In a bid to expand its reach into Africa — in many ways the unexplored continent for financial services — US-based Visa has cut a deal with mobile giant Orange, bypassing the formal banking sector and taking advantage of a very African innovation.

As of last month, subscribers to Orange's mobile money system, Orange Money, in Botswana have been able to link their mobile money accounts to the Visa network, opening up access to Visa's services even to those with no bank accounts at all.

Orange's partnership with Visa makes it possible for mobile money users who sign up for the service to withdraw money from ATMs, buy goods online, and make point-of-sale purchases wherever Visa is accepted.

Speaking at the launch of the service, the chief executive of Orange Botswana, Elisabeth Medou-Badang, said that it was a step toward including more people in the formal economy.

According to Visa, its global payment network, VisaNet, is used by 30 million merchants and provides access to 1.9 million ATMs globally. Users in Botswana will be able to spend with 4,000 local retailers and withdraw money from over 300 Visa ATMs in the country.

The Botswana service is merely a pilot. Although Orange wouldn't comment on its timeline for expansion, the company has said that there are plans to progressively rollout the service to the 12 other countries in Africa and the Middle East where Orange Money is available.

Dougie Henderson, Visa's head of emerging products and innovation for Africa, said the primary beneficiaries of the new service are likely to be those who don't already have bank accounts, and remain outside the formal financial system. "Most of their payment transactions are cash-based, which adds insecurity and inconvenience to daily life," he said.

Henderson said the new partnership, which was first announced by the two companies last year, is expected to increase transactions from Africa, although he declined to speculate by how much. "Currently there are more than 700,000 Visa cardholders in Botswana, and Orange Botswana currently has over one million customers countrywide," he said. "Visa's goal is to drive 50 percent of revenues from outside of the US by 2015."

Mobile money in Kenya

Originally launched in Kenya in 2007, mobile money has been expanding fast across the continent. Users can deposit and store money on their accounts, and can send it inexpensively to other users at the touch of a button. A number of telecom companies now offer the service, which until now has mostly been used to send money to relatives, pay suppliers for goods, buy airtime and pay utility bills.

Mobile money's growth has certainly been impressive enough for the major players to sit up and take notice. In Kenya alone, more than 17 million people are now active users.

The African Development Bank reports that more than 70 percent of Kenya's adult population have mobile money accounts, compared to around 40 percent with traditional savings accounts. Thomson Reuters Alpha Now Research has suggested that mobile money could be "Africa's best contribution to innovation so far", citing the industry's expansion of services, such as international money transfers, as one of the things making it so attractive to investors.

A spokesman for Orange said that it's likely to expand even further. "Mobile money has known a spectacular growth in Kenya and is growing fast in other dynamic African countries," he said in a statement. But for companies such as Orange, already heavily invested in mobile banking, "we believe the future of mobile money is in extended and enhanced services".

"By partnering with Visa, we can bridge the gap even more effectively between the banked and the unbanked population," the company said. The Orange-Visa partnership does bring mobile money one step further to the functionality of a formal bank, but Thierry Millet, Orange's head of mobile payments, is quick to point out that there are still important differences. "Orange Money is not a banking service as it does not issue credit or insure goods," he said.

The unbanked

Even for Africans with bank accounts, the opportunity to access to the Visa network could be a welcome one, as the simplest accounts often do not offer it. Millet said that Orange's arrangement could be "a complementary service" for customers already in the formal banking system: "For example, to benefit from mobile bill payment services."

But not all the countries in which Orange Money operates enjoy the level of payment sophistication found in Botswana. In Africa, these include Kenya, Uganda, Cameroon, Cote d'Ivoire, Guinea, Madagascar, Mali, Mauritius, Morocco, Niger, and Senegal.

"Botswana was the perfect country to start this program because the country already has a large network of ATMs and POS terminals that customers can use to take advantage of the service," Orange's spokesman said. "Also, the usage of card payments is high in Botswana and consumers are used to making large or small payments with their cards."

In East and West Africa, however, few vendors accept debit cards, and opportunities for online payment are mostly limited to major purchases such as plane tickets. But more and more retailers have begun to accept mobile money transfers as payment, and with Visa's network onboard, opportunities to use the new service may expand once it is introduced.

Assuming it catches on among vendors, the Orange spokesman predicted that Visa's latest foray into Africa could well move the continent one step closer to becoming a cashless economy.

"Previously they would have to have another form of payment to purchase a sandwich in a shop or a book, for example," he said. "This new service allows customers to use their mobile for nearly all of the day-to-day financial transactions that they need to make."

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