How Africa’s Airtime Currency Traders Birthed A Fintech Innovation Playbook

This is a story of how informal airtime currency resellers of Africa birthed mPesa, mobile money, and an innovation playbook for Africa’s emerging economy.

Airtime currency agent in Uganda

Not everyone can see it.

If you are keen though, you’ll realize Africa’s informal economy is an open playbook on how to innovate, build and scale successful products and services for the emerging African consumers. Ask me how I know, and I’ll point you to the little known story of prepaid airtime currency re-sellers in Africa who, by cobbling up a rudimentary hack, were able to model a country-wide money transfer network, that would later be adopted by Africa’s telecommunication companies (Telco), spun off into a massive revenue generating business to eventually dethrone the monopoly of banks in East Africa.

But the real story is neither about airtime, nor Telcos. What it is really about are the lessons we can draw upon Africa’s informal economy on how to approach innovation in Africa.

This is a story of how the prepaid airtime re-sellers of Africa not only birthed mPesa, and mobile money, but an innovation playbook for Africa’s emerging economy.

Over 90% of Africa’s Mobile Subscription Is Prepaid

Over 90% of Africa’s mobile subscription is prepaid, and so as mobile phones were taking root in Africa in the early 2000s, so was airtime currency. In layman’s term, this means that over 90% of people first have to top up their phones with airtime before they can access network services. That means every once in a while, walking up to an agent or kiosk, handing over cash in exchange for airtime currency vouchers and top ups.

Unlike cash, airtime currency is virtual and comes in the form of a 14 digit code that  is entered on your phone by dialing *141*CODE#. The format varies, depending on your country and airtime provider but in all instances, your phone automatically updates your prepaid airtime balance and is ready to spend on anything from phone calls, SMS, and data bundles.

Africans love it because it comes packed in neat affordable kadogo sizes of 10, 20, 50,100, 200, 500 and so forth. The prepaid airtime model puts control over timing and amount of money spent in their hands, allowing them to juggle voice and data purchases against available cash in hand.

So out of necessity, every African has learnt how to use this new virtual currency issued by Mobile Network Operators, alongside an offline agent network for cashing in. If you travel around Africa you will find it is a standard across all markets – MTN in Nigeria and Ghana, Vodacom in Tanzania and DRC, Safaricom in Kenya, Zain in Sudan, Zaad in Somalia and Tigo in Chad.

So in hindsight, the emergence of cross cultural patterns of airtime currency use as a quasi-alternative-substitute currency should not have come as a surprise.


The Anthropology of Mobile Airtime

While there is no clear timeline on the emergence of these patterns, we can infer from the handful of documented cases that seem to have sprung out of tension or  a service gap.

One was the BBC reporting that in 2006 the UK’s Department for International Development (DFID) had observed Africa’s mobile subscribers sending prepaid airtime to each other as some form of quasi-currency.

In 2006 Uganda, a Sente system had emerged from the informal use of airtime currency for remittances. Senders relied on prepaid airtime sellers as middlemen to cash in and cash out of the network to send value from an urban Kampala to rural Kiyoke.

Under Zimbabwe’s widely known inflation crisis, the WSJ reported in 2009 how people used whatever hard currency they could get hold of including USD dollars, condoms and airtime as a substitute for cash change at stalls and supermarkets.

In South Sudan, a country ailed by years of civil war, an IFC 2012 report documented how people turned to prepaid airtime as a surrogate currency for merchant payments and money transfer, paying up to 20% in fees to informal agents just to cash out to the local currency.

More recently in 2016, the government of the Democratic Republic of Congo banned airtime re-sellers from selling Airtel and Vodacom prepaid cards for more than $1.05 after airtime touts turned the sale of vouchers into a speculative bet on the slide of the Congolese franc.

