Why fintech companies should be allowed to lead retail innovation
About six years ago, I was at a hotel in Nairobi for a Mobile Payments conference. I had a meeting at the bar, and I noticed that there were at least eight POS machines on the counter. I asked them why there were so many? They said that each bank that comes to market them to open an account insists on giving them a POS machine. The irony of it all was that most people who came there paid with MPesa. Foreign guests mainly used the POS machines.
I realised that the same thing also happened in Nigeria as well, but it was for a different reason. In Nigeria, the merchant had multiple machines for the sake of redundancy. There were always connectivity issues and “bank-related issues”. At a hotel in Lagos, I discovered that they also had a POS machine meant only for foreign cards.
What is interesting is that while the banks in Nigeria fight for POS footprint at the storefronts of large merchants like hotels, restaurants and bars, getting one from them as a small retail business owner is a tedious process. Competing to provide the same thing to one type of customer is not innovation.
The retail use case
I wrote a thread on Twitter recently on my thoughts about South African retail payments and why mobile payments failed to gain ground there. I explained that telcos in South Africa had to adapt their distribution to the structure of existing retail chains. Retail commerce in South Africa is much more structured than the rest of Sub Saharan Africa, and advanced payments technology drives it.
The South African regulator seems to favour innovations in the retail space, and that led to significant advances. There is usually so much that is possible for you to do at a retail location on one POS machine. With that kind of infrastructure and technology, telco mobile payments stood no chance.
South African banks are also much more forward-thinking than their counterparts in other parts of Africa. They support 3rd-party payments initiatives, and in some cases, they have very close equity partnerships with the transactions companies. MTN Mobile Money started out as a collaboration with a bank.
That collaboration between banks and fintech continues to happen is in spite of the South African regulator allowing banks to open low KYC (know your customer) requirement customer accounts. I believe that mobile money didn’t succeed there not just because the banks were strong but that technology supporting retail payments was stronger.
In other parts of sub-Saharan Africa where telco payments prevailed, the telcos had first to become the infrastructure that supports most of the retail commerce before they thrived on high adoption as a consequence of being the ubiquitous option.
My hypothesis has always been that retail merchants drive payment mechanism adoption and customer acceptance much faster than any other strategy. This theory has been proven consistently in several markets. Even in the bar with eight POS machines, the bartender still had to choose her favourite. Payments technology must make the merchant’s life more comfortable before the merchant can help to drive adoption. Just having payment options is no longer enough, it must provide the merchant with more value.
It is interesting that when people talk about financial inclusion, the focus is always on the customer and not the merchants or agents. The reason why people make money is to be able to transact with it. The places where they transact easily have a lot more impact on the choices people make.
The future of Nigerian retail payments
There is absolutely no doubt that technology will continue to play an active role in the evolution of retail commerce globally. Innovations will continue to happen and sometimes with it being in unprecedented directions. While Amazon is taking the contactless and frictionless payments experience to a new level with “Amazon Go”, Stripe is moving from being strictly an online payments company to providing “point of sales” hardware to customers who are bridging the divide between online and physical retail.
In Africa, innovation will continue to happen faster with the right regulatory environment. South African regulators seem to be more progressive than their other African counterparts, but there is hope that the others will catch up. The Central Bank of Nigeria recently published new rules on penalising banks for transaction delays and errors. Enforcing efficiency is a welcome development as it will mean more investment in technology. What is required, however, is more innovation. The rules need to be more relaxed to allow other technology players like fintech companies into the retail payments space. The current structure is too rigid and does not allow room for new ideas.
If you look at the last ten years of African payments, the most significant advances have happened in places where the regulator was more relaxed with the rules and allowed technological innovation to occur. The regulators must also play their role of protecting the consumers from fraud and exploitation, but it is also essential for the consumer to have the best possible experiences available. The retail experience remains the best gateway, and the rest of the world seems to be leaving us behind.