Digital money in Africa

I am thinking about the financial services industry and how mobile money can and will influence the insurance sector in the next decade. But before we delve into this discussion, let’s look at the digital money available in Africa.

Mobile money, also called mobile payments, mobile money transfer and mobile wallet refer to payments made from a mobile device, such as a smartphone. Instead of paying with cash, cheque or credit cards, you can use a mobile phone to pay for services, digital or even hard goods.

Mobile payment is being embraced all over the world in different ways. In 2002, people in Uganda, Botswana and Ghana instinctively started using airtime as a substitute for money transfer. Kenyans were transferring airtime to their relatives or friends to use or resell it. This led to developing countries introducing mobile payment solutions to extend financial services to an ‘unbanked’ or ‘underbanked’ community.

A digital wallet is an electronic device that allows you to make electronic business transactions. A digital wallet can be used to purchase items on-line with a computer or smartphone and also to buy something in-store. Digital wallets were designed to not only purchase goods, but also to verify the holder\’s credentials. While this is not common practice in Africa yet, a digital-wallet could theoretically verify the age of the person who is purchasing alcohol for example. Some are speculating that these digital wallets will ultimately replace our real wallets.

Here is how it works: The digital wallet consists of a software and information component. The software is responsible for the security and encryption for personal information and the actual transaction. You interact with the wallet using the software component. Digital wallets are usually self-maintained and compatible with most e-commerce web sites. You can also link your bank account to the digital wallet. The biggest advantage of a digital wallet is that the user’s details are stored and securely sent when making a purchase. This eliminates the need of filling out forms on websites. Digital wallets are also available to consumers free of charge, and they\’re fairly easy to obtain.

The best known local mobile money service in South Africa is M-Pesa (M for mobile, pesa is Swahili for money). M-Pesa is a mobile phone-based money transfer, financing and micro-financing service. M-Pesa allows users to deposit, withdraw, transfer money and pay for goods and services, such as premiums, using a mobile device. According to Genesis Analytics, 30% of ‘economically active’ people in South Africa are still without a bank account. And the further you travel north, the more significantly this figure rises.