“The touts, who buy the air­time cards in dol­lars, have been re­selling the min­utes at ef­fec­tive ex­change rates as high as 1,200 francs in an­tic­i­pa­tion of a fur­ther de­pre­ci­a­tion in the do­mes­tic cur­rency.” wrote Tom Wilson for the Press Reader.

Similar cases were observed from Tanzania, Egypt, Nigeria, Cote D’ivoire and Chad. I suspect there are more cases, only that they are not documented.

I managed to track down one detailed case in Chad, where Tigo airtime agents gamed airtime distribution to fill a an unmet need.


How Airtime Agents Gamed Tigo’s Airtime Distribution

Consider 5 people:

  • Tigo (airtime issuer)
  • Airtime Agent A
  • Sender
  • Airtime Agent B
  • Receiver R

Agent A goes to Tigo and buys 100K airtime credit for resale. He puts down 100K cFA in cash for which Tigo will then issue 105K credit to this agents airtime re-seller’s wallet including 5% commission that he will only realize in cash after selling.

Now, instead of selling airtime to consumers for phone calls, he opts to game the system to provide money transfers for a Sender A who needs to send 100K CFA to a parent back home in rural. For this remittance service, the agent A will charge him 5%.

The sender provides 105K CFA in cash and calls the receiver B and asks them to find the closest Agent B with enough liquidity. This is extremely smart because they first verify if there is enough liquidity at destination before making the transaction. Once confirmed, Agent A sends 105K airtime credit to Agent B.

Agent B gets 105K in airtime in his re-seller wallet, and provides 100K CFA in cash to the receiver to complete the remittance. At this stage, Agent A has made 5K net cash of profit  while Agent B made a virtual 5K profit and is now actively looking for the next sender.

Agent B does not care if the next customer is buy airtime or actually sending money given in both cases he receives cash. So the initial 105K airtime credit moves from agent to agent multiple times each of them making money on commission regardless of whether customers are buying airtime for phone calls.

This method particularly appealed to low end consumers because only agents had to deal with the complexity of manipulating this airtime credit. All they had to do was simply hand over cash, and make sure not to leave until the receiver confirmed receiving cash.

Tigo the airtime issuer did not lose much but, only made money when a customer bought actual airtime not send money.

Given what was already happening informally, with airtime re-sellers and the use of mobile phone networks as a highway for sending value remotely, there was a great opportunity to be had.


Breaking Banks

The most popular means of sending money in Kenya circa 2006 was an informal network of matatu transporters. Senders would hand over cash in an envelope to an agent at a bus stop, who would pass it on to the tout of the next bus to your rural destination, where another agent would take it under custody awaiting your receiver. This model had its obvious shortcomings, like a tout with sticky fingers.

In short order, Safaricom, East Africa’s largest mobile network operator at the time with over 6 million subscribers, picked up on the opportunity for a new money transfer system known as Mpesa.

Mpesa was everything like prepaid airtime, but with a twist. You could both cash in and cash out of Mpesa, thus completing the loop that informal airtime agents had hacked. So now any mobile phone subscriber could formally cash into virtual currency, store, receive and send Mpesa units from your phone with the option to cash back out to paper currency if you needed to.

For cash in cash out services at the last mile, Mpesa simply recruited the existing airtime agent network of 7,000 kiosks already buying and selling (distributing) airtime vouchers.

It worked like a charm! A classic case of Clayton M. Christensen Innovator’s Dilemma.

By the time I was in my 2nd year at university, Mpesa’s virtual mobile wallet was everything i would want from a bank account. Mpesa had scaled into a full-fledged mobile payment network with 4 million users processing over 24 billion annually to the last mile. It was also making the headlines for sparking a row in the financial sector. Kenyan banks were up in arms over Safaricom and another mobile operator Zain, offering services that were traditionally considered commercial banks’ domain.

Banks never imagined that in 3 years, a technology company would encroach on their traditional business, eat up their would-be money transfer business, and force them to rethink their whole legacy model – distribution, branches, currency, regulations, channels, loans, banking hours – everything!

