The African Way To Bank

Noting the widespread use of mobile payments in Africa, Bright Continent author Dayo Olopade thinks through whether similar efforts could succeed in the US. She sees need for the technology because “the poorest 30 percent of Americans were, to use an industry term, underbanked—unable to access credit and financial services within their means”:

Exporting mobile money to the United States, however, entails a slew of challenges that its creators did not face in Africa.

Need drove the invention of M-Pesa and its counterparts, but regulatory ambiguity ensured it could scale. Even today, mobile-banking laws in Africa are evolving slower than the technology itself. One hazard, regulators believe, is that mobile payments can be used for money laundering. While much of this risk is diffused by ID cards, PINs, and caps on transfers, it was not until 2011 that Kenya legislated capital requirements for mobile banking, and only in 2013 did the government begin to tax mobile transfers. Other countries in Africa have been stricter about which entities can serve as mobile financial institutions, but since telecoms are not traditional banks, they fall into a regulatory gray area.

In the United States, however, banking laws are much less malleable, and any activity that smells like banking is subject to a significant burden of compliance with post-crash policies designed to protect consumers. Allowing telecoms or tech companies to act like banks may involve new legislation. Given this headache, mobile money in the U.S. might end up looking different than it does in Africa, perhaps involving partnerships among wireless carriers, hardware companies, and banks. But the bar has been set, and the West now finds itself in the unfamiliar position of looking to Africa for technological inspiration.

Dayo’s “Ask Anything” series is here.