A small group of us from AVP recently visited East Africa to learn about the startup ecosystems and opportunities in Kenya, Tanzania, and Rwanda. I’ll share some of my observations and learnings from that visit in this post.
Africa is a mobile-first market*. This market is divided into two consumer segments with very different needs — and means to fulfill those needs. For an entrepreneur from the Global North, these segments might cause some surprises and offer useful insight to bring home.
I’ll explain these two segments through the example of Nairobi. While reading, remember that Africa is a continent of 54 countries and is more culturally and nationally diverse than Europe. While this example is illustrative, it is not exhaustive.
Tonight’s gonna be a good night
In Nairobi, the urban middle-class lives a good life. They trust in a stable future and the possibility of saving and consumption like the middle-class in the Global North. They consume similar goods and services, too. This group works in modern offices no different from most metropolitan cities and wines and dines in very pleasant restaurants.
For the middle-class, the natural user interfaces for online services are iPhone apps linked to their credit cards and banks. This growing segment represents 15% or so of the population of Sub-Saharan Africa and mostly lives in the urban cities, where they represent a much larger proportion of the population.
For aspiring entrepreneurs, serving the middle-class is business as usual. You need to work hard to get the product-market fit right, but you can trust apps and payments to work essentially the same way as they do in the Global North.
Every day is a struggle
For the impoverished of Nairobi, life is very different compared to the Global North and the local middle-class. The least fortunate struggle with necessities, such as putting food on their table, and must rely on the inadequate infrastructure of slums such as Kibera. This means living in makeshift houses without electricity or plumbing and therefore using communal washrooms and pay-per-use charging of their electronics. To add to these problems, most impoverished Africans are unbanked and must therefore use pre-paid sims on their phones and rely on expensive ways of transferring or loaning money. From a middle-class point of view, this life is a struggle, but for residents of Kibera, it’s just life.
The feature phone has a battery life of several weeks compared to that of mere days for smartphones. This makes a difference when you cannot charge your phone at home or the workplace.
For aspiring entrepreneurs, selling to these impoverished people used to be shockingly different and difficult, if possible at all. Even if you could find the product-market fit, you still could not get the payments to work.
When dumb phones are the smart choice
Now, the impoverished still use, or even rely on, mobile services. Their tool of choice is the dumb phone, also known as the feature phone, which is also used for mobile banking. This is made possible by using sim card-based services instead of more flashy apps on smartphones.
The feature phone has a battery life of several weeks compared to that of mere days for smartphones. This makes a difference when you cannot charge your phone at home or the workplace. Additionally, these phones are cheap and durable compared to smartphones.
Linking the middle-class and the poor with the mobile banking revolution
Mobile banking solutions require a bank running the actual service and a way for the customers to interact with the said system via their mobile phones. In the Global North, entrepreneurs often forget that mobile services can offer both app-based interfaces for smartphones and simplified sim card or SMS-based user interface for feature phones.
M-PESA a is a hugely successful mobile service that has revolutionized the life of impoverished Africans using feature phones and is used by those better off with smartphones, too. It offers a safe, secure and affordable way to send and receive money, top-up airtime, make bill payments, receive salaries, and get short-term loans. From a societal point of view, it provides financial services to millions of people who have mobile phones but do not have bank accounts or only have limited access to banking services. It has helped many people to move up from poverty to a better life.
M-PESA was started by Vodafone subsidiaries Safaricom and Vodacom with the Kenyan government and UK’s Department for International Development. Vodafone has reported that Globally 50 million active monthly users and 500,000 businesses transact more than 7 billion USD worth of services and sales of goods per month on the service.
While developed and run by telecom giants, M-PESA has opened a world of opportunity to many kinds of entrepreneurs ranging from a network of Safaricom agents, who were incentivized using commissions, to online business and tech startups using the M-PESA open API. There are 45,000 developers and 200,000 SMEs using the API.
Both of the discussed segments also exist in the Global North; there are trailer parks in the US and impoverished people in the Nordics. Losing your credit rating can force people to pre-paid services and predatory financing also in the developed countries. Therefore, learning from the African mobile banking and fintech examples can be a great source of inspiration for business not only in the Global South but globally, too.
Stay tuned for more learnings from our East Africa visit.
Thanks to Lauri Järvilehto, Myungji Suh, and Patrick Shulist for reading and commenting on the drafts of this post and Tommi Byman for editing the final text.
* CNN went even further and stated in 2012 that Africa is not just a mobile-first continent — it’s mobile-only.