The uptake of digital banking and contactless payments has varied across African nations on the post-pandemic road to economic recovery. While a number of countries in the region experience a high degree of digital banking adoption, others have fallen behind due to limited digital penetration and traditional banking infrastructure.
Despite challenging barriers withholding African nations from adopting more advanced digital capabilities, monetary digitization has experienced positive growth over several years, with soaring adoption throughout the pandemic.
At the height of the COVID crisis, digital e-payments accounted for more than 47 billion domestic transactions in Africa, while the region experienced a further 27.5 billion in transactions in the following year.
The rise of digital banking, such as contactless payments and digital wallets, has helped bring more African consumers online, as digital penetration grows across the region, and nations formulate and implement progressive banking regulations to help administer the degree of digital banking adoption.
While there is a lot of potential for fintech leaders in the region to help democratize banking and financial services, Africa has perhaps only scratched the surface of the possible opportunities of the digital payments landscape.
Near Term Opportunities
Across the continent, nations have welcomed both bank and non-bank players alike, blowing innovation into local financial infrastructure to reduce friction in domestic digital payments. These efforts, until recently have seen soaring demand and supply, also initiating investment growth for fintech companies and startups.
Revenues for domestic e-payments are expected to grow by 20 percent annually, totaling more than $40 billion by 2025. Compared to the global landscape, global payments are set to grow by 7 percent per year throughout the same recorded period.
The digitization of payments and transactions has further helped to increase transparency for consumers, reducing costs for businesses and merchants. With these financial tools being key drivers in economic growth, another look shows that more opportunities are still pending for the digital payment landscape in Africa.
Modernization of Banks
Traditional banks and banking services still hold a trustworthy relationship among several African nations despite the increase in digital payment services. For the majority of people banks, and even fiat currency remains an important hallmark of financial activity throughout their day-to-day lives.
However, the problem here is not introducing more banking services and abilities to participating customers, but rather finding a way to help the more than 350 million financially excluded adults get online.
SAS highlights the impact of analytics in Africa's banking and payments sector.
— regtechafrica (@RegtechAfrica) July 13, 2023
Discover how it enhances security, propels decision-making, and differentiates service offerings.
Fintech startups also leverage analytics to boost revenue and expand customer reach. pic.twitter.com/auPsLRTDXw
The largely unbanked population in Africa requires further intervention from traditional players, however, lack of sufficient infrastructure, government policies, complicated regulatory systems, and other digital barriers remain opposing challenges for traditional banks.
The inflection point here lies in the crossroads between traditional and neo-banking abilities, whereby innovative digital payment systems can leverage existing infrastructure and available networks.
This could help to capture the offline market while offering payments-as-a-service to the unbanked through an existing footprint. Banks can act as a launchpad for fintech companies and startups to further democratize the financial industry but also distribute financial activity among customer regions both in rural and urban areas.
While there is still a disparity between how traditional banks and more advanced digital offerings are being utilized in some African countries, it’s possible that through the participation of institutional players banks can develop an ecosystem that enables greater financial distribution, customer access, and financial inclusion.
Digitization of Small-Medium Enterprises
As with other developed parts of the world, small-medium enterprises (SMEs) represent a sizable portion of a country's economy and business landscape. Estimations by The World Bank state that roughly 90 percent of all businesses in Africa are SMEs. Further insight reveals that Sub-Saharan Africa has more than 44 million micro, small, and medium enterprises (MSMEs)
For businesses to capture an increased consumer market, collaboration within the African fintech ecosystem has enabled merchants to access new technology that allows them to accept contactless payments, and increase the scope of digital financial inclusivity.
While there remains a large majority of unbanked individuals spread across the region, native digital services, including digital wallets, cross-border payments, and online banking have helped SMEs and MSMEs leverage the opportunities provided by fintech.
Mobile money has helped revolutionize the way consumers pay and conduct transactions. However, a limitation of resources, investment, and scope of practice has made it difficult for smaller, less established, and unregistered businesses to harness these opportunities.
Furthermore, there is a shortage of adequate talent within the continent's labor market. Over the last couple of years, skilled professionals in parts of Africa have stepped up to provide fintech companies with competent human resources that enable them a greater capacity to establish a presence among smaller merchants.
While fintech companies can build cross-border partnerships with traditional financial service providers and banks, there remains regulatory risk and sustainable management of remote working field teams.
The separation between implementation and adequate human capital often only allows for progression within domestic markets, further creating a lopsided development in the continent's digital monetary system.
Network Connectivity and Digital Penetration
Mobile and internet connectivity plays a crucial role in the forward-looking development of Africa’s digital payment landscape.
Research by the Global System for Mobile Communications Association (GSMA) estimates that there will be more than 613 million unique mobile subscribers, which is half of the population, by 2025 in Sub-Saharan Africa.
This collaboration will enable airlines from around the world to process payments from customers in sub-Saharan Africa using a wide range of payment methods available on @theflutterwave's platform. @IATA https://t.co/4BgoEqSa6T
— Kenyan Wallstreet (@kenyanwalstreet) July 13, 2023
In economic value, mobile technology and communication services would grow to be worth more than $154 billion over the next three years.
The ability to broaden mobile network connectivity would need to work hand-in-hand with digital penetration. Although digital services, such as e-wallets and contactless payments via mobile devices, have already taken off in some countries, the broader development remains unreal.
Countries with stronger digital penetration would see a higher percentage of digital payment services. However, this could often only be attributed to those countries that have well-established financial institutions, stable governments, and progressive macroeconomic policies.
We once again see this sort of lopsidedness taking place in different markets. Countries such as Namibia and South Africa in Southern Africa have a slower digitization of payments due to stronger traditional banking infrastructure, but lower levels of mobile phone penetration.
Elsewhere in West Africa, in countries like Ghana, Nigeria, and Senegal, there is a high degree of digital payment services and usability, as there is greater digital awareness among younger demographics.
For instance, in Nigeria, the comparison between digital payments and card payments has seen immense diversification. During the first two months of last year, more than $130 billion was transacted via online real-time payments. Traditional point of sales (POS) experienced only $2.7 billion in transactions during the same recorded period.
There is this continuous push-and-pull scenario, whereby countries that have experienced improved adoption in terms of mobile connectivity and other digital reforms would see better development in terms of digital payment services.
However, this scenario would require adequate investment from the public and private sectors to collaborate on these progressive efforts.
While African governments have been working to bring more residents online and introduce them to the convenience of digital banking, further facilitation for digital infrastructure and stronger regulatory systems would be needed to help resolve these barriers.
To Conclude
Looking at Africa’s digital payment landscape indicates that while there has been steady progress over the last few years, further development and work are still needed to overcome current barriers, but deliver viable long-term financial solutions.
While many nations have already introduced an array of advanced mobile and digital banking systems throughout the region, further considerations in terms of partnership between traditional banks and fintech companies could help improve the scope of deliverability.
Issues relating to network infrastructure and digital penetration would mean that some countries will lag behind their neighboring counterparts and would need to consider ongoing investment from both the public and private sectors.
Africa has only scratched the surface in terms of digital banking and payments. The coming years present new opportunities for the continent to move itself from antiquated services, and into a space whereby digital tools can become a long-standing solution to the growing financial demand of businesses and consumers.
