Aka Gum
Africans, Trust And The Propensity To “NOT Pay”
Build it and they wont pay?
The Igbo have a slang to describe people who are not just extremely frugal but are also chronic debtors. The word is “Aka Gum”, and when literally translated means “Sticky Hands”. Money never leaves sticky hands, instead they take and don’t give out. There is the theory that “Aka Gums” are more common in the general African population than those who give freely. They are also typically unapologetic about their behavior preference.
Jason Njoku sums up this seemingly prevalent behavior within the African consumer and enterprise market in his recent post with a very apt statement — “price sensitivity and propensity to NOT pay”. The truth is that we all tend towards AkaGum in a lot of ways but we also tend away from it in several other ways. Africans are very generous and trusting when they believe in something of “value”. Religious organizations have been able to capitalize on “belief and trust” to make Billions. I think it is essentially a value argument and not a character problem.
I think for the consumer internet and tech based companies in Africa, value is something that is either immediately apparent as in the case of telcos or something you have to educate the market about by first getting them to sample what you have to offer probably via a freemium model. The only problem is that people get used to the free part of freemium quickly and want to extend it indefinitely.
It seems to be conventional wisdom that “we Africans seem to love the word FREE”. When product or services are not meant to be given away, we find ways of trying to take without giving. What I wonder however is if the generalization on the propensity to NOT pay has been tested and validated in all instances?
Freemium models for Internet products globally are particularly fraught with same risks especially with the transaction costs and dynamics of content on the Internet. With online content, it doesn’t help that there are not only close substitutes everywhere but also pirated content. A very valuable article on Forbes about “The Freemium Model’s Top Flaws and Potent Fixes” validates Iroko’ approach. This was highly recommended reading at my General Assembly Product Management class.
There are two core tenets there:
- The Market must exist
- There must be people willing to pay in that market
The problem with most of Africa is that more often than not there is almost zero data about markets and market sizing is worse than rule of thumb. As Jason rightly said, those who have the data most probably know what they are doing and others who copy blindly may miss it altogether.
The questions we should ask are — is it because our expectations are so low that consumers don’t trust merchants and service providers to continue to delight? Are we really just a population composed predominantly of cheapskates and deadbeats? Whatever it is, it is also probably one of the biggest UX (User Experience) challenges with African payments. A lot of payment initiatives are designed with the assumption that Africans are inherently dishonest. I believe that NOT to be the case and we should test all assumptions.
Loyalty and Payments
The truth is that the consumer globally DOES NOT LIKE payments except they see overwhelming value to them from the supply side. Receivables collections is also a global headache. From the consumer perspective, if the value is not apparent, each payment reduces further choices in their mind with depletion of free cash.
Foreign retailers know that and that is why they offer store cards and store credit to give you the illusion that you are gaining purchasing power and not losing it. They give loyalty points to make you want to come back because you feel you have gained something or saved something from purchases. It is all mind games while they gather your data. Loyalty is a great hack when it comes to value perception. All of value is perception.
Loyalty schemes are a big boost to payment UX but consumer loyalty schemes are also very scarce in Africa. I have used a Glo post paid cell phone line in Nigeria for 12 years now and they have given me nothing in return for those 12 years except inconsistent bills. One could argue that Glo have given me no value but why do I remain? I remain because the choices offer not much better and switching costs were high for me until number portability was introduced. Even with number portability, telcos still don’t do loyalty schemes well, they do lotteries and price wars.
The African consumer seems to pay consumption tax to the merchant or service provider and there is no upside for them except if they feel they have negotiated a bargain. Bargains seem to only happen in informal markets and it strengthens the value perception. It is perhaps why users will never leave the informal sector in a hurry totally for online markets. People seem to grudgingly make payments for recurrent services probably because they feel that are being held to ransom by the possible consequence of the inconvenience of not making those payments. User experience could be so much better.
