple of levels to that, Yvette, that there are mobile money providers, e-money issuers in many other countries in Africa. M-Pesa is also there in many of those countries, but we have Airtel, we have MTN, both very important players. And it varies a lot by the specific country. And even in M-Pesa hasn’t done well in every country they’ve tried to go into. South Africa is, even on the continent, a place where you would logically think, given the success in nearby Kenya, that M-Pesa might do well. But that’s not the case, and I think they also have not done well in places like, didn’t they try to go into Romania?

Joanna Wisniecka:
I think, and India as well, and did not do well.

Elizabeth McQuerry:
Yeah. So, a lot of unique circumstances, and I think the banking sector was not offering digital options to Kenyans. And around a series of, I think, challenging events M-Pesa really filled a void and started to just basically become how people pay. And this ecosystem has really built out around it, 15 years, and it’s synonymous with paying in Kenya, is maybe us saying, “Do you take Visa or MasterCard?” It is a payment network and full ecosystem in every way.

Elizabeth McQuerry:
But in other countries, nothing as, shall I say, elaborate volume-wise as in Kenya, but many other countries have very healthy mobile money, e-money ecosystems, relative to the time and the market, Tanzania. And even the central bank is putting in a new payments switch there that will be used by both the financial institutions, whether they’re commercial banks or e-money issuers. So, they’ll be in this interoperability switch, effectively. There won’t be the bilaterals for these type of exchanges. But we still see other models, like in Ghana, very vibrant ecosystem where there is a mobile money interoperability switch. But Joanna, correct me here, but I think when they connect to the bank, it’s still separate? Or do they do that in a specific way?

Joanna Wisniecka:
Yeah, there are ways to connect. They’ve basically tried to connect the card system with the interbank system with mobile money interoperability. Mobile money is still the way to go for payments cards. They tried to come up with a card that was more like a wallet, really. And that didn’t go as well for a number of reasons, which probably can use its its own Payments on Fire episode. Mobile money is still the winner there.

Elizabeth McQuerry:
Yeah. And of course, MTN, in general, does very well in Nigeria. And they have now a payment bank, just like in the India model, Airtel, MTN, and one other telco have a payment bank in Nigeria that serves a similar purpose here.

Elizabeth McQuerry:
One of the things that is, I think, interesting is this notion of the wallet. Joanna just talked about this for a second, but these wallets, they have often very finite value limits, which are relative to the economy as well as the regulatory environment there. So, I don’t know what it is, but our PayPal accounts are wallets, effectively. And they have limits of what you can transact, how much you can hold, and it’s a very similar concept.

Elizabeth McQuerry:
But in Kenya we were learning from our driver who we’ve used over time, and have a sense of his financial relationships. And I said, “Are you still maintaining a bank account?” on this visit. And he said, “Yeah, I have three of them. And I have really no use for any of them anymore because I can get small credits, actually through M-Pesa and their relationships. It’s actually easier.” And he went through the details about why it’s much easier than going through a bank. And was asking him, “Well, what about holding your funds?” Because he’s a small business owner, I imagine that he needs to have a business account where he can have more money than consumer wallet would hold. And he said, “Oh yeah, and now we have these ways where we can store,” they call them pockets of money, that basically it’s a savings account, in effect. And you can access that savings account when you want to pay something that is larger than your wallet allows you to hold, the value.

Yvette Bohanan:
And who’s holding that? Is it a bank that’s holding your pocket money, if you will? Or is it the carrier with their-

Elizabeth McQuerry:
The pockets, yeah. In many cases, and our driver’s case. And you are always having your funds held at a commercial financial institution, so a bank. And the telco e-money issuers, they also hold the funds from your basic account at a bank. They don’t have their own reserve accounts or deposit accounts to hold them at. It’s a trust.

