Electronic payments in Africa: Paul Edwards took pay-TV and mobile phones to Africa. Now it’s e-payments

Electronic payments in Africa: Paul Edwards took pay-TV and mobile phones to Africa. Now it’s e-payments

Sep 14th 2013 | JOHANNESBURG |From the print edition

“CONTENTED people don’t innovate,” says Paul Edwards, the boss of Emerging Markets Payments (EMP), a firm that provides the switches and wiring for electronic payments in Africa. Mr Edwards is certainly the restless type. In the early 1990s he was boss of Multichoice, a South African pay-TV firm, which expanded into the rest of Africa. A few years later he ran MTN, Africa’s largest mobile-phone firm. EMP is his third big venture in Africa. Its goal is to bring electronic-payment services to a largely unbanked continent.Only 15-20% of Africans have bank accounts but 60-70% have mobile phones, says Mr Edwards. Mobile-phone credits are already used as a means of settling bills. A quarter of Kenya’s GNP flows through M-PESA, the country’s mobile-money service. The gap in penetration between banking and mobile telephony is a gauge of the latent demand for electronic-payment services, he says. Most transactions in Africa are settled in cash but over time more consumers are likely to opt for the safety and convenience of e-payments. EMP is building systems to ensure that such transactions flow smoothly.

Mr Edwards likes to make bets where he sees pent-up demand. He took pay-TV into Africa on a hunch that even poor folk would pay for an alternative to state broadcasters. His boldest gamble was in 2001 when MTN paid $285m for a mobile-phone licence in Nigeria, a notoriously tricky place to do business. The country then had just a few hundred thousand fixed-line telephones. “I thought: ‘There is surely latent demand here,’” says Mr Edwards. He phoned his old firm and was told that Nigeria had 10m pay-TV subscribers. If you can afford a TV, you can afford a mobile phone, he reasoned. Nigeria now accounts for 30% of MTN’s revenue.

Multichoice and MTN were established in South Africa before they tried their luck in riskier places. By contrast EMP is a pure frontier-market firm set up by Actis, a private-equity company. Its roots lie with Mediterranean Smart Card, a venture started by Visa to bring chip-and-pin payments technology to Egypt. EMP acquired it in 2010 as the basis for a continent-wide platform that banks, credit-card issuers or telecoms firms could use to process payments. It now serves 130 banks in 35 countries in the Middle East and Africa. It clears payments, supplies point-of-sale terminals to shops and etches personal data onto the cards it issues on behalf of its customers.

Running a payments platform requires specialist skills, says Mr Edwards, so banks are content to outsource the job to a trusted third party. The more clients EMP attracts, the more it reaps the benefits of scale. A single platform makes it quicker and cheaper to pay money across borders. Banks can launch a service in several countries at once. It took years for First Data, a big American payments firm, to evolve from a bunch of regional outfits. A pan-African version is likely to emerge more quickly. But it will not be easy. Six months after EMP’s acquisition in Egypt, there was a revolution. The government switched off the internet and mobile-phone network. (The firm then bought a business in Jordan, which earned 10% of its revenues in Syria; now the proportion is zero.)

A fast take-up in mobile money could help EMP but its fortunes do not depend on it. The success of M-PESA has not been matched outside Kenya, in part because banks have sought to stop phone companies from offering financial services. But EMP’s open-access model is agnostic on whether bank cards or mobile phones will be the main means of e-payment.

Governments are keen on e-payments, too. “The less cash is used or accepted, the more people are pulled into the formal, taxpaying economy,” says Mr Edwards. EMP has won a contract to manage the cashless payment of customs duties at the Douala port in Cameroon. A paperless system should cut delays and corruption. The firm is working with the Nigerian government to introduce a national identity card that can be used for payments. “People need to make payments without risk,” he says. “And cash doesn’t do that job.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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