Payments revolution? Forget Apple – watch Africa

Chaplin: look to Africa, not Apple

As the global payments industry transforms to take advantage of new technologies, some services offer the prospect of real change, but others are simply hype. Telling the difference will be the key to success in the next five years, according to speakers at the HPS PowerCard conference in Marrakesh last week.

“People don’t care about getting 10 cents off their next Starbucks,” said John Chaplin, chairman at Helios Investment Partners. “I have yet to see anything that works better than a card in face to face transactions. Here in Africa, payments innovation is not just about mobile money, it’s about the way lending is done and deposits are handled. We are seeing some fantastic innovation and that is feeding back into the rest of the world.”

Chaplin is the founder of an organisation called the Global Payments Innovation Jury, which has been meeting biannually since 2007. The non-profit organisation consists of a panel of 40 judges, all of them serving chief executives at financial services companies. They pool their experiences to work out the trends affecting the payments industry and attempt to sift through what is hype and what is significant.

According to the Jury’s 2015 report, the most innovative region in payments at the moment is Asia, followed by Africa. Europe falls into last place, while North and South America are in the middle. Chaplin believes that part of the reason for these scores is that much of the innovation being generated in North America consists of “solutions in search of a problem which doesn’t exist”, and are therefore not particularly relevant to the rest of the world.

“If you try to make a P2P payment in the US you will wait many days – it just doesn’t work efficiently in many places,” said John Chaplin, chairman at Helios Investment Partners. “What we really need is an efficient real-time payment system.”

Despite praising the card in face to face transactions, Chaplin did accept that virtual money and mobile accounts are better than physical cards in terms of the cost of providing the service, since virtual accounts are “almost free” to create. However, he warned that providing digital accounts to unbanked consumers would take more than simply repackaging existing bank offerings such as a plastic card-based service and porting it over into the digital world.

“You need to really embrace what digital can do,” he said. While many financial institutions are focusing on reaching the unbanked and spreading financial inclusion, the industry might also do well to look again at cross-border remittances, he added. “Despite all the innovations in remittances, they are still expensive and slow. Yet newer, low price challengers like World Remit and others are starting to chew away at the most profitable business areas of older players such as Western Union.”

Disintermediation has been discussed a lot in recent years, but new entrants can sometimes be as much a danger to each other as the existing financial system. The challenges of getting it right were highlighted by the 18 different mobile money operators that exist in Nigeria alone. According to Chaplin, “none of them are making money” – in fact, there are only five mobile money providers worldwide that make a profit, he later told Banking Technology. The only way these providers can thrive would be through interoperability, since at present there are simply too many players to be profitable when each is duplicating the same infrastructure.

Some players may stand to gain and others lose, according to the Jury’s report. For example, it highlighted alternatives to Visa or MasterCard, such as domestic payment schemes where available, which can in some cases process transactions at a quarter of the cost of the international card schemes. For example, in Ghana the Ghana Inter-Bank Bank Payment System is a domestic processor that was sert up to encourage consumers and businesses to keep their funds in the Ghanaian banking system rather than having it abroad. Part of the impetus for that scheme is the concept of ensuring customers do not have to pay using cash, which is seen as a relatively expensive way of making payments for the country.

“We are migrating all domestic transactions to electronic payment,” said Archie Hesse, chief executive at Ghipps Ghana. “If you compare cash to cards, it’s very expensive. The government pays a huge amount of money for currency, and because of the brand on the cards, they also pay to the international providers – even individuals are burdened. The international card schemes are about five times the cost of the domestic scheme. For us, it’s a no-brainer to encourage the use of our domestic scheme.”

Much of the emphasis of the report was on telling the difference between hype generated by developments such as Bitcoin, and on technologies or services that can make a significant difference to banks and consumers. For example, the Jury’s survey found that 85% of respondents felt that crypto-currencies are not a serious alternative to fiat currencies backed by central banks.

“For me, the fact that only 13% think it will happen in the next five years raises big questions about whether it will ever happen,” said Chaplin. “It’s unregulated, and it will have to become regulated for it to work – but once it is regulated, that takes away a lot of the appeal. The fact that some regulators see it as the work of Satan is also a problem.”

Instead, he suggested, the Blockchain concept behind Bitcoin will be the most significant development to come out of the whole story, because it provides a distributed ledger that can be useful to banks. Commonwealth Bank of Australia recently signed up to Ripple, which uses blockchain technology.

However, the most over-hyped area in global payments by a large margin is Apple Pay, according to the report. “There is a huge gap between what is being claimed for Apple Pay and what it can actually deliver. It’s not that fundamental. It’s not bad, it can do interesting things, but don’t be swayed by people claiming it is the most important thing ever to happen in the history of payments. It isn’t.”