Yvette Bohanan:
It’s a trust. So, that’s an interesting relationship, that ecosystem. It makes you wonder where things are headed. First of all, there’s always this notion of financial inclusion. You’re touching on that with the driver, and with the person selling maize, and how people can interact and make a sale. If you roll back time 50 years, and there was no M-Pesa, and you were trying to buy that snack from that vendor and you didn’t have cash on you, there would’ve been no sale. So, you wouldn’t have got your snack, and wouldn’t have gotten their money. But do you see cash being used? Do you see cards being used? Or is it all mostly these e-money accounts?

Elizabeth McQuerry:
Well, I’ll this jump in Joanna, we saw all of that. We were traveling through, you know, different areas of the country. We had a couple of short drives and you can always pay with M-Pesa. Outside of the city, you probably cannot always pay with a card in the shops on the side of the road. But of course, we were also staying in hotels. They take both, and most of those hotel rooms, if you stay a couple of nights, obviously, it might exceed your M-Pesa balance. So, you have to go into your wallet, or your pockets of money to have enough to pay the hotel bill.

Joanna Wisniecka:
Yeah, I think that’s right. And as far as cash, we certainly did see some of that. But I would say, on balance, I saw more M-Pesa. There were definitely situations where M-Pesa may not work. This is maybe a funny example, but as we were driving from between Nairobi and another location, you actually see these vendors selling the maize snacks as cars are driving by. There’s quite a bit of traffic, so you’re not going super fast. They’ll actually run along the car, and if you wave them down and say, “I want my snack,” they’ll run along the car and do the transactions through the window. So, cash is probably still the most effective way to pay in that situation. But I would say I saw M-Pesa more frequently.

Elizabeth McQuerry:
Yeah, I think we might have had a visibility sample there, we were looking also for that.

Joanna Wisniecka:
Oh, for sure.

Elizabeth McQuerry:
And let’s also put it in some other perspective, that M-Pesa is not free just because it’s digital. And if you’re very poor, you have to think about how you’re going to pay. Because that payment probably has a cost. So, when we paid for the three ears of corn, that was probably $1.20-ish, depending on the exchange rate for the three ears. And it was five or six cents for me to transfer that money to the person. It wasn’t a merchant at that point. I was just making a P2P transfer. And, if you’re poor, that’s 5%, more or less. So, that’s why cash is often considered cheaper, and it still hangs on.

Joanna Wisniecka:
For sure. I think there was also a complexity in the pricing structure for M-Pesa. We saw whole tariffs that show how much you pay, which some of that complexity can be a turnoff or can be intimidating, who are potentially less comfortable with financial literacy and digital literacy. So, there’s that component as well.

Yvette Bohanan:
Oh, you had mentioned the South African Development Community, COMESA, some of these initiatives by banks and government coming together. There’s also the Pan African efforts. Are they trying to address some of the economics here for people to get more adoption? Is that why they’re still very engaged in trying to come up with this? Or do they have other objectives?

Joanna Wisniecka:
Yeah, maybe shifting a little bit to the cross-border space, there are still inefficiencies and challenges in the space to resolve, cost being one of them. You see headlines all the time that African continent is still the most expensive one to send money to and from, probably to is more common. And so, the focus of these cross-border multi-country payment system integrations is to look at how you can make these payments lower cost, in particular in the corridors that are most active from trade. How can you make these payments more transparent, make them faster? That’s of course a key key goal. We’re seeing domestic fast payments popping up everywhere. These are efforts to think about, how can we integrate them? And that’s happening not just on the African continent, but we see quite a bit there. SADC, as you mentioned, Yvette, is one example, that’s the South African Development Community, that-

Elizabeth McQuerry:
Southern African, right, Joanna?

Joanna Wisniecka:
Southern African, yep.

Joanna Wisniecka:
And the RTGS system has been for has been around for a little bit, the SADC TCIB is what we’ve been focused on most recently, that’s the instant payment effort. And they’re live, we’re watching to see how much volume they’ll have. It’s still early stages. COMESA is another example of early stage multi-country integration, that one is still in development. I think, just notable that both of these are designed to include not just banks, but non-bank institutions to participate. That’s key. Everything that we’ve just talked about, M-Pesa is a non-bank institution or organization. And so, they’re focused on how you can integrate these non-banks and mobile money operators into the system to enable better cross-border.

