The term “reverse innovation,” popularised by Vijay Govindarajan and Chris Trimble, refers to innovation which takes place in developing markets filtering back to the developed world. Inventions stemming from the need to fulfil basic commercial transactions in poorer nations are benefitting consumers around the world.
In developing markets like Africa, innovation and ingenuity play an important role in finding solutions to problems that cannot be resolved through traditional approaches. Advancements in technology, and especially in telecommunications, have resulted in access to basic utilities being made available and the enhancement of lives of millions of people globally.
The mobile banking industry across Africa is proving to be the vanguard in terms of financial transaction facilitation. A recent survey of global financial habits, conducted by the Gates Foundation, the World Bank, and Gallup World Poll, revealed that 15 of the 20 countries that utilise mobile banking facilities are in Africa (source: The Economist). Mobile telephone subscriptions in Africa have outpaced the rest of the world since 2003 and this is having a significant impact on the global banking industry.
Conducting financial transactions on mobile telephones, termed “mobile money,” is proving immensely popular across the continent, with three quarters of the countries in which this technology is available being in Africa. Most of these money transfers are, however, very small. One of the most popular mobile products in Kenya is a SIM card costing just a few cents as this is all that is needed for the occasional transaction. Mobile phones are also used to bank remittances from family members abroad, which may explain why mobile money has done so well in countries like Somalia where little in the way of formal financial structures exist. (Graph provided by the Economist.)
Mobile money does, however, also often go hand-in-hand with ordinary banking practices. A staggering 68 percent of adults in Kenya use mobile money (the highest rate in the world), with more than 40 percent also having ordinary banking accounts. Mobile facilities become particularly useful when an ATM or bank are not readily accessible, making them an essential extension to normal banking facilities.
Mobile banking is also useful in terms of offsetting the banking industry’s bias towards the well-educated. In Africa, only about 10 percent of the population with primary (or no) education have bank accounts, compared to 55 percent with tertiary qualifications. The rate at which telephone banking practices are growing in some African countries, however, suggest that mobile money transactions are spreading beyond graduates to the rest of the population.
The advancement of mobile telephone banking in Africa is influencing the manner in which financial institutions operate in the developed world, with banks now using mobile facilities to provide access to services without relying on the traditional brick-and-mortar approach. This two-pronged approach to customer service is addressing many of the post-2008 economic crisis financial pressures associated with costs and fees, as well as changing the money management habits of consumers in the new cost-conscious and ease-of-use global economy.
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