What lies ahead: Online mobile payments and Africa’s small merchants

I’ve been pondering small business, payments and incentives quite a bit recently. Partly because of the web startups I’ve been seeing crop up locally, partly due to the inefficiencies in the system, and also because I’m a bit of a merchant at heart.

Specifically, I think that small business in Africa will bring a major wave of activity in the online space. That some smart startups will take advantage of mobiles and the internet, and will be beneficiaries of this growth. We’re all quite impressed with the peer-to-peer mobile money growth on the continent, but such numbers pale in comparison to what can be done with high penetration of active merchant payment options.

The African Payments Picture

A recent post about Square (the merchant payment system for iOS devices) and the use of its services by small businesses started me thinking beyond the mobile peer-to-peer payments we’re so focused on here in Kenya and more in the direction of the merchant side.

Right now Square moves US$4-million per day, a healthy business, but not a massive amount compared to the big guys in the field. Most merchants in the US and Europe default to having some type of credit card or bank card payment setup for customers, it’s almost a given.

Meanwhile, in Africa it’s a different story. Mobile payments have taken front stage due to the lack of credit/debit card penetration. In short, Africa lacks payment options, so innovative ways to use what they do have (phones) have pushed payment innovation forward.

While the mobile operators have been busy diversifying their revenue streams and figuring out new ways to hook in their subscribers with mobile money, the banks haven’t been nearly as active. Many of them would rather just create a mobile way to check your balance, rather than provide a tool with truly meaningful interaction, something you could pass money through to merchants or your contacts. Instead of offering something of equal, or better, value they’ve instead chosen to try and block the operators’ movements.

As I’ve suggested many times, we need an agnostic system, where the user isn’t penalised for their choice of mobile operator or bank.

New Ideas

While the big players continue to fight it out, the small players are innovating where they can. Mobile payment aggregators, such as PesaPal are beginning to see success as their web options catch on with merchants, schools and events. Meanwhile, groups like Kopo Kopo are going further down the stack, providing a subscription-based mobile payments processing package for SMEs.

New startups like Niko Hapa are creating locally-relevant incentive systems for merchants that works with everyday customers. Others, like M-Order, are creating simplified mobile and web-based ordering systems for customers to order services and products. MIH-backed Dealfish and Ringier-backed Rupu and Pigia continue to duke it out against each other across sub-saharan Africa, getting small merchants to list their goods on their marketplace.

What I’m pointing out is that we have a wave of new products and services specifically aimed at merchants. Most of them are small and don’t have critical mass, but that is changing rapidly. These are just the first movers.

A Hybrid Solution

What if a company were to create a simple (for customers) payment system that solved the problem that Square is solving? That is, a way to get your hands on a solution easily, without oversized transaction fees, and which also worked within the local context of mobile payments plus credit cards.I can imagine someone coming up with an device that works on most phones. Probably Android phones here instead of iOS devices.

That way, as a merchant I can buy an US$80 IDEOS Android phone, get one of these swiping devices, that also has a chip in it for near-field communication payments and which seamlessly works with Mpesa and other mobile payment options.

It’s simplified, and it works across not just a country, but across the continent.

Image: Author