Inside Africa’s mobile money boom
Mobile money – using a phone to transfer and store money without a bank account – is huge in Africa, accounting for as much as two thirds of global exchanges in the sector. According to Nikolai Barnwell, CEO of tech startup pawaPay, as much as half a trillion USD flows through the mobile money market in sub-Saharan Africa each year, where there are an estimated 300 million active monthly users. We spoke to Nikolai about what pawaPay does and how it will change the mobile money landscape on the continent, especially for global companies with pan-African ambitions.
Africa is a continent with more than a billion people, most of whom are poorly connected to traditional banking infrastructure. Except for certain countries like South Africa and Nigeria, most people in other countries do not have bank accounts and almost nobody has a credit card. However, almost all of those “unbanked” people have mobile phones and they operate in a digital world via the internet.
Mobile money was developed in response to this: telecommunication companies decided to simply bypass the banks and develop their own systems to transfer money securely using mobile phones. People in rural areas no longer had to travel long distances to make or access payments, money could be sent from anywhere in the world, and fees for transfers were low or non-existent. The benefits have been tremendous: Research out of Kenya reports that access to mobile money has improved household consumption per capita and savings, leading to a reduced poverty rate.
“Mobile money has been gaining momentum in the last three to five years – it can’t be ignored,” says Nikolai. “In East Africa where it began, everyone has an account and you can pay for anything using mobile money, from your taxes to an avocado on the street to internet and airtime. A third of people with mobile money wallets get their salaries paid into those wallets. It’s fast becoming the primary financial instrument in the region.”
How does pawaPay fit in?
“Each telco company has its own ecosystem and its own mobile money wallet format,” Nikolai explains. “pawaPay’s goal is to connect all the telcos on the continent – to build payment rails and make it easy for companies to interact. If you’re a large pan-African company and you want to accept payments in 15 different countries, you simply have to adopt mobile money. Typically, you’d have to integrate with each individual telco and maintain those integrations. We’ve collapsed them all into a single API that allows global merchants to tap into that alternative financial infrastructure.”
Nikolai is Danish and studied briefly in the US before moving to Kenya in 2009 where he linked up with another Danish entrepreneur, Kresten Buch, the founder of tech incubator 88mph. After working on various projects for the better part of a decade, including the online sports betting company betPawa, he joined pawaPay, which was split out into a standalone company in 2020. As Nikolai says: “We saw what problems could be solved with mobile money; what kind of power mobile money has on the continent. On one hand, we want to make it easier for people in Africa to receive money – the amount remitted from people working abroad is massive. We also want to help people make money: Say you’re a talented graphic designer in Cameroon, for example, and you want to be paid for your services on a global platform like 99designs… At the moment it’s very hard to accept global payments without a bank account or credit card. We also want to attract global companies – the likes of Google, Facebook, Uber… These companies need to take payments, and if you need to take payments in Africa, you have to use mobile money.”
What are the challenges?
Nikolai admits that the number-one issue for pawaPay is navigating all the different regulations in each of the countries it plans to operate in. Africa is made up of 54 countries, after all, and each of them has a unique compliance and legislative framework.
“We spend at least 60-70% of our energy figuring out how to solve this puzzle,” Nikolai says. “But at the same time, it’s a great opportunity because it means we’re paving a runway for the entire continent. Our plan is to be operational in 10 countries by the end of the year. It has been a long process and we’ve worked hard with local partners and by engaging directly with regulators.”
The adoption of mobile money has a strong trendline that is almost identical in each country where the system is implemented. “Kenya was the first, followed by Tanzania and Uganda,” Nikolai says. “Adoption in those countries is nearly ubiquitous – two thirds of the GPD runs through the mobile money system. A bit further behind you have Zambia, Ghana, Senegal, Ivory Coast and Cameroon. These countries might have started later, but the growth and adoption trendline is exactly the same as in East Africa.
“In the beginning, people are very wary of using mobile money. Someone will go to an agent, put cash on his phone and do a peer-to-peer transaction. The receiver will immediately go to another agent and draw the cash. Later, people become more comfortable with keeping the money in their mobile money account – they know it’s safe and secure on their phone. That’s the tipping point – when more money is coming in than going out. Merchants start realising there’s cash to tap into, and the ecosystem grows. There are so many positive feedback loops that just spiral out.
“Right now there are about 600 million registered mobile money wallets on the continent and about 300 million active monthly users. It’s not a fringe thing. When you compare mobile money to any other mass financial access product, it’s very obvious that this is the direction that the finserve industry in sub-Saharan Africa is moving.”
Listen to our interview with Nikolai Barnwell in Episode 12 of the Invest Africa podcast: How a Tech Startup is Writing Africa’s Mobile Money Future