South African entrepreneur Willem Malherbe, director of 5StarStoves, has developed a stove that uses bio-pellets. It ticks all the boxes: it's safe, clean, effective, sustainable and economical, especially compared to paraffin and other coal-based alternatives. What's more, to solve distribution challenges - as he'll be targeting under-served rural and peri-urban regions with the stove - both the stove and the bio-pellets will be manufactured in the communities where the customers are based. The concept has won awards from the National Cleaner Production Centre and is currently being piloted in Gauteng and Mpumalanga.
The bio-business is franchised to local entrepreneurs and from there, the model looks similar to a cellphone or printer deal. The stoves are sold for a nominal fee and the revenues and profit are in ongoing sales of the bio-pellets, with agents, the business owner and the franchise owner each taking a share of the profit.
Sounds awesome, right? But there's a fairly significant fly in the ointment: how to collect small amounts of cash in a safe, cheap way that has a paper trail connected to the delivery and receipt of a physical item and offers something in the way of business intelligence.
It seems inconceivable in this day and age of cellphones in every pocket, e-wallets, online banking and, the big daddy of them all, M-Pesa, that this is still such a difficult thing to do. The challenge is dealing with customers who either prefer to, or are forced to, deal in cash.
Alternative payment mechanism
Cash is problematic for safety and security reasons. There's both the risk of the agent being robbed or the agent being dishonest.
Malherbe immediately ruled out premium rate SMS as an alternative payment mechanism. With operator and payment gateway fees as high as 60% of the retail price, not to mention payouts only being made up to 60 days after the transaction takes place, this was a non-starter for Malherbe's business.
A point-of-sale device, such as the fixed kiosks offered by Blue Label Telecom that sell airtime and other prepaid services, doesn't solve the problem. Unlike virtual services, a physical product needs to be delivered and received for the transaction to be completed. A step in the right direction, and probably what Malherbe will end up with, is a mobile point-of-sale machine, such as the ones offered by Kazang and Nomanini, which is handled by the agent.
But there remains the issue of getting cash into the system. Barring premium SMS, at some point, cash needs to be deposited into a bank account. And there's the rub.
Even the electronic wallets that are starting to become available locally have relatively high transaction fees associated with making a payment.
Martin Wright, Kazang
According to Martin Wright, CEO of Kazang: "South Africa has very expensive cash deposit fees whereas many other African countries don't charge at all for this. It is very expensive to collect small amounts of cash and put them back into the formal banking systems.
"Even the electronic wallets that are starting to become available locally have relatively high transaction fees associated with making a payment, so, for small amounts, they are not providing an affordable alternative to paying in cash."
This is making it tough for entrepreneurs such as Malherbe to empower SMEs at grassroots to accept micro-payments.
CEO of Nomanini, Vahid Monadjem, predicts that prepaid micro-payment transactions are going to only be for virtual goods, such as airtime and electricity, for some time, until someone resolves the logistics issue of delivering durable goods. "Prepaid is proliferating, and when logistics catches up, it will include durable goods," he says. "Prepaid will become a virtual wallet that you can buy anything with."
Prepaid is proliferating, and when logistics catches up, it will include durable goods.
Vahid Monadjem, Nomanini
Ownership of this wallet is still up for grabs. Says Wright: "There are only two possible winners, the banks or the networks. I don't think that anyone else is well positioned to get a large enough base to make this work."
When it comes to a cashless society, however, he believes this is still some way off. "Until a solution is accepted by pretty much everybody, everywhere, there's going to be a need to get cash in and out of the e-wallets in relatively small amounts, for example R5 for a taxi fare."
In Malherbe's case, he's settling on a hybrid version of a mobile point-of-sale solution.
Instead of the agent taking the cash, the buyer first deposits this at a bank into the agent's vending account and then concludes the transaction with the agent, who now has a paper trail thanks to the transaction reports on the POS device. It's not ideal, he shrugs, "but we're actually doing okay in South Africa compared to some countries only just grasping the concept of mobile money".
First published in the October 2013 issue of ITWeb Brainstorm magazine.
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