When Mobile Money had its breakthrough in East Africa some five years ago it was seen as a regional answer to an existing deficit. A second-best solution to the lack of traditional banking. This view has changed dramatically. Mobile Banking is now clearly a disruptive technology that will change the classical consumer banking sector in countries that have a traditionally developed banking sector. New, customer centric and “mobile first” banks become popular in Europe and the US. Alipay is going to be the most popular consumer payment system in China and on the brink to spread out into the world. Traditional banks have more and more problems competing with these challengers.
The Mobile Money example shows that technologies and processes we have known for years and thought to be immutable can be disrupted within a very short period of time. The question that arises here is: what will be the next leapfrog technology that will be developed in Africa, succeeds there and then disrupts the traditional economies?
Let’s have a look at Pay As you Go (PAYG). This technology allows the automated en- and disabling of use cases depending on repayment status for financed products. The biggest representation of this technology is the off grid solar sector in East Africa. One million PAYG enabled solar products have been sold in 2016 alone. The yearly growth rates are tremendous.
The technology was introduced in East Africa around 2010 and has proven to be an effective method to keep down operational costs of collecting repayments from customers in rural and remote areas. Compared to the traditional brick and mortar Micro-Finance Institutions approach, the costs of financial operations went down dramatically. This allowed the distributors of PAYG enabled solar products to reach more and more people with low incomes. Right now, the technology is predicted to be the “silver bullet” for solar home system distribution (http://hystra.com/a2e).
But what is PAYG really about? In a nutshell – it leapfrogs the missing trust that is normally created through the reliability of a legal system. In traditional economies, trust between business partners is artificially created through the governmental guarantee of a legal system. If your business counterpart does not pay its bill – you go to court. This works well and allows – even across borders – the modern economies to work at all.
In rural sub-Saharan Africa, the legal system is not capable enough to provide the functionality described above. Business partners cannot trust each other on this base. This is the point where PAYG kicks in. Disabling and enabling the use of a financed consumer good increases the likeliness of repayment enormously. It allows business by technology in areas where legal enforcement is hardly possible.
Introducing PAYG enables sub-Saharan African customers to participate in the worldwide flow of capital – it includes them financially. This is achieved without implementing a working legal enforcement regime or good governance rules. But if we don’t need a very expansive legal enforcement regime – will that turn out as a significant macro-economic competitive edge of the developing countries compared to the traditional economies?
Why should PAYG only work in areas where the legal system is lacking capacity? It can be a competitive advantage even in traditional economies. Following the legal path can be very time consuming, risky and expensive. There is an old German saying “Vor Gericht und auf hoher See sind wir in Gottes Hand” – “at court and at high seas we are in god’s hands”.
Will we see the application of PAYG in traditional economies when selling high profile goods on loan as response to that competitive edge? Will your car stop working if you stop paying your monthly leasing fees? Will your smart home lock its door when you are late on your mortgage? Where is the difference to your utility that stops delivering electricity or gas if you don’t pay the bills before taking legal actions?
PAYG technology is designed to work automatically and on very low operating costs – a tremendous advantage to traditional legal actions. It can be applied to all goods that need electronics to work – it will become harder and harder to find goods that don’t need electronics to work properly. With the further spread of IoT, we will have the infrastructure ready that is needed for sophisticated PAYG technology. Companies that are forerunners in this sector can be become market leaders not only in Africa but in traditional economies as well.
We have been looking at infrastructural and social deficits too long as a problem but not as a chance to do things more efficient, more sustainable and just better than we have been used to. Mobile Money, Solar off grid electrification and PAYG – I believe these developments will change the world as we know it now because they are better solutions than what the traditional economies have to offer and I am more than curious what comes next.
As Chief Information Officer, Stefan is responsible for Mobisol’s general Software and IT Agenda. He is heading Mobisol’s disruptive development strategy, leading the company’s mission towards providing reliable solar energy to millions of people in developing and emerging markets. Being a trained lawyer and having set up various IT startups before joining the Berlin-based Mobisol, Stefan combines management skills with creativity and entrepreneurial thinking. Mobisol has been active in the decentralized solar sector since 2012 and has supplied over 80,000 households and small businesses with high-quality solar components and DC appliances to date.