KaiOS targets merchant market for growth, digital inclusion

KaiOS Technologies, the creator of a mobile operating system for "smart feature phones," has started offering affordable merchant payment terminals - which look like feature phones - to help underserved merchants and transport providers to accept digital payments solutions.

The company has traditionally focused on the consumer market but has recently expanded into the merchant market as it looks to diversify its business, while also working with startups to help provide information via mobile channels in areas like healthcare, agriculture and education.

KaiOS Technologies' CEO, Sebastien Codeville, told Connecting Africa in an interview on the sidelines of MWC Shanghai that the company was running two pilot programs in the merchant sector in Africa - one in the informal transport sector in Nigeria and another with merchants in Côte d'Ivoire.

"What happened is that during the Covid period, we tried to diversify the product range and we noticed that our users, when they searched on the Internet or in the KaiStore, they were looking for farming apps and for commerce apps to help them with their business," Codeville explained.

"We looked at the market a bit more and we found research from the World Bank that showed there are around 300 million informal micro merchants globally, 100 million in Africa and 40 million in Nigeria alone. So, it's a huge population, and this population is mostly transacting by cash," he added.

Codeville said KaiOS is trying to digitize the payments process for merchants and creating useful digital tools for their businesses.

The Nigerian pilot is giving bus drivers a seamless tap and go experience in partnership with Touch and Pay Technologies (TAP) using STMicroelectronics' ST54L solution which integrates Near Field Communication (NFC) capabilities.

TAP co-founder and chief growth officer Michael Oluwole was recently a guest on The Connecting Africa Podcast and he explained how the company's tap-to-pay solution is being rolled out in Nigeria's transport sector via its Cowry card and a mobile app.

TAP launched in 2019, initially in Lagos state, and has now expanded to other Nigerian states like Ogun, and Oyo. The company has almost 4 million total users and about 500,000 active daily users.

Codeville said the markets in Côte d'Ivoire and Nigeria are very different to each other, so in Nigeria, KaiOS is experimenting with NFC because the country's financial sector is more geared towards bank transfers and not mobile money, while in Côte d'Ivoire the pilot is focusing on mobile money and card acceptance through a payment link rather than NFC.

NFC is a set of short-range wireless technologies, typically requiring a distance of 4cm or less to initiate a connection. It lets users share small payloads of data between an NFC tag and and mobile device, or between two mobile devices, enabling contactless payments.

"We tried two very different markets because Africa is not one system, you need to have different approaches. We are also looking at [rolling out pilots in] Tanzania, Kenya and Ethiopia which will come progressively this year or beginning of next year, we will expand to more markets," Codeville told Connecting Africa.

He showed off the dedicated merchant or bus driver device explaining that the design is stronger than a normal smart feature phone, with a very large battery and a better camera which can also allow for KYC (Know Your Customer) and which is equipped with NFC capability on the front.

An example of the KaiOS-powered merchant payment terminal that is being piloted in Nigeria and Côte d'Ivoire. (Source: Connecting Africa)

In Africa alone the informal transport sector accounts for around 95% of all public transport trips and KaiOS believes that its new device using the ST54L chip can transform a simple smart feature phone into a powerful tool for underserved drivers by replacing cash-based transactions with contactless validation.

Using the solution from Switzerland-headquartered STMicroelectronics enables KaiOS smart feature phones to provide secure contactless ticketing services. The ST54L chip can also host other advanced services including access control and an embedded SIM (eSIM). Preloaded with the Thales mobile secure operating system, the ST54L device also facilitates access to the STPay-Mobile service platform, a solution that simplifies the creation of digital wallets.

Codeville said the pilot with TAP and Nigerian bus drivers "is the perfect use case because you have a closed loop NFC card" which is a simpler use case, but it allows KaiOS to experiment with the NFC approach on a more advanced merchant device.

KaiOS' shifting focus over the years

KaiOS Technologies launched in 2017 and its smart feature phones made a splash in the African market back in 2018. The company has gained significant traction in emerging market countries over the years and its main focus is on digital inclusion in Africa and South Asia.

The group's core products are the Kai Operating System (KaiOS) and the application ecosystem (KaiStore). Through this it created a new mobile category of consumer products - smart feature phones - which provide access to all major apps (such as Google, YouTube and Facebook) at a fraction of the cost of a smartphone.

More than 175 million KaiOS-powered smart feature phones have been shipped globally to date and Codeville said that shipments are accelerating in 2024.

In Africa, KaiOS has partnerships with major mobile operators like MTN and Orange across numerous African markets and is still working with local operators to roll out large-scale projects in the African market.

In early 2023 Codeville spoke to Connecting Africa about the challenges the company faced during the COVID-19 pandemic due to supply chain issues and chip shortages.

