What does going Digital look like for Zambia?

Since the outbreak of the COVID-19 pandemic, we have seen an increase in digital and contact-less financial transactions. Is it safe to say that the COVID-19 pandemic is driving the increase in adoption of Digital Financial Services (DFS) in Zambia?

DFSs are financial services accessed and delivered through digital means such as the internet, mobile phones (both smartphones and digital feature phones), ATMs, POS terminals, chips, electronically enabled cards, biometric devices and any other digital system. The 2018 National Survey on Access and Usage of Information and Communication Technologies (ICTs) by households and individuals in Zambia revealed that the most widely held formal financial services accounts were electronic wallets accounting for 21.5% of individuals aged above the age of 10 years. It also established that at least 48.9% of all the households across the country had used digital financial services before. Majority of households reported having used Digital Financial Services for receiving and sending money representing 92.8% and 77.6% respectively.

In response to the COVID19 pandemic outbreak, several regulators employed interventions encouraging the use of DFSs and announced emergency measures to temporarily suspend mobile money transaction fees for different kinds of transactions. The Bank of Zambia reduced the processing fees of the Zambia Interbank Payment and Settlement System (ZIPSS) to increase the use of Real Time Gross Settlement System (RTGS) in March, 2020. Different central banks increased the transaction and wallet limits for mobile money agents and corporates and also waivered charges for person-to-person e-money transactions values of up to K150 by all electronic money issues to the end of June, 2020. In Kenya, the central bank suspended the customary 1 to 1.5 percent fee charged by mobile network operators on transfers below the equivalent of USD 10 transfers within the M-PESA8 platform, from March 16, 2020 until year-end. The central bank in Liberia, suspended all charges to users for money transfers as well as merchant transactions until the first week of July, 2020.

According to National Payments Report 2019, the value of local remittances grew by 80% to K82, 109.6 million from K45, 539 million in 2018. The increase in both value and volumes was on account of growth of mobile based transactions. The value of Mobile Money transactions processed also increased by 122 per cent to K49.35 billion from K22.19 billion in 2018. The value of mobile payments as a proportion of GDP increased to 15.7% from 8.2 per cent in 2018. The volume of point of sale transactions increased by 46% to 26, 942, 944 from 18, 409, 724 in 2018. The increase in the use of the PoS machines was due to the promotion of digital financial serves and increased number of terminals. This report was prepared before Covid- 19 outbreak; the numbers are projected to grow further this year. Although Zambia has been making steady progress in the shift to a digital economy, some challenges and barriers to this still exist.

1. Market Fragmentation in mobile money services.

Zambia’s two largest mobile operators, Airtel and MTN both supply mobile money services. The state owned operator, Zamtel also supplies standard mobile money services through its Kwacha brand and smartphone mobile wallet app ZamPay. No single player has over 50% of the market share. (This is one major reason M-PESA was so successful in Kenya: one player dominated the market). Fragmentation makes it difficult to drive adoption. Cross network transactions are more expensive. Merchants adopting mobile money as a means of payment is another issue that arises from fragmentation. If I walk down the road to John’s Kantemba and I buy bread and milk, can I pay John via mobile money? In most cases the answer is no. John will most likely demand for cash. Unless John is on the same network as me and has an active wallet. He might even ask to include a withdrawal charge. John as a merchant might find it very cumbersome to have 3 mobile money wallets to cater to all his client’s needs. Recently, we have seen the large supermarkets, Shoprite and Pick n’ pay, start to accept mobile money payments as a response to the covid19 pandemic. How has Kazang made this possible? Payments are taken using Kazang Prepaid’s proprietary mobile terminals which are designed and built to withstand a more informal business environment. For instance, the devices don’t require a constant power supply and work off of the GPRS mobile data service which means they don’t need a fixed data connection. They have implemented separate interfaces with each of the network providers for merchant payments (basically like Visa payments but for mobile wallets). Merchants are paying around 2% for this service and its definitely more convenient than having 3 or more wallets. All Kazang machines can accept merchant payments for all networks. They are also able to do Cash-in and Cash-out via the National Financial Switch for all banking partners and MNO’s that are live on the National Financial System.

The new financial switch is important so that integration and moving money around is easy regardless of the platform you are on. It also helps reduce the cost of sending money. The World Bank’s most recent report (Migration and Development Brief 32: COVID-19 Crisis through a Migration Lens) showed that the global average cost of sending a remittance is largely unchanged, despite the pandemic, at 6.8%. Even with our robust mobile money ecosystem, Sub-Saharan Africa remains the most expensive region to send money to at 9%.

2. The unbanked Vs the banked

For you to make use of an ATM or a POS, you must have a debit card that is tied to a bank account. How many Zambians have access to formal financial services today? According to the National Financial Inclusion Strategy (NFIS) 2017–2022, more than 3.5 million Zambian adults (approximately 41 percent of the adult population) are financially excluded and more than 5 million Zambian adults (approximately 60% of the adult population) do not use financial products and services from regulated providers. According to the FinScope survey of 2015, 56.4% of Zambian adults cannot reach a brank or ATM within an hour. This barrier is significantly skewed towards rural areas where 75% of adults are affected. ATMS are only available to existing bank customers only, as most of the services available at an ATM require a bank card to transact. The adoption of DFSs can be affected by the high number of the unbanked population. One of the objectives of the NFIS is to improve physical access to high-quality financial delivery channels, including branches, agents and ATMs such that the number of financial access points per 10,000 adults will increase from approximately seven to 10 by 2022. Another is to design, test and launch simplified and tailored products for unserved and underserved consumers, including via mobile-based channels.

3. Digital skills and Infrastructure

The Zambia Information & Communications Technology Authority (ZICTA) 2018 National Survey on Access and Usage of Information and Communication Technologies (ICTs) by households and individuals in Zambia reported that the proportion of individuals who indicated that they had used the internet before was 14.3% in 2018. It was estimated that 53.5% of all individuals across the country were active users of mobile phones established by estimating the proportion of individuals that had used a mobile phone in the last three months prior to the survey. Only 6.8% of individuals across the country reported to know how to use a computer. The main reason cited for not using the internet was lack of knowledge on how to use the internet, accounting for 70.1% of individuals that indicated that they had never used the internet. Other barriers to the uptake of internet services by individuals included lack of appropriate devices, lack of interest in the services as well as lack of access to the services.

Digital competencies, apart from the most basic — such as using a mobile phone for voice calls or simple messages — cannot be developed without foundational literacy and numeracy skills. Most Zambians have some level of foundational digital skills, but intermediate and more advanced ICT skills are in very short supply. The World Banks’ 2020 digital economy diagnostic report for Zambia highlighted digital infrastructure and digital skills as hurdles to a digital economy and recommended the review excise duties, corporate tax rates, import duties and license fees for connectivity providers and model the fiscal implications of potential reductions to make digital devices and services more accessible. On the low quality of foundational digital skills in Zambia, one of the recommendations is to map the current ICT school curriculum against the Digital Competence Framework for Citizens (DigComp 2.1) to gain a comprehensive overview of which digital skills and competencies need to be developed. Another is to update the senior secondary school digital curriculum to include more advanced digital skills training as well as scale up digital skills training in TEVET institutions. The access and usage of digital services will continue to be low if these challenges are not addressed.