M-Pesa To Monitise: How Necessity Is Pushing FinTech Innovation From Africa To The UK

Necessity is often said to be the driver of innovation. Nowhere is this clearer than with the mobile-phone based money transfer and microfinancing service, M-Pesa, in Kenya, wherein the need to provide financial services to the under-banked population resulted in a truly transformative fintech solution. Yet, there is also a second cause of innovation: opportunity. The UK has its own environment of changes and challenges, as well as legacy banking systems that were falling behind the times and the needs of consumers. This has given rise to numerous innovative firms, which I’m fortunate to meet every day as the founding director of Innovate Finance. While you can see the impact of many of them – CrowdBnk’s funding platform, Yoyo’s mobile payments and rewards system, and OnTrees’ money management and budgeting app come to mind – there are others such as Monitise who operate behind the scenes, providing critical back-end infrastructure to enable banks to offer new services safely and efficiently. Whether through necessity or opportunity, in the UK or globally, it is the fintech sector that is stepping in with innovations to address unmet financial and social needs.

Such innovation is frequently apparent when it comes to technology in Africa, with people finding new uses for products and repurposing them in ways far removed from the manufacturer’s original intention, often as a result of necessity. It is this resourcefulness combined with more open regulation that produced an environment in which mobile payments could flourish. The M-Pesa story is innovative on many levels: in its journey from concept to execution, its use of new devices, its business model, and its approach to improving financial literacy. Yet M-Pesa’s innovations did not come easy; the challenges faced were significant. Rather than offering Kenyans a more convenient way of conducting their banking through mobile services, M-Pesa had to introduce people to banking services as first-time users. The number of bank accounts in Kenya in 2006, a year before M-Pesa’s introduction, illustrates this: there were just 2.3 million accounts for a population of over 36 million.

The whole project itself was the result of an innovative public-private partnership between Vodafone and the UK Department for International Development (DfID). In the case of M-Pesa, a challenge fund project from DfID targeting the UN’s Millennium Development Goals enabled a new way to approach such projects. The result has been a rapid transformation in Kenyan transactions, with over 18,000 M-Pesa agents established within 3 years of the service’s launch, in stark contrast to the almost 1,400 traditional banking locations (branches, ATMs, etc.) available at the time. But we cannot ignore the fact that the problem that M-Pesa looked to solve in Kenya – that of the underbanked – is not limited to Africa. According to the LendProtect Underbanked Index, 12% of the UK population is underbanked. This means that, while these eight million people the index identifies may in fact have some form of bank account, the broader range of financial services banks offer, such as access to credit, is not available to them. And globally, while there are 6.6 billion phones in use, only two billion adults have bank accounts.

We have also seen this problem of access to credit affecting, and impeding, British small businesses. And as a result of this necessity we have seen the emergence of innovative financial services and solutions, non-traditional ways for businesses – and those looking to start them – to access finance. Where banks have hesitated in offering money, new crowdfunding platforms have stepped in to provide cash or investment.

It was through the equity financing platform SyndicateRoom that the e-Go single-seater plane, the first aircraft to be designed and built in the UK for several decades, raised sufficient funding to enter production. In fact, the project achieved its goal of £500,000 from investors in under a month, and this was made possible by a forward-thinking regulatory environment: in the UK, individuals are able to use crowdfunding platforms to take equity stakes in businesses. Also supporting small businesses is an emerging group of alternative lenders, who offer credit where traditional banks have refused, and at a speed that they cannot match.  Iwoca, for example, is providing short-term finance to small businesses quickly, without upfront fees, by using data analysis to assess the lending risk.

Alongside this, traditional banks are starting to offer their customers new services, with a particular focus on mobile banking. In looking to provide a frictionless mobile experience, many have turned to Monitise , a service that brings together players from payments providers and banks to phone companies, to ensure that their mobile money system works seamlessly. Monitise is helping the big players to meet their business needs, just as new entrants are helping customers meet theirs. This is crucial, as the UK needs to make strides in providing more customer-centric financial services products for consumers who want to operate in a truly mobile world.

Indeed, whether in an emerging economy like Kenya or the UK’s developed one, whether driven by the retiring baby boomer generation relying on savings or the mobile and social focus of the younger generation, in addressing these needs the growth opportunity for the fintech sector is substantial.