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Mastercard: “In Africa, our biggest competitor is cash”
When cash is king, payments companies have an uphill battle... but also a huge market to address, explains Mastercard's Raghav Prasad.
A veteran of the financial industry, with stints at Citibank and The Royal Bank of Scotland (RBS), Raghav Prasad joined Mastercard in 2014.
Since January 2018, he has been Division President, in charge of sub-Saharan Africa.
He lays out Mastercard’s strategy on the continent, and the opportunities for financial inclusion and innovation.
On 21 May, Mastercard announced its goal, in response to the Covid-19 pandemic, to “connect 1bn people, 50m small businesses, 25m women entrepreneurs to the digital economy by 2025.” Isn’t that a little bit over-optimistic ?
Raghav Prasad: We always believe in big and ambitious goals that inspire the entire organization to come together and address that goal. About five years ago, we set ourselves to bring 500m new customers to financial inclusion.
We’ve already reached that goal, with close to 100m customers from Africa. The new goal is a continuation of our commitment and strategy.
What is that strategy?
Our fundamental strategy, especially in Africa, is one of inclusive growth.
For the real benefits of technology and digitization to materialize, they have to be widespread. Otherwise, they can’t drive economic development. We’re working on multiple ways to make transactions safe and secure, but we also support the agenda of all the governments of the countries where we operate, that is to drive financial inclusion.
To do that, we focus on the real lifeblood of the economy: the micro merchants. How can we support them through digital transactions? With digitization, they can track their transactions, and provide evidence and data about their turnover to the lenders, and therefore have access to working capital.
How do you do that at scale in Africa?
You cannot really “scale Africa” with the same business models and technologies we’ve used in Europe and the US. Just think about the vast geography of Africa… So, a completely new playbook has to be implemented, built around innovative, interoperable, secure and low-cost platforms.
That’s what we’ve done with Mastercard QR in Tanzania for instance.
We’ve worked with merchants, mobile operators and banks to ensure that these merchants can get their settlements quickly, sometimes twice a day. We’ve linked their mobile wallets – that exist everywhere – with QR technology.
Alongside the QR Code is a virtual credit card number. Today, 14m people in Tanzania can now use that technology for face to face transactions, but also to shop online, thanks to this combination of QR and virtual card. In a year, we’ve added more than 50, 000 new merchants to that platform. That’s how we look at scaling.
You talk of “partnerships” with mobile operators. But they too bank on mobile payments and financial inclusion. Aren’t they more competitors than allies?
Not at all. From our perspective the opportunities and challenges are so big, it’s impossible for just one player to overcome them completely. But a symbiotic partnership can make sure that everyone benefit. And mobile network operators (MNO) are the perfect partners.
For one thing, in Africa, the number of people with mobile wallets is of an order of magnitude above those with bank accounts. Lately, we’ve signed an agreement with Airtel, to make sure that their mobile wallets will have Mastercard QR and Virtual Card. That’s over 100m Airtel Africa mobile phone users across 14 African countries.
It’s one thing to have many registered users. But how many actual transactions take place through your platform?
Mobile money wallets have usually be used for P-to-P transactions. And MNOs have had a challenge to bring it to a person to merchant environment (P-to-M). But P-to-M is something that Mastercard has been doing forever. In Tanzania, we’ve done more than 9m transactions in 2019. So far in 2020, we’ve already registered a higher level than that.
How has the Covid-19 pandemics affected your operations in Africa?
Well, this year we’ve had two new use-cases in Tanzania. We’ve launched a solution for commercial motorcycle riders (boda-boda riders) and customers in Tanzania with a digital payment solution, through Mastercard QR and NMB bank accounts. We’ve also signed a similar partnership – with local transport authorities – for minibuses. And we’re starting to see many transactions through these platforms.
We started these payments solutions at Petrol Stations (for petrol, top-up on mobile phone, buying small items…), now we’ve expanded to commuting and transport, that’s how we are expanding and scaling in Africa.
Is your focus only on micro merchants or do you target other segments?
We focus on all layers of payments, from large merchants like Ethiopian Airlines to supermarkets or department stores. That’s our bread and butter. We look at this through multiple lenses and ask ourselves: how do we help merchants to go digital. Recently in Kenya, we undertook such a scenario where we made a supermarket transform from face-to-face only to online payments in just four weeks!
