[By Duncan McLeod]
Last week’s purchase by Visa of Cape Town-based mobile payments company Fundamo in a US$110m all-cash deal demonstrates clearly how the race is on to provide electronic financial services using cellphones, especially in emerging markets.
Visa’s acquisition — in rand terms the transaction is worth a cool R750m — has ensured a big payday for Fundamo’s backers. Mark Shuttleworth’s venture capital firm, HBD, Johann Rupert’s Remgro and financial services company Sanlam together own almost 85% of Fundamo’s equity.
But the real story behind the deal is not how it has paid back investors’ early risktaking. The big picture here is how mobile phones are promising to take electronic transactions to the world’s estimated 3bn people who do not have access to formal financial services — bringing the world’s poor into the global financial system for the first time.
Payments companies such as Visa and MasterCard, traditional financial services institutions and mobile phone operators are all eyeing the mobile phone as a platform for offering services such as basic banking, electronic funds transfer and remittances.
It also has the potential to put operators and traditional financial services institutions on a collision course.
Payments companies, banks and operators are eager to replicate the Kenyan model, where Safaricom’s M-Pesa has proved an enormous success, across the developing world. M-Pesa, a branchless banking and transaction platform that relies on mobile phones as the delivery platform, has signed up more than 10m subscribers in the East African nation. More than half of Kenya’s adult population uses M-Pesa to pay for everything from taxi fares to groceries.
The service has been launched successfully in other African markets, including Tanzania. But take-up in SA, where Vodacom launched M-Pesa last August in partnership with Nedbank, has fallen far short of expectations.
Vodacom CEO Pieter Uys blames a more developed banking sector than elsewhere on the continent, among other factors, but says he is still “a strong believer” in the technology.
Visa’s head of global mobile payments, Bill Gajda, says the market opportunity in SA and worldwide is “enormous”. “If you see what’s happened in markets like Pakistan and Uganda, we believe there are tremendous opportunities in emerging markets where there is a higher proportion of people with mobile phones,” he says, explaining the rationale behind the Fundamo acquisition.
Visa wants to take Fundamo’s technology and work with its customers — mainly mobile phone operators and financial services institutions — to provide consumers in emerging markets with access to global payment networks, opening up what Gajda calls “closed-loop” payment systems. These would allow consumers to send and receive international remittances, make e-commerce transactions and “connect to a broad range of traditional merchants and international remittances companies”.
The idea for Visa is to help Fundamo move from a model of licensing technology to these operators and banks to managing mobile payment systems on their behalf.
It’s not only in emerging markets that payments companies are focusing their efforts. Near-field communications, a shortrange wireless technology being built into the latest generation of smartphones, is also promising to change the way people in developed markets transact and is attracting enormous investment.
The mobile phone, it seems, is becoming more than just a platform for making calls and surfing the Web. In time, it could usher in the long-promised cashless society and help grease the wheels of global commerce.