Understanding Mobile Payments in Africa: Digital Mobile Wallet, Telco led Mobile Money Wallet, USSD Payment and Direct Carrier Billing.

“Hi, Ifunanya,

Thank you for connecting with me. I have some questions, though. In Africa, does mobile money mean that the payer uses his airtime to make payment as with direct carrier billing? If it isn’t, then what is mobile money and what are the forms of mobile payment in Africa?”

I periodically get barraged by these questions, mostly upon accepting a connection request on LinkedIn and from some old contacts. It’s either from a Luis in Europe consulting for a merchant seeking to expand to Africa; or from Zhang in China seeking the best payment collection option for his intended e-commerce business in Africa; or Ope from Lagos, seeking advice for a betting company that is getting a licence to operate in Nigeria but hopes to scale across Africa. Either way, the confusion is excusable.

Although these forms of payment may seem similar to an observer, they are unique and are deployed for a specific purpose, popularity, or need.

So, what is mobile payment?

People have multiple means of getting connected, yet the mobile phone is thought of as the most convenient and easily available medium of communication. In many ways, the mobile phone has democratised financial services opportunity. Due to the ever-increasing dependence on mobile phones, different market actors have designed methods for consumers to pay conveniently through a phone.

Mobile payments refer to payment services operated under financial regulation and performed from a mobile device. This is contrary to paying with cash, cheque, or credit/debit/prepaid card. Mobile device here is either a smartphone or a feature phone.

There are two types of mobile wallet payment - digital mobile wallet and telco led mobile money wallet. A digital mobile wallet allows users to link their debit and credit card information to a device application so they can pay for goods and services from the mobile phone/device. There are over hundreds of digital mobile wallets available but Alipay, Android Pay, Apple Pay, Google Pay, Samsung Pay and WeChat are the most popular.

There are several digital wallets in Africa. In Nigeria, you can link your bank cards to Quickteller and GetBarter apps and make purchases or payments from the apps. Where Near Field Communication (NFC) is activated on the device, the app could be used to make a payment on NFC-enabled POS or draw cash from NFC-enabled card machine. This is very popular in London. The buses and tube stations accept phone payments through NFC, where commuters would formerly tap the travel card or contactless bank card.

While digital mobile wallet thrives on linking bank cards to a mobile application, the telco-led mobile money wallet thrives on creating a wallet using a mobile phone number. The service is built-into a SIM card and available to activate once you buy a line from a mobile network operator. Once activated, the mobile phone number can receive money which could be redeemed/cashed through an agent or used to pay for goods and services. For clarity, in a mobile money transaction, the mobile number/account does not receive airtime but money. Money is deposited through the bank or agent network to a mobile money account/wallet. The recipient assess services using the money in his/her mobile money account/wallet or goes to an agent to cash out. Cash out means depleting the money in a mobile money account/wallet in exchange for cash. (Got it yet? If not, please do read on. In the next series, I will provide in depth details on how mobile money works).

There are several mobile money operator and wallets in Africa. Safaricom M-Pesa and MTN mobile money stick out. Safaricom M-Pesa is the most widely cited. M-Pesa has over 37 million active customers and operates in 7 African countries.  MTN Group Mobile Money has wider coverage in Africa. MTN has over 30 million active mobile money subscribers in 14 African countries. Africa is responsible for an astonishing 45.6% of mobile money activity in the world — an estimate of at least $26.8 billion in transaction value in 2018.

Although smartphone adoption is on fast growth in *Sub-Saharan Africa, the adoption rate in 2018 was 39%. This is projected to rise to 66% by 2025.  Yet, over 90 per cent of mobile money transactions in Sub-Saharan Africa are still driven by USSD. This implies that a higher majority of mobile money users use feature phones.

Despite high mobile phone penetration, mobile internet adoption currently stands at 24% in Sub-Saharan Africa. Sub-Sahara Africa also accounts for 40% of the global population not covered by a mobile broadband network. This situation makes USSD payment technology attractive in Africa.

What is USSD? How does it relate to mobile money? Why is mobile money transaction mostly driven by USSD? Why do mobile operators utilise USSD technology?

USSD, which stands for Unstructured Supplementary Service Data, is a protocol used by the Global System for Mobile Communications (GSM) network to communicate with a service provider’s platform. (Sounds technical right? I simplified it below, please don’t tune off yet.)

Basically, USSD technology enables you to carry out transactions using short codes without the need for Internet connectivity on all phones that support the GSM standard. Most of the phones in Africa, whether smartphones or feature phones, are GSM standard compliant as users need a SIM card to be connected to a mobile network. USSD technology is basic and is supported by all GSM phones. This is contrary to the processing hardware such as Android and iOS used by smartphones.

USSD is session-based, real-time messaging communication technology accessed through a string that starts normally with an asterisk (*) and ends with a hash (#). It is implemented as an interactive menu-driven service or command service. Unlike SMS, it does not operate by store and forward; hence, data are neither stored on the mobile phone nor on the application.

Mobile operators, especially in Africa where the market is predominantly prepaid, typically use USSD for their internal applications such as balance checks, top-ups, data bundles and promotions. They also extend the use of USSD to their mobile money service. Safaricom, MTN, Airtel and Orange are examples of mobile operators in Africa.

Banks and utility companies have also leveraged the USSD technology to build mobile banking and utility management applications all across the continent. Banks use USSD in rendering financial services ranging from account opening, balance enquiry, funds transfers, generating OTP, airtime vending, and bill payment, among others.

Why USSD?

USSD is a key catalyst for expanding financial inclusion, as low-income groups with no smartphones or internet access can easily use this service. For populations excluded from the formal financial system — women, the rural poor and displaced persons — the mobile money accounts provide access to transformative services, including healthcare, education, financial services, employment, and social protection amongst others.

In Nigeria, for instance, just as most banks have mobile banking apps for their smartphone consumers, they also have USSD codes for their feature phone consumers to carry out most of the transactions done via the app. At the moment, scaling payment collection in Africa requires appealing to both types of consumers. Ultimately, the number of users of non-internet-enabled technologies or smartphones are higher because of infrastructural gap, affordability and consumer readiness (a lack of digital skills and literacy).

There are mostly five participants in the USSD ecosystem. They are Financial institutions (Banks, other financial institutions and payment service providers offering products and services using USSD protocol to their customers), Mobile Money Operators (deposit money banks or corporate entities duly licensed to provide mobile payment services to the banked and unbanked customers).Mobile Network Operators (utilise USSD to interact with and provide services to their customers),Value Added Service Providers/Aggregators (organisations licensed to engage in the provision of value added mobile/fixed services, including premium-rated services) and Customers who initiate financial transactions or sessions through a USSD string provided by their financial institutions or value added service providers.

Now that you know this, over the next series, I will be explaining how mobile money wallet/payment works and direct carrier billing in Africa.

*  What is Sub-Sahara Africa? The World Bank lists 47 of Africa’s 54 countries as “sub-Saharan,” excluding Algeria, Djibouti, Egypt, Libya, Morocco, Somalia and Tunisia.

***About: I am a strategy, business and product development professional. I'm highly passionate about Financial Technology and Digital Innovation in the African Payment Space. If you've enjoyed this piece, don't hesitate to like, leave a comment and share the article with others.