Imagine if the state of Delaware had something like 10 ATMs. Or if operating a network in Nevada was only profitable if you could hub it back through Los Angeles. You're just getting an inkling about Africa.
Really, there's no fair comparison between the continents — North America has an established infrastructure and relative conformity in governments, regulations and standards state-to-state.
In Africa, things are less predictable and IADs must be flexible and creative to succeed. But with RBR forecasting ATM industry growth there at 94 percent from 2009 to 2015, there are clearly rewards to employing out-of-the-box ideas and elbow grease.
Africa's banking engine
Much of the ATM network expansion begins in and from South Africa, the Sub-Saharan nation with Africa's biggest, best-developed and most stable banking system. It's ranked 8th in the world among nations with a population of 20 million or more — ahead of France and Japan.
Two big players in South Africa are ATM Solutions — formed in 1999 and now the nation's largest IAD with 4,000 installations, and Spark ATM Systems — founded in 2005 and claimant to the title "fastest-growing IAD" with 1700 ATMs deployed.
Marc Sternberg, managing director at Spark ATM Systems, and Gavin Reubenson, business development executive with ATM Solutions, recently offered an overview of the African IAD market, its challenges and its prospects for growth.
Starting from scratch
Turnkey systems are almost compulsory in a land where big cities are few and far apart and towns between are small.
"We do the full process," said Sternberg. "We have our own switch and we don't allow other service companies to service our machines. It's a real end-to-end turnkey situation — much more than a sales organization."
The same is true for ATM Solutions, whose terminals bear the branding of eight different banks but operate on the company's own switch and are managed end-to-end by internal operations.
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ATM Solutions even developed its own communications network. In 1999, there was just one major telco player in South Africa, Reubenson said, and their service was both unreliable and slow. Also, the telephone lines tended to disappear, dug up by thieves who sold the copper cable to scrap dealers. And there was the expense — SA$0.77 ($0.10) per transaction.
The company arranged to get onboard with a wireless POS network, and over time was able to take advantage of expanding mobile coverage, data service and specially designed dual SIM modems that allowed the company to engage a secondary carrier for backup.
Today both Spark ATM and ATM Solutions are entirely wireless. And how's that working out? Systems at ATM solutions maintain 97 percent communications uptime, Reubenson said.
Multifunction and mobile
On a continent where resourcefulness rules, ATMs have become a hub for getting many of life's financial jobs done. "They're not just offering your plain vanilla services," said Sternberg. "A lot of banks have turned them into self service kiosks where you can do a lot."
ATM users can purchase airtime for mobile phones, pay traffic fines, register for municipal elections, buy bus tickets and purchase electricity on a pay-go system. For ATM Solutions some of the added functionality came about as a result of EMV migration in South Africa. "It cost us an untold fortune to upgrade our ATM network," Reubenson said. "But we've managed a lot of the added services as result of upgrading our network to a higher spec."
Mobile money transfers are also widely used in Africa, Sternberg said. The service started as an ATM-to-ATM transaction that allowed migrant workers to send money to relatives back home.
In time it evolved into a mobile and Internet convenience. Now a Johannesburg businessman who forgets his wallet on a daytrip to Durban can set up transaction on his mobile that will let him get ATM cash without a card.
In countries such as Kenya and Uganda, where rates are lower and banks are more scarce, more extensive mobile banking services have been "a rip-roaring success," Sternberg said. In Kenya, safaricom's M-Pesa has 17 million unbanked customers who use the service for money deposit, withdrawal and transfer, bill pay and airtime purchase.
For expansion, South African IADs are increasingly reaching into underserved rural areas (about 50 percent of the country's adult population is unbanked). South Africa's Standard Bank, this March predicted an influx of 8 million new banking customers in the country over the next five years.
"We're doing more than 50 percent of our installations out of the main metro areas," Sternberg said. "In the metro parts of South Africa we have a pretty high ratio of ATMs to users — about 450 per million, whereas in the rural areas its still very low — well below 100." (I the U.S., it's about 1,300 per million.)
ATM Solutions locates about 60 percent of new deployments in rural areas, Reubenson said. "[T]he banks have started issuing a lot of low-cost bank accounts into those areas," he said. "So we've gone in on the back of our banking partners. They'll say they've got a card drive in a rural area and we will send our sales reps into those areas and sell their brand of ATMs. It's really enabling the transaction ability of cardholder."
Beyond the borders
"Probably about 80 percent of all the ATMs on this continent are in four countries: South Africa, Nigeria, Egypt and Morocco," said Sternberg. "There's places like Burundi where you're literally talking about one to ten ATMs in the whole country."
That leaves enormous room for growth — but not everywhere. In Africa economies and population densities vary wildly. In the Republic of the Congo, the economy is bleak and the population is sparse — 31 people per square mile. In tiny Rwanda prosperity is rising and the people come 407 to a square mile.
Both ATM Solutions and Spark ATM are looking at promising markets that include Ghana, Tanzania, Kenya and Nigeria, countries that meet a tight set of criteria. "Developed retail, host sites, inter-bank switches that allow reciprocity, security levels, quality of life — If you get these things right, then we're pretty interested," Sternberg said, adding that the number of bankcards in peoples' hands was also very important.
ATM Solutions has already built a 250-ATM network for a bank in neighboring Namibia working through its existing infrastructure in South Africa. "African countries closer to home are probably effective markets for us but they're limited in size," said Reubenson. "[T]hey'll be very good businesses as long as we can leverage off the infrastructure that we've built in South Africa. If you have to start the transaction switches, the back office, etcetera in-country, it's going to make those countries very, very unaffordable to run a network in."
The "cash-less" policy in Nigeria is tricky, too, Reubenson said. "One of the challenges with Nigeria is you never actually know which way it's going to go. Today you may be earning $2 a transaction, tomorrow the reserve banks says drop ATM fees to zero to push for a cashless society. If you want an independent deployer to help you build a network of ATMs, should you basically ask them to work for free?"
A shared passion for cash
One thing is identical in Africa and North America: We love our cash. On both continents, cash makes up the majority of all transactions. And "Cash-less" policies notwithstanding, the preference for paper money seems fixed. "We're still in the cash food chain," Sternberg said. "People still want cash in their wallet. And in the end people want cash out of the box."
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