Trust and Delinquency
It seems the “Tax Collectors’” UX has not improved since the biblical times. A lot of African subscription based businesses use the prepaid “tax collectors” approach rather than the post-paid “trust” approach. Africa is predominantly a pre-paid payments market when it comes to all tech related payments because trust is scarce but is this really the best approach? Is it because we are too lazy to explore other user experience options? Are we missing out on great growth opportunities?
I believe the Akagum phenomenon on the consumer side is a distrust issue by the consumer and not an necessarily an inherent dishonesty issue. On the B2B side however it is a different story. Payment processors and banks are also guilty of perpetrating distrust as I have seen merchants avoid electronic payments altogether because their funds typically get tied up by deliberate bureaucracy. This is very bad for African payments and online marketplaces.
There are foreign services I pay for online and enjoy like Netflix, Hulu etc. I also pay for quite a number of other online subscriptions as well and it was not until my US card expired recently that I realized how much I was paying each month without any pressure or need to do anything. Payments has become a silent background process with these services and not the first interface encountered before service is rendered.
The Americans are very good at making payments invisible and not an inconvenience. They trust you to do the right thing and do not take extreme measures immediately for delinquency. they realize that the lifetime value of a customer is more important than forcing a payment. It is the very reason why their online consumer markets have thrived. It is frictionless payments that have made startups like Stripe hugely valued.
I did an experiment with my American online payments and refused to update my new card details on those sites to find out which one would cut me off first and surprisingly none have cut me off yet after a month. They keep sending polite reminders for me to update my card details. I will do so now not because I fear the consequence of being cut off but because I have been “delighted” by their service and they “trust” me to come back. If anyone had been rude, I would have looked for a substitute and that is actually the real issue, there are other choices and there is trust.
In Africa, organizations resort to extreme measures to discourage delinquent behavior. Churches and Estate associations publish delinquent’s lists on notice boards and the Central Bank of Nigeria recently published a list of all loan defaulters in banks online. I can imagine the kind of privacy nightmare that would cause if the same measures were taken in other societies.
Sometimes, I think maybe delinquency would be less in Africa if we understood our markets and customer cash cycles better. The informal market seems to do that well as people who sell things on credit visit offices to collect on pay day.
Risk and “Willingness to Pay”
I tried to understand why in African markets (for example telco services) where there are also close substitutes for products the prepaid subscription or prepaid on-demand model still prevail. I believe it is because risk aversion has become an industry norm and threshold requirement. Risk aversion however solves one problem as it is easier for you to know customers who are willing to pay.
Most players on the payment service provider or merchants side online tend to be risk averse not just from experience but because of fear. It is not a hypothesis to test “willingness to pay” but rather the assumption is that the market “must pay”.
Trust is the main problem with African online payments. Lack of trust causes friction. Friction caused by risk aversion mechanisms causes low adoption of online payments. The merchant don’t trust that there is a willingness to pay on the part of the customers and it also does not help that African consumers don’t really trust merchants or service providers to keep their end of the bargain. There needs to be some entity all parties trust, “a man-in-the-middle to break this impasse? A man in the middle who keeps a record of behavior and who can make trust a secondary currency perhaps?
I believe that we as entrepreneurs are afraid because we don’t really understand our markets and have not been able to segment the market properly to find opportunity for low risk non-prepaid recurrent subscription payments. Another problem may be that we have not put in place any meaningful mechanisms to manage risk on the payments side. The informal sector has however been able to manage this risk and solve the trust issue in novel ways, I believe there is much to learn from the informal sector and I will elaborate on that in a separate post.
I learned many years from doing Credit Courses for banks that “every Foreclosure is a failed transaction”. Every customer in the consumer space you cut off should also be failure on your part to understand where the gaps exist in your market. It is not enough to just find a gap in the market but to find a market with willingness to pay in that gap.
Services may be on-demand, but payments ideally shouldn’t be demanded before. I think that once “willingness to pay” and “ability to trust” is established, the payment process should become smoother and not harder. I believe there are smart ways to be learned from the informal sector to ensure loyalty and repeat purchases without holding people to ransom and those may be where the Billion Dollar opportunities in African consumer Internet lie. Those are the hypothesis’ I will be spending all of next year to test.