You often mention your work with governments. How significant is it in Africa?
Our aim is to drive financial inclusion, which is the long-term economic engine that will drive these countries forward. And that focus aligns nicely with governments’ agendas. We can help them to deliver efficiently public services (social security payments, driver licenses, passports), that are all tied to an efficient payment system.
We work with governments to reduce the dependency on cash, which will help minimize revenue leakage and improve tax collection. We can also work to secure and accelerate procurement proceedings, which can help free up working capital for business.
And finally, we have advisor capabilities, with almost 200 consultants who can bring strategy and execution support to government, from Tanzania to Nigeria, Ghana or Senegal. For instance, we have worked with the government of Ghana for the implementation of vaccination programs and other projects to support coffee farmers. And we’re currently discussing about supporting tourism with multiple governments.
Not just on the issue of payments, but how to exploit the data we have on payments, to see the trends and the opportunities, and leverage them. You have to think of us as a technology company.
Your competitors in Africa also profess to be working towards digital inclusion. How do your platform and offers differ from them?
Let me put it very simply: in Africa, our biggest competitor is cash. Around 95% of all transactions in Africa are in cash. I could spend all my time thinking about Visa or American Express or I could try to reduce that 95% – come with new ways to expand and digitalize cash. By the way, cash is very expensive. You have to print, store, transport, secure it. We estimate that the cost of cash is around 1.5% of the GDP of an economy. That is where we can make a difference.
Also, in the last 18-24 months, we’ve opened new offices in Senegal and Côte d’Ivoire, and we’re putting more people on the grounds. During the last five years, we’ve tripled the number of employees in Africa. Around 40% of new hires in Middle East and Africa region were in Africa. We also focus on driving acceptance of digital payments.
Last year, we had 2.5m acceptance locations [for our card] and 1m merchant locations across Africa that accept Mastercard QR payments.
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We have also invested in a number of companies in Africa: in the e-commerce platform Jumia, in the mobile payments technology company Oltio (South Africa), and we are also investors in private equity funds that focus on fintech across Africa.
Finally, we invest in innovating in Africa for Africa.
You have an innovation center in Nairobi. What is its goal ?
It’s one of our nine worldwide innovation centers. The others are in New York, San Francisco, Miami, St Louise, Dublin, Pune, Sydney, and Singapore. In Nairobi, we’ve built a large number of offers that we brought to markets. One of them is Jaza Duka (“fill up your shop”), a digital lending platform we’ve launched in Kenya with Unilever and Kenya Commercial Bank (KCB).
It allows small merchants to order from Unilever using our platform and to pay for it digitally. Since these transactions are digitized, KCB can monitor them and offer working capital loans to the small merchants.
Another platform has been created for farmers, to connect them with agents, buyers and financial institutions. Hence farmers get the best price for their goods, while buyers can deal directly with the farmers and streamline the last mile of the transaction. And financial institutions can see these transactions and provide capital to the farmers, for fertilizers for instance.
It’s important to note that these innovations have been taken outside of Africa and implemented in other parts of the world, in India for instance.
Do you invest in Africa start-ups? If so, how do you identify them?
We’ve been working with start-ups for a long time. With Mastercard Start Path, six-month program, we’ve worked with 200 companies to help them scale and raise 1.,5 billion dollars in capital, in total. Amongst them are a few African companies like MAX.ng, the Nigerian motorcycle transit startup, and Flutterwave (payment services). Last year, we launched Mastercard Engage in Nigeria and Kenya, that, among other things, connects startups to thousands of our technology partners. Finally, with Mastercard Developers, we offer an access to APK, documentation, security and analytics services.
We’re not investing with the purpose of creating a unicorn, reach $1bn valuation and go straight to the IPO. We concentrate on how do we drive the digitization of cash and on start-ups that we can help reach the necessary scale and drive that digitization.
Is this a reference to Interswitch, in Nigeria, in which Visa invested recently? Were you also interested by that deal ?
We’ve been investing from much earlier than that in many countries. We understand very well the opportunities, especially in Nigeria. For us any investment is not only about putting some money on the table, our partners need to bring the right technology to the table, have the right reputational level, and be willing to work with us for the long term.
There aren’t many investment opportunities that we haven’t kicked the tires of. If we don’t invest, it’s always a deliberate choice.