The following article is part of a series of extracts from South African entrepreneur Hannes Van Rensburg’s upcoming book, Cash In, Cash Out. The founder and CEO of the fintech company, Fundamo, recalls the events that have helped shape the world’s mobile banking industry as we know it as well as those leading up to the company’s exit to Visa for a whopping US$110-million.
In this article, Van Rensburg details Fundamo’s launch of the world’s first mobile financial service in a developing economy through Celpay Zambia in 2002.
I remember the first time I typed in the URL www.celpay.com and accessed the startup page from the servers in Zambia. It was a moment of achievement; the solution was real and ready to bring financial services to clients in Africa.
The launch of the new system was a grand affair at one of the best hotels in Lusaka. Many dignitaries were invited. Kamiel Koot, financial director of the MSI Group, travelled to Lusaka for the launch and Zambian finance minister Emmanuel Kasonde was the guest speaker. Champagne glasses were raised, demonstrations were given and, on a warm evening in April 2002, Zambia became the first country in the world to launch a comprehensive mobile payment solution officially. The solution was fully authorised and certified by the Zambian central bank, and deployed with the support of two mainstream banks: Stanbic Bank and ABC (African Banking Corporation).
The service deployed offered cash deposit and withdrawal capability; peer-to-peer money transfers; airtime purchases; and bill payments. There was an immediate demand for the product and transaction volumes showed a steady increase as people signed up. Celpay signed up the biggest billers, which became a good source of revenue. One such biller was the Africa-wide pay-TV provider MultiChoice. Collecting subscription payments in a country like Zambia was very difficult, as almost every transaction was conducted in cash. After integrating the Celpay service with MultiChoice, a large percentage of all payments migrated to Celpay. Within a few months, most subscription payments were conducted electronically.
In a vast country like Zambia, with road infrastructure not always at its best, it is a challenging task to distribute fast-moving consumer goods. Companies like Coca-Cola and the local brewery faced many challenges in distributing stock to retail outlets. It was not only the logistics that were difficult: truck drivers had to collect cash payments for every consignment, making matters even more difficult. Cash on delivery was complex and had a huge administrative overhead.
Truck drivers would often spent a whole afternoon, after returning from a delivery run, trying to reconcile their cash collections with their delivery notes. The next morning, administrative personnel would go through the pain once again to deposit the money at the bank. Remember that Zambian Kwacha notes were low denomination: after years of high inflation, the cash each truck collected could fill a sizable suitcase at the end of a day. It was no small task to count it; many mistakes were made and much time was wasted.
Celpay offered a logical alternative: digitising cash payments. After identifying the opportunity, we started extending the system to support a cash-on-delivery solution for truck drivers. Truck drivers immediately fell in love with the solution as it reduced the complexity of working with cash and improved their sense of security – they no longer had to carry so much cash. I was told that when the system started gaining traction, truck drivers refused to deliver to shops that still wanted to pay in cash. The new mobile-based payment solution was just so much better, more convenient and easy to use.
In effect, it was the truck drivers who forced every small shop selling Coca-Cola or beer to subscribe to Celpay, as this was the only way they would receive their stock. Implementation of the mobile payment solution to remove the cash from the cash-on-delivery logistics equation reduced mistakes and improved productivity significantly.
There are many stories I could tell you about Celpay. The tribulations of this business could fill a whole book. It does not make sense to document all of the stories, but two are of interest, I think.
About three months after the launch, which had Zambia’s central bank’s full support, Barclays lodged a formal complaint with the central bank. Their claim was that Celtel, by operating Celpay, was running a bank (a deposit-taking institution) without a proper license. After considering the complaint, the central bank closed down the system pending a formal review. We rushed experts to Lusaka to defend Celtel’s case and to explain that all the deposits were held with proper banks (Stanbic and ABC in this case).
While everyone stressed a bit and was concerned that this could turn out to be one of those situations in which we would have to write off every cent we’d invested, we also felt that the complaint was a kind of compliment. The fact that a large and well-known bank like Barclays took us so seriously that they felt it necessary to complain formally just a few months after the launch showed that we were making waves. It highlighted the discomfort that banks felt about this new invention, that they did not know whether they should fight it or embrace it. This was a type of behaviour we saw quite often after this.
To cut a long story short, after considering all the facts, the central bank concluded that we were not breaking the law and that the system could be reactivated. Having realised what the system allowed and the opportunities it created for banks, Barclays joined the system soon afterwards. Within a year of the system going into production, all five major banks (including Barclays) were in support of Celpay and were actively involved in growing the subscriber base.
Zambia is a country known for thunderstorms and heavy rainfall. During one such storm, over a weekend, the Celtel computing facility – which hosted the Celpay servers – was struck by lightning. Something was wrong with the surge protectors and a few of the processors in the Celpay rack got, well, toasted. Engineers rushed into the room to check whether anything was salvageable and what they could do to switch over to disaster recovery. A sickening smell of burnt electronics hung in the air. Luckily, two of the processors were not damaged at all: judging by the lights dancing on their interfaces, they were clearly still processing data. It turned out that the systems had failed over to the redundant servers without losing a single transaction.
The architecture we had built to cater for losing one server had worked faultlessly, even though multiple servers had failed simultaneously. We were very proud to see this and boasted, afterwards, that not even a lightning strike could bring down a Fundamo solution.
Celpay featured in the December 2002 Wall Street Journal. The article, called ‘Africa is at Telecom Forefront’, read ‘MSI launches mobile payment system ahead of most rivals’. It was a well-deserved acknowledgement of Celtel’s pioneering spirit and the effort they had put into making the initiative work. While our name was not mentioned, it was, in some ways, a ratification of our vision and the belief that our investors had in us, and a compliment to all the staff who had worked so hard to make this real.
More Fundamo Diaries:
a href=”http://ventureburn.com/2016/03/fundamo-diaries-raising-capital-african-startup-part-3/” target=”_blank”>Fundamo Diaries — Raising capital for an African startup [Part 3]
Image: Simon Berry via Flickr.