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Mastercard on Tuesday released a white paper which shows that if people are given the ability to pay only for what they use, as they need it, poverty levels will be drastically reduced and prosperity will be more possible across Africa.
The paper, titled ‘Pay on Demand: The Digital Path to Financial Inclusion’, explores how digital inclusion has been proven to provide better access to financial and other services. This ultimately drives financial inclusion which leads to improved economic possibilities for individuals and businesses.
Mastercard’s report, based on research from in-depth face-to-face interviews with consumers across Nigeria, Kenya, and Uganda shows that a focused deployment of solutions like Pay on Demand is key to increasing connectivity. However, for these solutions to function effectively, it is critical that all stakeholders – governments, Mobile Network Operators (MNOs), financial service companies and regulators – come together to unlock opportunities to enable greater financial inclusion.
Technology and connectivity enabled by MNOs initially made digital inclusion possible. Mobile devices became a viable instrument of digital inclusion when prepaid plans allowed individuals to recharge for as low as 10 cents at a time. Currently, prepaid connections are at 98.8 percent in Kenya, 97.5 percent in Nigeria, and 99.1 percent in Uganda with smartphone penetration in Africa projected to reach 66 percent by 2025, up from 36 percent in 2018. Pay on Demand applies the same principle for goods ranging from mobile phones to solar panels, water filters or laundry machines. The model, often underpinned by the Internet of Things (IoT), further bridges the ownership divide by providing affordable services and assets, driving the next wave of inclusion by keeping people connected.
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Jorn Lambert, executive vice president, digital solutions, Mastercard, said: “The growth of digital technology has presented people in Africa with access to innovative, affordable solutions that help them meet their basic needs, ultimately leading to greater access to capital that can scale businesses and increase prosperity. The Pay on Demand model is an incredible example of this, which has already empowered millions of people by making solar energy more accessible and affordable. But now, with the expansion of Pay on Demand to any connected device like smartphones, water filters or white goods, we have a real opportunity to positively impact the lives of a billion people, in the same way the telecoms industry did two decades ago. To further scale the model effectively and create a digital economy that works for everyone, key players in the ecosystem must collaborate to drive a new wave of inclusion through connectivity and smart devices.”
In all three countries where users were surveyed, access to basic necessities was the number one driver of Pay on Demand use, with electricity top of mind for all users. The main aspirational products acquired through Pay on Demand were digital TVs, followed by smartphones. These assets are vital to connecting people to the larger world, whether it’s by powering electric devices or having internet access so a child can do their homework.
Although smartphones are highly coveted through Pay on Demand, the desired price for them amongst users differs across all three markets. It is $200 – 250 in Uganda; $55 – $110 in Nigeria; and $100 – $250 in Kenya.
Mastercard’s research also shows the far-reaching impact of Pay on Demand. “We were touched by the emotional benefits that switching on a light can bring, or the dignity that comes from having a phone that is always charged. As the Pay on Demand model scales, more consumers will gain access to useful products that support happier, healthier lives as well as financial services to secure their future,” Lambert said.
One of the indirect benefits of Pay on Demand is that it helps individuals and micro, small and medium enterprises (MSMEs) establish a digital transaction history, making other financing solutions accessible, such as credit, loans and insurance. By having relations with formal financial institutions, MSMEs can benefit from convenient and secure payment methods, and obtain financing to help them scale.
Gaurang Shah, senior vice president, digital payments & labs, Mastercard Middle East and Africa, said: “There are 44 million MSMEs in sub-Saharan Africa, 97 percent of which are micro-enterprises. For them, the assets made possible through Pay on Demand create improved opportunities through increased connectivity, and new revenue opportunities through being part of a financial system. This initial access to financial services is the first step on the road to prosperity and can help realise the true potential of inclusive growth across the continent.”
