I was in the room when M-Pesa was first launched. As we sat in that conference room in a Nairobi hotel, few of us had any idea that this new baby would eventually grow so fast and so big.
When M-Pesa was first launched that day in late 2006, it was designed as a micro-finance product. It was designed to enable the vast number of Africa’s unbanked population – about 80% of them – to access banking services on their mobile devices.
Later on, after a few successful runs involving employees and others, Safaricom decided to scale up M-Pesa in 2007. M-Pesa, a mobile money service that has revolutionized money transfer, banking and bill payment in Kenya, is also available in a number of other African countries. It has now also spread its wings to include Afghanistan.
Mobile Payments – Huge Growth in Developing Countries
These are the thoughts that came to me as I read the latest World Payments Report 2014 produced by Capgemini Australia. The report makes for insightful reading into the state of global payments. Generally speaking, developing markets including most of Africa, Emerging Asia, Latin America, Central Europe and the Middle East have continued to show strong growth in the use of mobile payments.
In 2012, over a quarter of all global non-cash payments including such technologies as M-Pesa were done in developing countries. In numbers, the volumes stand at $85.2 billion, an average growth rate of close to 20% since 2008. With strong growth expected in developing countries, the report predicts that these economies would have surpassed more mature markets by 2021 in cashless payment.
Move Toward Cashless Payment
Globally there is a strong move toward cashless payment. For example in Sweden, banks are progressively stopping cash payments. One bank, Nordea Bank has designated 200 out of 300 of its branches as cashless, meaning that they have stopped accepting and paying out in cash.
However other countries such as Canada, Belgium, Ireland, Slovenia and Greece have seen marginal to moderate decrease in cashless payment. This decline is attributable to the poor economic conditions especially in countries such as Greece and Ireland.
A taskforce to review payment systems in Canada published its report in March 2012. The task force urged that a transition to a digital economy was “critical for Canada.” It also added that such a transition would require the collaboration and cooperation among all stakeholders for it to succeed.
E-Payment and M-Payment Converging
As per the numbers it would appear that e-payment and m-payment are converging. E-payment registered a decline in 2013, even as m-payment increased by 60.8% in growth that is expected to continue through 2015.
The report mentions the increasing role of Bitcoin. It describes Bitcoin, prepaid retail cards, prepaid mobile wallets, payment aggregators and worker remittances as the “hidden, or unreported payments instruments and solutions.” The report shows that these forms of payment are going to feed increasingly into the non-cash transaction statistics. Currently, the problem has had to do with a lack of clarity in reporting standards, something that previous reports have highlighted.
Bitcoin, Growth and Regulation
More specifically to Bitcoin, the report quotes Forbes, which estimates that 2012, Bitcoin was being used for an average of 35,000 transactions. In 2013, the average transactions per day climbed to 60,000, an impressive growth rate of more that 70%. Regulation on virtual currency is still evolving globally, and various tax regimes such as the IRS in the US and the ATO in Australia regard Bitcoin as property for tax purposes.
Other jurisdictions such as Brazil have developed more progressive regulation. Brazilian Law No 12,865 has created the possibility for the normalization of mobile payment systems and the creation of electronic currencies. Such laws, if replicated around the world, are likely to spread and grow the use of Bitcoin globally.
Required Initiatives for Sustaining Growth
Overall, it is expected that the volume of non-cash transactions will experience growth over the next few years. To enable growth, there are key regulatory and private sector initiatives that will have to be implemented to ensure the transformation remains sustainable. One of the initiatives is risk reduction. Risk reduction will include protection against money laundering and terrorist funding, EMV adoption in the US, mobile payments security, and the implementation of Basel III capital norms. The second initiative is standardization which will include implementation of SEPA, data privacy and payments, real-time retail payments and tokenization for cards. Thirdly, initiatives will have to be made in payments governance.
The last initiative focuses on the role of technology. The initiatives will include the use of NFC, mobile payments, e-Invoicing and e-Government. It is in this last initiative that Bitcoin and other virtual currencies are likely to play a much more visible role. The convergence of technology and finance that is currently ongoing and deepening will eventually and hopefully inform the development of commonsense regulations that will lead to growth in the use of currencies such as the Bitcoin.
Images from Wikimedia Commons and Shutterstock.