beyondbrics

Visa Inc is bringing cashless banking to Rwanda as it begins, a little belatedly, to target Africa’s largely unbanked emerging markets.

As Elizabeth Buse, Visa’s regional president, told beyondbrics: “Visa wanted to find somewhere we could test a model for operating in emerging markets”. And Rwanda really isn’t a bad choice.

Only 14 per cent of Rwandans have access to traditional forms of banking and with a GDP per capita of just $500 per year, it’s a country where transaction-volume is key. It is also a highly stable country, by African standards, and was the world’s second best reformer in 2010 according to the World Bank’s ease of doing business report. It is set to grow by 7 per cent a year up to 2013, according to Fitch, the ratings agency.

Visa (V:NYQ) has been looking at breaking into African EMs for some time but knew it “would have to partner with a government”, said Buse. “We looked at a number of  governments and very quickly it became clear that Rwanda was the right place to test.”

Buse said there were three main things that made Rwanda particularly attractive to Visa:

• A balanced regulatory environment
• An interest in technology-led development
• And an interest in public-private partnerships

Visa’s partnership with the Rwandan government is codified in a “Charter of Collaboration” which sets out the commitments which both sides have taken on and as Visa notes:

The partnership is a step in the Government of Rwanda’s Vision 2020 plan, the country’s blueprint to become a middle-income nation within the coming decade, with per capita income of $1000 by 2020, up from $220 in 2000. The success of that plan relies on a number of pillars, including shifting to a knowledge-based economy, private sector development and improving infrastructure.

For Visa:

The company’s aim to generate 50 percent of its revenue from markets outside of the United States by 2015 will partly be enabled through its ability to build, buy and deploy new technologies that extend its products to geographies where electronic payments are limited today, such as Rwanda.

The agreement will enable Visa’s settlement of domestic payments in Rwandan francs, allow it to expand its network of ATMs and businesses that accept Visa’s cards in Rwanda and begin increasing financial literacy in the country.

Visa sees its Rwandan experiment as an investment and “expects to make money”. The first step is get its Visa cards into the hands of ordinary Rwandans and its mobile banking platform into everyday use.

Buse was quick to stress that Visa’s mobile banking model is not based on Kenya’s successful M-Pesa format (which since its launch in 2007 has garnered 15m customers and has the equivalent of up to 20 per cent of Kenya’s GDP washing through its system).

She argues that Visa’s mobile platform will be unique as it will be “independent of a mobile network or branch” and “a critical part of our Rwandan experiment”.

And considering that Africa had 620m mobile connections as of September 2011, according to GSM’s African Mobile report, and had overtaken Latin America to become the second largest mobile market in the world after Asia, Visa’s emphasis on mobile banking is easy to understand.

Over the past 10 years, the number of mobile connections in Africa has grown by an average of 30 per cent a year and is forecast to reach 735m by the end of 2012. That, according to the report, means Africa’s mobile penetration rate is forecast to grow from 63 per cent in 2011 to 85 per cent in 2015. Mobile penetration in Rwanda is currently 40.8 per cent, according to the Rwanda Utilities Regulatory Agency.

Add that to the fact that Africa’s middle class (which is currently 75 per cent unbanked) could exceed 1bn people by 2060 (according to the African Development Bank) and the significance of Visa’s Rwandan experiment becomes clear.

Related reading:
Kenya to India: exporting the mobile money model, beyondbrics
Guest post: Banking for the poor, beyondbrics
Investing in Africa: catch-up time, beyondbrics
Down on the farm: mobile revolution, beyondbrics
A microfinance call for capital, but will the market listen? beyondbrics
Ghana gets insurance via mobile phone, beyondbrics
Indian banking: goodbye branches, hello mobiles, beyondbrics
Nigeria: a microwave boom, beyondbrics