› 16th July 2015

Tech in Africa: Leapfrog or catch-up?

Before the introduction of GSM into Nigeria, landlines were few and far between while just a functional SIM card for a mobile phone reportedly cost several thousand dollars. Similarly, the Internet was the preserve of businesses, a wealthy elite and Internet cafes, the last being the haunt of the infamous scammers known as the Yahoo Boys! Fast forward to 2015 and there are over 140 million mobile phone subscribers in Nigeria with half of this number accessing the Internet on a monthly basis using those mobile devices.

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A debate has been raging for some time, about whether or not this phenomena is a result of Africa’s lack of installed fixed line infrastructure, with mobile internet adoption in Africa almost double the global rate, or whether it marks a radical shift in the way the internet of the future will be used and accessed. Equally, it raises the question of whether Africa is ‘leapfrogging’ the rest of the world from an ICT development perspective, and becoming the first continent to be mobile ‘led.’ Has the range of innovative services currently available on mobile devices come about purely as a result of necessity (being the mother of all invention) or rather through the natural resourcefulness of Africans, and Nigerians in particular?

GT Banking Touch ID

Let us consider some recent examples of the level of digital sophistication evident in Nigeria, and in Africa’s technology industry as a whole. In mid-February this year, the BBC website announced with a fanfare that RBS and Natwest would be pioneering the use of Touch ID on the Iphone, as a security enhancement for their mobile banking applications. What the BBC didn’t know is that Touch ID was already going live across mobile banking networks with some Nigerian banks incorporating the feature before UK counterparts. Perhaps even more telling, was the storm of media coverage out of Canada in May, announcing that the country’s banks were now adopting Touch ID. Three months after Africa in a nation normally considered to be at the forefront of payment technology adoption. While Africa did not originate the technology, it clearly demonstrated the ability as well as the appetite to adopt and introduce it faster than western counterparts. It also indicates a level of tech-savviness among consumers who demand the latest technology – in both hardware and software.

The ‘needs must’ argument that Mobile Banking leapfrogged or even completely bypassed the Internet Banking phase of digital financial services, is demonstrated by intelligence from our partner banks who saw their Internet Banking customer base outstripped by the Mobile channel in a matter of months. So perhaps the Nigerian banks were quicker than their African counterparts to realise the value of the mobile channel? In the USA in Q3 2013, the switch rate of Primary Banks was close to 20% among ‘Millennials’, due to Relative Mobile Banking Capabilities. I dare say this percentage has increased dramatically as the momentum towards mobile has gathered pace.

Nigeria Banking Tokens

Furthermore, Africa is not just focused on simple USSD and SMS menu based services. Within the Mobile Banking Application development space, sophisticated analytics and Two Factor Authentication security underpin a complex software development cycle that can compare to many “First World” Banking solutions: Sophisticated solutions for a sophisticated market.

Where Africa can undoubtedly claim to be ahead, is at the intersection between payments and mobile banking. What Africa lacks in access to credit through technology, it makes up with the ability to pay for everyday needs directly through the application, and that ability lies in the intersection between mobile payments and mobile banking. Across the Vanso network today, customers can buy airtime, pay for satellite television and ISP subscriptions and book and pay for their flights. That is just the tip of the iceberg, with significant new integration expected over the next 12 months.

At the moment, whether Africa is ahead, or behind, global trends really depends on the type of technology we are talking about. Africa is ahead in some areas, but in others it remains far behind, if catching up fast. The continent’s ability to maintain the pace of development will depend largely on the telco’s ability to accelerate the roll out of stable, 4G mobile internet, and the simultaneous development of a fixed line internet distribution system, similar to the one that has made BT so dominant in the UK. The revolution that has taken place in Africa over the past decade had been powered by the telecoms industry, which must continue to maintain the pace of growth.

Financiers are now beginning to take notice too, with 2015 seeing a wave of deals to fund growth across the sector. Most recently Nigerian giant Interswitch announced that it intends to list in London and Lagos, making it potentially the first Nigerian tech stock in the UK. Last year, Kenya’s Equity Bank announced the establishment of Equitel, designed to offer mobile money, telephony and data services to customers, and rival Kenya Commercial Bank has followed suit in a partnership with Safaricom as the continent’s first MVNO structures are rolled out. At the opposite end of the spectrum, a wave of startup’s funded by German fund Rocket Internet have exploded across the continent and the recent investment by private equity fund Leapfrog in AFB’s growing micro-loans business, and the the rumoured sale of Emerging Markets Payments mean the world is beginning to recognise the potential that exists in the convergence between the African financial services and telecoms markets.

Smartphones Nigeria

That potential is best qualified by looking at the penetration of smartphones across the continent of which Nigeria remains the biggest market. Penetration is estimated at about 30% currently and growing fast, driven largely by the introduction of more affordable Android devices. From our analytics we can see that our Mobile Banking apps are running on over 900 different devices! Android is overwhelmingly the dominant operating system and bestselling quad core, dual sim models such as the Infinix series of smartphones are currently retailing for under N10,000, which is around the $50 mark. Competition is fierce in this entry-level market, driven by aggressive, domestic online retailers such as Konga and Jumia and such pressure can only lead to a better deal for the smartphone hungry consumer. Given that the sub $100 smartphone was hailed as a potential tipping point for the growth of inclusive digital financial services for Africa by the likes of Bill Gates, the momentum is definitely mobile!

The short term growth story is undeniable. With a number of banks already live on advanced Vanso mobile banking applications, and others in testing phase, the demand is clear. Building on that installed base to bring new technologies in real time, if not ahead of the rest of the world is the next challenge, and its one we look forward to taking on.