"Last year we still had impacts of the [high] chipset price and chipset shortage, in 2024 it is getting much better. We now see prices of devices with a 2.4-inch screen really going down and its now below the price we had before the COVID time. We are also trying to push better user experience with a larger screen. We now have a product with 3.3-inch screen, and we are trying to launch a device for education purposes," he said.

KaiOS has been working with companies in the education sector, including a partnership with Roducate and the Lagos state government in Nigeria.

"We had an experiment in Lagos where we equipped 300,000 kids with a smart feature phone, with all the education content from kindergarten to 12th grade. The result was amazing, on the national exam there was an improvement of 40% of the grade compared to the previous years. So, the Nigerian government is pushing this initiative," he explained.

The Roducate solution is available for smartphones and also for feature phones for rural areas in Nigeria.

"This is very important for us, and we are trying to replicate that in other countries. We are active in the Democratic Republic of Congo and also some other countries when it comes to education," he said.

KaiOS' partnership with Roducate and the Lagos state government resulted in a 40% improvement in the results from the national exam for the students who used the mobile platform. (Source: Image by freepik)

KaiOS also works with several startups around agritech, bringing agricultural content via mobile phones, and also works with one healthtech startup, bringing healthcare content to people in Africa and South Asia.

Smart Africa partnership

At the end of June 2024, KaiOS also signed a strategic partnership with Smart Africa aimed at giving previously unconnected Africans access to digital services such as messaging, news, entertainment and education through smart feature phones.

The partnership will also help accelerate the distribution of the new KaiOS-powered merchant payment terminals to enable underserved merchants.

Smart Africa is an alliance of African countries, international organizations, and global private sector players tasked with advancing Africa's digital agenda. Launched in 2013 by seven African heads of state, the alliance now has 40 member countries, representing over 1 billion people and over 50 private sector members - now including KaiOS Technologies.

The partnership will collaborate with governments to provide guidance to member states, accelerate current digital inclusion initiatives, and engaging with local communities and stakeholders to tailor solutions to specific needs.

The focus will be on providing mainstream social media apps, educational resources, training programs and connected agricultural support to farmers with information such as weather forecasts, pest and disease management, and market prices to help them make informed decisions, leading to better crop yields and profitability.

Mobile device financing

Codeville also shared an update on the financing solutions that the company is using to scale up the migration of African 2G users onto 3G or 4G smart feature phones.

The company facilitates financing deals by working with mobile operators and fintech companies to provide a small consumer loan for users to access phones at a cheaper rate.

"Usually, the microfinance company will provide a US$10 loan, and the people will pay back the $10 over four to six months. This is an ongoing strategy. We have it in Tanzania with Y9 Bank, for example and we have more countries coming up," he added.

He said the company is also looking for partnerships with commercial banks to roll out trade financing options.

"The drawback of consumer financing is you need to credit rate the customer. With trade financing, the approach is different. We provide the financing to everybody, regardless of their credit history," the KaiOS CEO explained.

The devices are then not paid back via a traditional loan but rather via usage.

"It's not a consumer loan, when we connect people to the Internet their usage increases, and through this uplift in ARPU (average revenue per user) we pay back the financing. We believe this has the possibility to scale in very large manner," Codeville said.

He said an average 2G user in Africa roughly spends about $2 on their phone bill per month, but when they move to a 3G or 4G KaiOS device their data usage grows to about 5GB per month, which means ARPU can often double.

"The usage uplift over a certain period is used to finance back the device financing. So, this is the new approach we have where we are piloting in a couple of countries and we want to bring some big financial partners to the table, to really scale that to millions of people," he said.

Codeville also cautioned that a lot of digital education is still needed to make sure people understand the benefits of being connected to the Internet and how to manage their usage and the cost associated.

"We have seen that a lot of customers, once they get a smartphone through financing, they use it for two or three months, and then they switch off the data and just use it as a feature phone, or as a voice phone, and this is exactly what we want to avoid. The reason is the cost increase and also the perceived benefit," he said.

"We use a gamification approach to bring the people into different apps, let them discover, get rewards when they discover the feature. Make sure they know what they can do with the phone, so they start to use the feature. We also are deploying with this system options for pay-as-you-go Internet and bricks of data for specific usage," Codeville added.

He gave the example of South Africa where most carriers offer a WhatsApp bundle, a YouTube bundle, a music bundle, etc., and KaiOS is using that approach with very small bundles to let users discover what they can do online, but still stay in control of their budget.

"They have the possibility to increase their usage, increase their spending, but we do it progressively, rather than suddenly giving them access to the Internet and then they use 10GB or 20GB and at the end of the month they have spent $10 or more and then they stop using it because they can't afford that," he concluded.

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*Top image is of KaiOS Technologies CEO, Sebastien Codeville. (Source: KaiOS).

— Paula Gilbert, Editor, Connecting Africa