“Commercial banks are raising concerns that Zain (formerly Celtel) and Safaricom are walking all over their domain without much hindrance by providing money transfer services. It has been unclear who between CBK and the Communications Commission of Kenya — which regulates Telecom services — should oversee the operations of M-Pesa and Sokotele.” – The Standard, 2008

Banks played the only card they had left, lobby for an equal playing field. If Mpesa was in the business of money and banking functions, it too would have to comply with strict anti-money laundering and custodianship regulations.

So some new laws were crafted that  

  1. Formalized Mpesa agents at each end of a money transfer function and regulated them as money transfer agents under guidelines known as Anti-money laundering Regulations for the Provision of Mobile Payment Services
  2. The new-fashion cash-backed digital currency unit dubbed Mpesa, would henceforth be regulated as issued money, under the Electronic Money Regulations, under the National Payment System Act (No. 39 of 2011).
  3. Unlike bank accounts, Mpesa cash reserves were always to be held on a 1:1 ratio with circulating units. Only receipts issued against cash reserves could circulate.
  4. Mpesa deposits could not be loaned out as the money creation function was the preserve of licensed banks
  5. A limit on Mpesa balance and transfer amounts was capped at 40,000 KES
  6. Finally, it was agreed, regulation and reporting of this technology would fall under the Communications Authority of Kenya and not the Central Bank.

Banks managed to hold on to some of their core functions such as lending, large volume transfers and money creation. But even that too did not last long.

Safaricom exploited another loophole by getting into the business of lending prepaid airtime.

Okoa Jahazi is a product launched in 2009 that allowes subscribers an airtime advance at 10% per week, repayable in 7 days. You see, by lending airtime, they were not technically lending money deposits, yet, this new loan product lends over KSh 30 billion worth of airtime annually, almost 30% of all airtime sold by Safaricom. Okoa Jahazi is today a significant player in Kenya’s credit market, with a loan book matching that of tier 3 and tier 4 commercial banks.

We are now in 2018 and Mpesa is plugged into almost every sector of the economy, including banks.

  • 160,000 electronic money agents across the country
  • 1.5 trillion KES moved through Mpesa
  • 600 billion KES in person to person Mpesa transfer
  • 63 billion KES in Mpesa revenues

 Trust me, all Mpesa’s statistics look great.

Safaricom and Mpesa have unlocked a whole new economy and become a poster child for innovation in Africa. Mobile money as a concept has since expanded across Africa as a Telcos service turning Telcos into the most profitable companies in Africa.


Indigenous, Ingenious Or Both?

Perhaps a useful way to think about new technology is as an amplifier of existing behaviors. Just like Mpesa and airtime, a lot of the successful scalable ideas in Africa sprung from the fertile mind of an African emerging consumer who wanted to do something with a mobile, or airtime or smartphone that the mobile operator hadn’t provided yet.

But often in our excitement to introduce new technology, ideologies and concepts into African markets whether as innovators, or bankers, or cryptocurrency activists, or development aid agencies or NGOs or our own agenda, we fall into the trap of assuming there is a vacuum, and fail to appreciate what already exists.

Yet, as we have seen, there is a lot to learn from the quirks and indigenous cultures of East Africa.

Should technology solutions aimed at the developing world like Africa, and mobile solutions in particular, seek to build on and enhance indigenous, traditional activities — economic or otherwise — or, where necessary, is it okay just to replace and lose them?” (Ken Banks, 2008)

You tell me.

My advice, next time you see patterns, don’t be dismissive, pay closer attention. And, if you aren’t seeing any patterns, you’re probably on the wrong path of most resistance.



Recommended readings

Mobile finance: Indigenous or Ingenious or Both – Kenneth Banks, 2008


Author: Michael Kimani

Consultant, Entrepreneur, Researcher, Writer, Digital Assets Investor and Trader,

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