Africa is a huge continent with masses of population and a realm of untapped economic opportunities. After a long period of economic and social stagnation, many African countries entered a period of accelerated growth and development in the 2000s, giving forward-looking startups and digital businesses a stimulus to consider Africa more seriously.
One of the greatest opportunities one can currently embrace in the African market is digital payments, as most African countries still have immature, fragmented, and unreliable financial infrastructures. Such a state of affairs causes the financial exclusion of vast population categories, leaving millions of Africans underbanked or unbanked. That’s why any startup or mature digital payments business should keep its finger on the pulse of the evolution of the African payment system and partake in that process in every way they can.
The recent 2022 report jointly prepared by AfricaNenda, the World Bank, and the UNECA Organization focuses on many things and offers a comprehensive overview of the state of digital payments in Africa. It’s true that the digital transformation triggered by COVID-19 also affected African countries, and the task of the present-day forefront financial actors and startups across the African continent is not to allow a backward slide into the cash economy by raising awareness and stimulating the adoption of digital payments.
What I found the most promising in the SIIPS report is that digital payments enjoy a steady rise across Africa, with expanding depth and breadth of usage at all levels. While only 33% of Africans reported using the digital payment system to send or receive money in 2017, this figure turned to 56% in 2021. The highest percentage of digital payments use is observed in Kenya, with 78% of the population using digital channels on a regular basis. Ghana is the second, with a 66% adoption rate.
Another notable observation is the satisfactory state of the IPS inclusivity in Africa. Users have access to four IPS types – bank IPS, mobile money IPS, cross-domain IPS, and sovereign currency IPS – all of which are interoperable to a certain degree. With a total value of $930 billion processed through African IPS in 16+ billion transactions in 2021 only, the system definitely showcases signs of maturity and expansion. The number of channels, instruments, and use cases for digital payments continues to increase, which ensures that most end-user needs are met. That’s why the existence of a well-developed IPS system, which can further integrate digital payment functionality, is a positive contributor to the increasing depth of digital payment use.
USSD is also of critical importance for many African regions with scarce access to the Internet and can resolve the problem of access to financial tools. Yet, the high cost of using USSD is still a major barrier to its massive adoption, with many options for compensating for the USSD fees currently considered by payment providers. Interestingly, mobile IPS are used for small-sum, high-frequency transactions, which suggests that mobile payments are more widely adopted by individuals and enter the everyday routines of Africans. Coupled with the heavy reliance of African users on the USSD payment channel (which is currently not supported by all IPS providers), the positive trend of increasing digital transaction use is evident.
As the pace of digital transition accelerates in all corners of the world and gets more pronounced in under-developed regions like Africa, the problem of infrastructural support comes to the fore. What troubles me is the often neglected problem of infrastructural duplication that may cause an unnecessary drain on African states’ financial resources. As the SIIPS report pointed out, new technologies of digital payments require infrastructure to be able to provide their services in rural areas, and setting up that infrastructure will essentially duplicate the one that is already in use by IPS operators. In this regard, it seems logical that payment providers should strive for interoperability and collaboration for the sake of optimal resource use instead of launching brand-new infrastructure for new payment schemes – an investment for which the end-user will eventually pay.
The greatest potential of the African digital payments market still rests in the regional cluster of Kenya and Ghana, with 80%+ of users in these countries using digital payments on a regular basis. The market is only emerging in Tanzania, Zambia, and Nigeria, but the problems these countries are yet to resolve include limited technology adoption and irregular population income. Digital payment providers in these states need to raise public awareness, and the sphere can advance faster if greater network reliability and infrastructure are attained. Digital startups focusing on financial services should keep an eye open for these emerging markets, as they conceal the greatest potential for the development of the digital payments market in the coming years.
CEO & Founder at Clinq.Gold, Bank of Bullion | Keynote Speaker