Joanna Wisniecka:
There are other efforts that are less focused on mobile money. Buna is one that’s more focused on the Arab region, Northern African countries. That, at least initially, is intended to be focused on bank participants only. PAPS is another one, very much still in development, we’re hearing quite a bit about it, but not quite yet generating volume. And maybe on that point, for me, there’s a lot of overlap between these efforts, right? So, some countries, Kenya for example, participates in a couple of them. And so, my question, and something I’ll be paying attention to is how will they scale? And without scale, you’re not going to achieve those desired outcomes. So that’s an interesting thing to watch.

Yvette Bohanan:
Elizabeth, any final thoughts? I think you might have had something you wanted to interject before I ask that last question.

Elizabeth McQuerry:
Yeah, Joanna already covered, Africa is a very vibrant payments landscape. If you think we have a lot going on, or it’s super interesting, imagine on the steroids of 50-some countries in the continent of Africa. And of course, just like here in the US, every country is unique with its regulations and how payments are meeting the needs of people and how people want to pay. But it shows us that maybe there are alternatives or limits to how we thought that payments would disseminate through the world, and that there are multiple models. And that’s really interesting, and super fascinating to watch and to see how all this adopts, and adapts, I guess is a better word, in each ecosystem.

Yvette Bohanan:
Yeah. I remember when M-Pesa launched and took off originally, everyone thought, “Well, this will be the way people pay across the continent.” And there were so many factors that just said, “Hmm, not so much.” Very successful, and definitely a role model for one way to do it. But as you’re saying, and as we often say at Glenbrook, every country, every consumer, every generation are going to have their own proclivities as to how they want to manage their money and pay. And you see it playing out here as well.

Elizabeth McQuerry:
Absolutely.

Yvette Bohanan:
Cool. Well, thank you for sharing. I think you have some very cool posts that we’ve put up on LinkedIn on our web homepage there. If people want to see some stop action photography [inaudible 00:24:35] making some of these transactions, definitely check that out. And I am-

Elizabeth McQuerry:
Wait a minute, Yvette, are you challenging me to do a TikTok?

Yvette Bohanan:
Oh yeah, absolutely.

Joanna Wisniecka:
I want to see that. Yes, I support that.

Yvette Bohanan:
I would totally be in to see that. Yeah, absolutely. And definitely I’m looking forward to some more, maybe we’ll dive into a couple of these switches at some point on a show and talk about the systemically important stuff, and where you see that heading with instant payments. That sounds like a big factor here as well.

Elizabeth McQuerry:
Yeah, that would be an interesting discussion.

Joanna Wisniecka:
And maybe I’ll just throw in just one last thing on all this exciting stuff going on on the continent, and specifically instant inclusive payments. What I’m really love seeing, and am also paying close attention to, is the collaboration that’s happening across the continent. There are organizations now, one that we’re interacting with is AfricaNenda. There are others that are certainly focused on financial inclusion, but that are bringing a new focus on collaboration and looking at the continent from a broader, cohesive perspective, in particular in driving instant inclusive payments. So we’ll see where that’s going, it’s a new organization and doing some cool stuff.

Yvette Bohanan:
Yeah, that level of cooperation is not easy to achieve. You look at the EU and they work very hard to get a scheme set up with regional interoperability. And that coordination and that buy-in is tough. So, good luck, AfricaNenda, and all the organizations out there. We hope you’re successful, because that could be good for everyone. But that’s a long road.

Yvette Bohanan:
Cool, all right. Well, Elizabeth, Joanna, thank you so much. It’s always delightful to catch up with you. Glad you’re back home safe and sound, and looking forward to your next adventure and talking to you about it.

Joanna Wisniecka:
Thanks, Yvette.

Elizabeth McQuerry:
Thank you.