February 3rd, 2016

Two days ago, Facebook’s popular Instant Messaging (IM) platform WhatsApp hit 1 billion monthly active users. As I join the rest of WhatsApp enthusiasts in celebrating this milestone, I would like to shift the focus a little bit to the relevance of such a phenomenon to the digital finance space in Kenya. Can this growing mammon of mobile-first chat platforms be harnessed to provide financial services and catalyse financial inclusion?

Globally, there are a couple of providers that have successfully leveraged IM platforms or Chat – applications with real-time text transmission over the internet – in offering financial services. As a result, subscribers to these IM app based financial platforms are reaping from ensuing benefits such as: seamless on-boarding processes (primarily registration and KYC) and relevance (effortlessly integrated into users’ already digital lifestyles.

Today, apps like Whatsapp, WeChat, Facebook Messenger, Line, Snapchat, etc, have become a crucial arena for control of the world’s internet services market; powered largely by strong adoption of mobile technology as well as by the fact that IM apps are largely free or when paid for, inexpensive. They are also instant, easy to use, and ubiquitous.

Globally, the possibilities are unprecedented; with the market’s rapid growth and a user base expected to expand from over 3.2 billion users in 2015 to over 3.8 billion by end of 2019.  In Kenya, the potential market is significant and growing largely due to the surge of young adults that are grown up with smartphones and messaging apps.

If you had asked anyone in Kenya about the possibility of sending texts for free just a couple of years ago, you would have been met with an emphatic “never!” response. Today, 26.1 million of the 44.35 million Kenyans are internet, making it the 21^st most connected country in the world. Of those, 99.9% access the web via mobile. A recent study, “The Growth of the Smartphone Market in Kenya” employed by Jumia – an online e-commerce store – revealed that social media platforms and instant messaging apps were the most popular smartphone features among 78% of the 576 consumers interviewed.

There’s a lot to be wowed about IM platforms’ different use cases. In some countries across Asia and in the US, these apps are already serving purposes beyond mobile messaging. They are an ecosystem offering a glut of additional services all built into the messaging platforms. From peer-to-peer payments, to e-commerce, to integration of mobile payments and online banking customer management portals, gifting features, and marketplaces; the possibilities are as unprecedented as the next user’s financial needs.

Some high-profile cases are China’s WeChat and AliPay, Japan’s Line, Korea’s KakaoTalk, US’s SnapChat, just to name a few.

Tencent’s WeChat payment tool, Tenpay Wallet, boasts 200 million users with an estimated 200,000 physical stores supporting the feature, including 25,000 supermarkets and 40,000 vending machines across China. Users in countries outside China may not fully appreciate it though as the Wallet is only available in China. Through the wallet, users can: add their bank credit card, send/receive payments, withdraw money to bank accounts, charge mobiles, deposit money to game accounts, make a doctor’s appointment, order a taxi, browse take-away food, or even apply for a mortgage and make investments. Yep! And much more without leaving the WeChat platform. Furthermore, through a recent collaboration with Western Union, WeChat users in the United States can now send money across 200 countries and territories via the company’s WU Connect platform.

 

Another eminent case is SnapChat’s fledgling peer-to-peer payment system called Snapcash, powered by Square.  The maximum amount a non-verified user can send per week is $250 while verified users can extend their weekly limits up to $2,500 in most states. Once a Snapchat user has linked their debit card in the app, they can send Snapcash to anyone in their contact list as long as they are at least 18 years old and have a Visa or Mastercard debit card. The recipient then gets a notification and must also link a debit card to their Snapcash account so as to receive the cash. Typically, once the recipient links his/her debit card, funds are directly deposited into their bank account within 1-2 business days. The only security feature that Snapchat has is the requirement to enter your card’s security code before each payment.

A third over-the-top player that routs its IM counterparts is Alibaba’s Alipay Wallet. The wallet can be used for both e-commerce purchases and in physical stores and has more than 350 million registered users, more than 289 million of whom are monthly active users.

 

Endeavoring for enhanced financial services

Although the World Bank’s 2014 Global Findex study reported that 75 per cent, or, eight out of every 10 Kenyan adults have access to that system- either through a bank or mobile money; it also reported Kenya’s bank account dormancy rates is 21 per cent. Another study by InterMedia, a Washington-based research firm, put the dormancy rated even higher – at 25%. Both studies revealed that accounts remained dormant since users were ditching them for the convenience of mobile money services, the findings of two separate studies show. That’s the whole point of mobile accounts.

They work differently than the old-fashioned bank account. People are already using mobile phones in their everyday lives. It therefore only makes sense for a financial services provider to meet users where they already are and find ways to be a part of their everyday lives; instead of struggling to take them someplace else. In other words, expand financial services beyond tech, and into lifestyle apps. This is easily done by very selectively incorporating additional functionalities that meet user needs.

