While there has been much hype around the mobile payment revolution in various informal markets in Africa and elsewhere, the reality is that these are still cash-based markets. In fact, cash still accounts for over 85% of consumer transactions globally. Another key and often overlooked feature of many informal markets is the high number of small cash transactions that are being conducted on a daily basis. This is simply because many people can only afford to pay in small amounts – especially when paying for necessities such as prepaid airtime, prepaid electricity and insurance policies/premiums.
Indeed, this is one of the primary reasons why the scratch card method of payment for prepaid airtime is so prevalent in many informal markets. Scratch cards enable consumers and vendors to trade these small cash amounts quickly and efficiently.
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Yet despite the ubiquity of this simple mechanism, both consumers and vendors still lack similarly quick and effective methods of payment when it comes to other things such as prepaid electricity or funeral policies, for example. In most instances, consumers still have to make the long trip to a centralised payment office or kiosk to pay. This costs them time and money. And for the insurance company or business receiving these often haphazard and late payments, keeping accurate records and adequately servicing customers is a massive challenge.
In short, there still isn’t an efficient method of payment and distribution for this class of goods in informal markets. We have termed this class of goods ‘Fast Moving Virtual Goods’ – which essentially signifies a store of value that is recorded on a voucher/card and encoded on a remote electronic account. By way of example, a prepaid electricity voucher would fall into the FMVG category. It can be traded quickly, in small amounts, using virtual mechanisms that allow both the consumer and merchant to track every transaction.
Given the nature of these informal markets, and taking into account their explosive growth (Africa is home to several of the world’s fastest growing economies), these types of small but frequent transactions will only increase. For vendors and businesses looking to harness the growth of these markets, they would do well to find a means of tapping into the booming trade of FMVGs. These goods are not only integral to the daily lives of millions of people and communities, but the category will undoubtedly only widen as virtual payment mechanisms and platforms become even more advanced and accurate.
As service providers who specialise in building tools that enable the vast amount of cash payments being made daily in informal markets, we believe that by facilitating the seamless trade of FMVGs, not only will consumers benefit but vendors and businesses can diversify their offerings and enjoy greater scale. And for companies or startups that have lacked the means to leverage the rich opportunities inherent in these informal markets, FMVGs present a pathway for businesses to access large networks of vendors on the ground. Without doubt, this growing category of goods is quietly fuelling informal markets, and represents an untapped opportunity for businesses looking to access new and dynamic markets.
