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Payment systems in Zimbabwe: The past, present and the future (Part 1)

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This analysis shall be in three parts. To thoroughly assess the payments landscape in Zimbabwe, I shall use three frameworks, or if you like, perspectives or concepts. These are; disruptive innovation, the long tail and open innovation.

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Disruptive Innovation

There is adequate literature on disruptive innovation. For the benefit of the reader, I will briefly touch on what disruptive innovation is, as well as key issues relating to it. For a thorough understanding of disruptive innovation, please check the extensive work of Clayton M. Christensen. For purposes of this piece, it suffices to say that a disruptive innovation is one that creates a new market in a different way which overtakes an existing market. This can be contrasted with sustaining innovations which are new ideas, technologies or processes that do not affect existing markets, but lead to incremental improvements in the offering in an existing market.

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For example, laptop manufacturers can make incremental improvements on laptops, such as speed, hard-drive capacity, screen resolution, and soon. Such innovations are sustaining. The improvements do no create new markets. However, the tablet and the smartphone has been disruptive to the laptop and PCs market as it created a new market with a different set of values.

A disruptive innovation therefore creates a new market, and a new value network, eventually and unexpectedly disrupting and displacing existing technologies and offerings in an existing market.

Evolution of payment systems in Zimbabwe

Payment systems in Zimbabwe have largely simply followed the transition that has taken place in the developed world. It has largely been an adoption and adaption of innovations from elsewhere.

Payment systems in Zimbabwe have gone through, in my view, two phases, and will soon go into a third. The first phase, I will call the Basic Transition phase, was characterised by rudimentary automation of the process of using cash for paying for goods and services, largely through applications that enabled remote debiting of bank accounts online through the use of debit cards, cash dispensers, and point-of-sale machines. You may want to call this the first generation of automated payment systems in Zimbabwe. This was driven by banks’ desire to catch-up by simultaneously differentiating themselves from peers while at the same time cooperating. Banks like Standard Chartered (Stanchart) and CABS were the front-runners, with Stanchart introducing the first ATM (remember MoneyLink?) in 1996; and CABS rolling out point of sale machines countrywide, which led to widespread acceptance of the debit card as a means of payment.

It is important to note that the penetration of these technologies was made possible by advances in the telecommunications landscape as the local businesses became networked enterprises. This was enhanced by the deregulation of the telecoms sector in the 90s. Collaboration by the banks led to the creation of ZimSwitch. The switch enabled the cross platform use of cards by facilitating the switching of transactions between banks.

Subsequent changes to these payment systems from the 90s all the way to the first eight years of this millennium were largely incremental innovations causing marginal value addition to existing markets. These included the certification of local banks as acquirers by VISA and MasterCard; expansion of more POS terminals as more banks got licenced; introduction of Internet banking applications (remember, e-Tranzact, Bank@ease, etc); SMS banking applications; bulk payments processing – ftp-based solutions such as bill payments and payroll processing (the mainstay of Paynet’s business). Further marginal innovations were around business models, with hardware vendors like TPS offering POS hardware to banks for a revenue split.

This generation of payments systems however, in a developing country with high levels of unemployment remained somewhat elitist. This was due to a number of factors. Firstly, fees for transacting on these platforms remained high, and in some cases extortionate. This was due to the twin-evils of greed on the part of the platform owners and also the desire to recoup the cost of infrastructure development. Secondly, these systems never really went mainstream because of a large unbanked population. During the period up to the hyperinflationary years, total bank accounts never really went beyond half a million. This number increased drastically between 2005 and 2008 as citizens opened multiple accounts to circumvent the cash withdrawal limits. This meant that roughly over 50% of the adult population remained unbanked and could therefore not access these bank-anchored payment platforms. Thirdly, some people holding large amounts of cash avoided these systems because of their mistrust of the authorities. This was and is still true of the Asian community in Zimbabwe.