IM apps work in an almost similar manner. Only a notch higher. Starting with registration. You don’t have to go anywhere to register. You register it directly from your mobile phone and within a couple seconds, voila! You’re done.

Second aspect is on identity management. Most of these IM platforms are not restricted by the ID and Password menace, making them able to reach users in ways that financial institutions never could. WhatsApp for instance, doesn’t call for any ID or password for registration. Snapchat’s only security requirement is the need to enter your card’s security code before each payment. Both Whatsapp and Snapchat have no login or password to remember (as long as you stay logged into the app) and no special software required to use the service.

A third area is on the enhanced visibility that provides additional/alternative credit scoring methodologies. That someone doesn’t transact through a bank account doesn’t mean that they don’t transact at all.  IM platforms offer alternative additional/alternative credit scoring options.

Alibaba for instance, through its micro-finance arm, Alifinance, analyses data from Alipay and its Taobao trading platform to develop credit scoring algorithims used to lend unsecured loans to vendors with at least 3 months of platform trading activity. As at September 2014, Alifinance had provided loans to more than 230,000 vendors with a combined loan portfolio exceeding US$13 billion and an average loan size of US$3,500 to $5,000)  on its marketplaces. Although like any other credit scoring tool it’s not 100% fault free, in addition to the usual financial indicators such as revenue growth and transaction data, Alibaba’s credit scoring model uses other non- conventional data sets. Some of these data include: user ratings and purchases, any experiences with poor behaviour and “punishment records” on TaoBao, number of users that rate the seller as a favourite, usage levels and repeat buyers, position/rating of the client in their own industry, changes in rating within industry, etc.

How is this relevant for Kenya in terms of Financial Inclusion?

If you talk to people in Kenya, they’ll probably tell you something on the lines of: We already have M-PESA… and Airtel Money, and Orange Money… why do we need another financial M-something? Or Kenyans have already signed up their lives to M-PESA so no other platform can make it. Or M-PESA has already taken a monopoly stance – everyone sends money and pays bills via M-PESA. Or we already save through Chamas; bank at KCB, or Coop bank, CBA, or Equity. Or the internet/social media finance model although cool, convenient, and all, will never work in Kenya.

And I totally concur with the above sentiments.

However, here’s what the naysayers will potentially miss out on: the market in Kenya that hasn’t already taken sides. Teenagers and young adults (niaje wasee!). Kenya’s median population is currently 19.4 years, with more than 60% of the population below the age of 24 (0-14 years: 41.56% (male 9,572,641/female 9,512,607); 15-24 years: 18.66% (male 4,280,499/female 4,289,960).

This younger demographic in Kenya extricates itself as the most critical. They grew up with the Internet and mobile phones —or, in some extreme cases, have never known life without them. That makes a difference when it comes to how they relate with the world. Thus, they tend to consume services in a manner somewhat different to the traditional consumer.

They tend to embrace lifestyles based on ephemeral trends. They have probably never used either the traditional banking facilities or mobile money services so haven’t yet taken concrete sides on the best bank, the best taxi hailing service, or the best mobile money service. Coupled with a predisposition towards using technology in every facet of life, this disloyalty towards traditional financial services makes them the single largest market for FinTech businesses and innovative start-ups who will care to reach, engage and convert this awfully significant market segment by challenging the incumbents from all angles.

Back to the Original Question

Can IM platforms be harnessed to provide financial services and catalyse financial inclusion? Yes. But what does this mean? It means a social, digital, and mobile-first approach to service provision; as well as recognizing the importance of building relationships and trust. It also means finding ways to incorporate “their say” in tailoring (and developing) marketing solutions that meet their needs.

In December 2015, WeChat Africa announced plans to invest US$3,500,000 in a programme aimed at supporting tech-enabled businesses that have initial market validation and a feasible solution. This initiative will not only provides these business with access to WeChat’s technology platform but also to potential consumers. In other words, enhanced financial services through IM apps is not only a possibility, it also has a huge market opportunity that entrepreneurs with creative and innovative solutions can seize.

While it is obvious that in a country such as Kenya with 75% financial access rate the financial inclusion rate has almost been met; it’s now time to shift focus on the quality of the service offerings. Therefore, today’s fintech giants can’t afford to sit on their laurels. That Kenya’s Tenpay or Alipay or Snapcash might come from somewhere other than Waiyaki Way, Mombasa Road or Ngong Road is not news. Maybe it won’t even come from the Silicon Savanah at all. This pattern has played itself before. Should’ve won. Could’ve won. Didn’t win.

Jack Ma, Alibaba’s founder couldn’t have said it better:

“There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions go online; the other is internet finance, which is purely led by outsiders. The financial industry needs spoilers to make a revolution.”

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