By Benedict Hamilton, Managing Director of Kroll's Regional Business and Cyber Investigations Team
East Africa might seem to be an unlikely part of the world to be pioneering the digital economy but its credentials are well established. The use of mobile phones as a payment platform started in Kenya more than 10 years ago with the inception of M-Pesa, and became popular long before mobile banking was commonplace in more developed economies. It is now used by a significant proportion of the population for everything from paying for petrol to running the payroll for farms and factories.
The evolution of financial services in Kenya in particular mean that today, it is five-times easier to access a bank account in Kenya than it is in Uganda. The rise of the humble mobile in East Africa has been rapid, and is credited by many as being the driver for the region’s sustained economic growth. However, with such a fast technological evolution comes the need for increased cyber security.
Between 2006 and 2014, it is estimated that 12.5 million Kenyan adults accessed a bank account for the first time. Conversely, in 2005, there were only 2.5 million deposit accounts in Kenya and less than one fifth of the population had access to financial services. Following a successful pilot period in 2006, mobile financial services sprung into use with the official launch of M-Pesa. Fast-forward eight years and by 2014 there were 26.2 million registered mobile money accounts, with three-quarters of Kenyan adults able to access financial services.
Most of this was made possible by mobile money initiatives and regulation change, allowing an infrastructure of agents via both banks and telecommunications firms to provide widespread access to financial services. Part of mobile money’s attraction is that it is safer than carrying or storing large amounts of cash, and it is a simple bolt-on to pre-existing commercial relationships.
It is a clever answer to the much debated question of ‘how to bank the unbanked’, but financial services and government leaders have greater ambition than this. It is not uncommon, for example, to hear senior banking and government figures talking about a cashless economy. Government leaders see this as an important way to reduce corruption as electronic payments leave trails that make auditing who has received payments much easier, certainly when compared to a cash exchange. Electronic transactions also help to increase tax revenues. Consequently, bankers see the internet and mobile phone networks as a way to improve margins and extend coverage.
It is not just Kenya that is embracing this vision though. In Rwanda, Mobi-cash is a mobile banking Company that takes deposits and has a number of banking licences from Africa’s Central Banks. Although most of its customers use the service through a smartphone app, you don’t have to have a mobile phone to open an account, you just need to register a range of biometric indicators. In Uganda, Mobi-cash is used by the army to pay salaries through biometrics which provides reassurance to the Government that all salaries are going to real people rather than ‘ghost’ soldiers; a problem across many African professions.
Northern Corridor Technology Alliance
Successful roll-out of these initiatives is driven from top-line government. Kenya, Rwanda, Uganda and South Sudan are all part of the Northern Corridor Technology Alliance (NCTA), a regional sector alliance formed to champion the implementation of key ICT projects within the region. The NCTA was formally launched in Kigali July 17, 2015 and is designed to help drive further digital growth and innovation. How this new infrastructure will be kept secure though is not yet clear.
Pioneering new banking systems and electronic tax collection has its challenges. These countries also have to discover what works – and what does not – for the first time. The biggest challenge comes from the new vulnerabilities to cyber crime and infrastructure vandalism; and this is exactly why companies like Kroll want to be part of this new technology revolution. There is opportunity for us to learn from working together with private and public sector agencies.
Kenya’s digital economy
All the indicators point to the further success and expansion of digital services through mobile and ecommerce. Mobile telecoms services in Kenya grew in revenue by 33 percent last year compared to the previous year. While other African countries have suffered from the depression in commodity prices, Kenya has been posting five percent GDP growth consistently, using its digitalisation to drive growth.
Furthermore, research published by analyst group, Ovum in November, 2015 stated that the number of mobile broadband connections in Africa will reach one billion by 2020, up from 147 million recorded at the end of 2014. With the increased use of mobile broadband it is expected that the use of mobile banking and financial services will grow as more people gain access to these crucial services.
East Africa is finding its own development path and it seems to be working. The focus and drive of technology initiatives in the region – initiatives which have leapfrogged a number of legacy infrastructures in more developed economies (certainly in the financial services sector) – may place East Africa as a technology frontrunner for years to come; especially if technological innovation is matched by an equally impressive level of security improvements.
Read the illustrated article in the latest issue of Africa Outlook here.