The second phase, I shall call this the disruptive transition phase is characterised by the second generation payment systems that automate payments with or without the banking sector as an anchor. This is the phase that Zimbabwe entered around 2010 when non-banking players started entering the payment systems market with user-targeted solutions beyond just providing infrastructure. Starting with NetOne, telecoms operators started offering mobile wallets, enabling non-banking customers to pay each other using mobile phones. Econet came in with a more effective market offering running on a more dynamic platform, making Ecocash a good poster child of this disruptive innovation.

This created a new value network in a market that was ignored by the banking sector. It is important to note that the Reserve Bank of Zimbabwe (RBZ) tried relentlessly but without much success to promote financial inclusion as a way of bringing transactions into official circles. For the central bank, this disruptive innovation was as much a blessing in disguise as it was unstoppable.

All the present noise around mobile money transfer services (MMTS) is a sign that the convergence of telecoms and financial services is a great sign of the effects of disruptive innovation.  On one hand the banks are whining noisily and complaining to everyone who cares to listen, while on the other, the RBZ is happy with the financial inclusion, the network operators are smiling all the way to the bank as this value-added service is saving them the headache of declining voice and SMS revenues and the cash-strapped government is all too happy to cream off by taxing five cents per transaction running through these mobile wallets.

Banks, like every incumbent in an innovation ecosystem forgot to expand their innovation horizons. The MMTS are by no means new innovations. Kenya was a front-runner of these solutions with Safaricom’s MPESA. Banks in Kenya made the same amount of noise if not more, but this did not stop the disruption. Banks in Zimbabwe therefore need to study how the Kenyan banks harnessed the new innovation to avoid history repeating itself.

In part two of this article, I will touch on this phase as it relates to long tail concept touched on in my introduction.

The third phase, is a phase that is latently evolving in the midst of the development of the second phase. I will call it the integrated transition phase, or the third generation of payment systems. This phase shall entail the development of a robust ecosystem which integrates various internet, telecoms, and bank based technologies. This phase shall do away with all the solutions fragmentation existent in the market. It shall entail the evolution of a payments ecosystem integrating application developers, banks, telecoms operators, mobile phone users and payment gateways. Development of this ecosystem is presently being accentuated by the increasing internet adoption, smartphone penetration, and slowly declining prices for Internet access. This evolving third generation payment system shall be the greatest enabler of e-commerce in Zimbabwe.

Behold this phase is coming! Tech-savvy entrepreneurs, with an eye on evolving trends must now start predicting or even shaping this payments ecosystem while e-commerce operators should start readying themselves to trade online. The adoption rates may not be as rapid, yet it’s an evolving reality that we cannot run away from, even if we tried.

In my third part of this article, I will look at this integrated transition phase as it relates to open innovation.

payments-evolution
The evolution of payment systems in Zimbabwe

This is a guest article authored for Techzim by Taurai Chinyamakobvu. Chinyamakobvu consults for a UK firm as well as a Global Fortune 500 Corporation. He writes in his personal capacity. He can be contacted directly on his email here.


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13 thoughts on “Payment systems in Zimbabwe: The past, present and the future (Part 1)

      1. Unfortunately i am not qualified to give a critic on his writing style save to say I found it hard to read.

        My first thought on reading the first few lines was, yah final year dissertation.

        All good on the length, the content is great as it offer great insights but his writing style is a bit of too much of sermonizing & terminological abstraction.

        Lets have something a bit more conversational, there are whole paragraphs that can be removed from that article,

        its like monetary policy statement viz Gono days lol but maybe its because he is talking about money. so yah

        Looking forward to the next article

      2. No complaints on length, but the style seems a little ‘dry’ to me (or stiff/formal). It’s a combination of word choice, lack of flow (or too much flow; every idea is hinted, introduced, categorized & described up the wazoo).

        The article is too structured (e.g. 1st/2nd/3rd phase, 1st/2nd/3rd part). Might as well put it in bullet-form. If you still think the article not academic: maybe the citations it contains may sway you.

  1. Great article Kabweza,very informative and to the point. In pieces like this making them too simple and basic will not bring out the true meaning of your aqrticle. The dissertation style was a good idea. Cant wait for the next part.

  2. Great and educating Article. I like the Disruptive Innovation concept. I have seen it happening in many cases. Even at my organization. Well cited and referenced article. Thanks again

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