This week's episode, Follow the Money, digs into the mobile payments value chain, to better understand how it works, and how we can realize our dreams of a cashless ecosystem. 

Implicit in this episode is the idea that the ultimate goal is to create digital economies - and that digital payments is a crucial element of financial inclusion.

Every country seems to be on some sort of digitization or cashless journey. But in today's newsletter, let's play devil's advocate.

I want to start with two anecdotes.

First - a few years back, I went to the Discovery Leadership Conference in Johannesburg. The event was kicked off by Discovery's CEO, Adrian Gore, who talked about progress. South Africans suffer from severe declinism, but Gore cited statistics that demonstrated, objectively and quantitatively, the recent progress that South Africa has experienced when you zoom out.

And yet, South Africa is (still) the most unequal when measured by the Gini Coefficient. How should we think about progress in the context of such severe inequality?

Second - I am currently in Accra and I spent some time on Saturday touring the city. We walked around the Old Accra districts of Jamestown and Usshertown before some shopping in the bustling Makola Market.

Everything is what is defined as "informal". And in these environments, one can't help but look around and wonder how and when payments are going to be digitized here.

According to the GSMA's State of the Industry Report on Mobile Money 2021, more cash is coming into the mobile money ecosystem than is being taken out, and 11% of the $23 billion of mobile money in circulation, globally, is now merchant payments.

This is a significant increase from 2019, perhaps induced further by COVID-19.

The value of mobile money merchant payments grew by 43 per cent, compared to 28 per cent in 2019. This has resulted in over $2.3 billion transacted per month on average in 2020. Meanwhile, the number of merchant payments increased by 15 per cent in the same period.

So things are objectively and quantitatively moving in the desired direction. But in Makola Market, I don't think 11% of merchants accept digital payments. Nor do customers want to transact digitally, especially when the payments are GH₵1 or less ($0.17 USD or less). How should we think about this progress - and digitization as an objective - in the context of the realities on the ground?

"Stop saying you want to bank the unbanked" Yaya Fanusie wrote in Forbes earlier this year. While topline metrics might be growing, are they inclusive of those at the very bottom of the pyramid?

If the goal is to build cashless economies, merchant payments play a huge role. But even if its share of transactions increasing, it's not yet cheaper nor faster than cash.

The Center for Financial Inclusion conducted a survey¹ of micro-merchants to better understand the barriers to adoption of digital payments. The primary culprits were overall convenience of cash and weak aggregate customer demand.

Simply put, both merchants and consumers prefer cash.

This week's episode features Tosin Eniolorunda, the CEO of TeamApt, whose MoniePoint agency banking network in Nigeria is 100,000 agents and growing. Agent networks are still growing, and TeamApt is eying expansion throughout the region to bring their service to even more countries.

As of July, TeamApt is processing $3.5 billion per month and processed $17.5 billion in the prior twelve months. For context, Flutterwave has processed "$9 billion to date"², according to a press release from April. Tosin said,

It's an indication of what the informal market looks like. Nigeria is currently offline. And the opportunity right now is how to grow with Nigeria, to go from offline to online.

To help bring Nigeria online, TeamApt launched Monnify, a payment gateway serving its MoniePoint agents, enabling them to more easily fund their merchant accounts through bulk transfers. And their explicit goal is to introduce more digital financial services to their 12 to 14 million customers and become a full-fledged digital bank.

While digital payments volumes will continue to grow, the growth of agents will inevitably flatten out, as seen in markets like Brazil, as networks reach even the hardest to reach areas of the country. And TeamApt is evolving itself to be there with new products and services as its customers' behaviors evolve too.

But Brazil is on a 20-plus year financial inclusion journey, having first introduced branchless banking regulation in 2000. By 2010, it had the largest agent network in the world, with approximately 11 agents per 1,000 people, which is roughly the same number as Nigeria has today, according to the World Bank. For context, Kenya has 579 agents per 1,000 people (and Kenya still hasn't figured out merchant payments yet).

So even if it's safe to say digital payments are the future, the big, unanswered question is still when. And it will be longer still for the many other markets with even less infrastructure than Nigeria. As ever, the opportunity and the imperative is to bring consumers along on the journey, meeting them where they are at every step of the way.

And trips to markets like Makola are an important reminder (for me, at least) of what payments and commerce look like for most Africans on the continent.

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✌️ Justin

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