In 2010, Kenyan payments, money transfer and micro-financing service M-Pesa became the most successful mobile phone based financial service in the developing world, just three years after the launch by network operators Vodafone and Safaricom. Since then, while other developing markets such as the APAC and LATAM regions have dominated headlines, the African continent’s success in digital payments has not been appreciated to a similar extent. There is more to digital payments in Africa than M-Pesa, and this piece will still only capture a snapshot of African success. 

Beyond M-Pesa and beyond maturity

According to Nana Araba Abban, head, group consumer banking at Ecobank Group, transaction flows sent by banks have grown by an average of 10% year-on-year during this 10-year period. Alongside this, mobile money payments have exploded, with the monthly value of transactions increasing 25 times over between 2010 and 2018.

The African digital payments evolution has also led to “banks adopting a mobile-led digital transformation strategy to reach more customers that their services were unavailable to with traditional models,” Abban says and adds that with “light KYC accounts operated on mobile devices, instant mobile payments including the use of QR technology,” banks are partnering with telcos to facilitate mobile money transactions.

Ecobank, for example, has introduced services like Rapidtransfer for instant cross-border payments across their network of 33 countries in Africa. For ecommerce businesses, cross-border payments are an integral part of day to day operations and allow business owners to transfer funds across different territories in the most secure and efficient way possible, making real-time international payments a reality.

While SWIFT gpi, Visa Direct and Mastercard Send are providing fast and secure global payments, banks are also establishing agent networks to expand financial inclusion, serving customers in neighbourhoods in which they work and live. Ecobank currently has 44,000 agents in a network launched less than three years ago, for example.

Furthermore, in conversation with Dare Okoudjou, founder and CEO of MFS Africa, he says that “M-Pesa was a long time ago and if we were to take a global view, there are around 290 M-Pesa-like schemes around the world. Almost 80 of those services have more than one million active daily users. But Africa remains the epicentre of that market."

Cross-border challenges

According to Brookings, intra-African trade is at 17% compared to 59% in Asia and 69% in Europe. The implementation of the Africa Continental Free Trade Agreement (AfCFTA) is expected to boost intra-Africa trade by up to 52%, by eliminating import duties and reducing other barriers to trade.

Araba says that while there is maturity in the logistics sector, the costs of import duties and freighting charges for instance, “might be prohibitive for small businesses seeking to leverage ecommerce platforms. Thankfully, cross-border payments are less challenging.”

She explains that there are regional initiatives being implemented to facilitate cross-border trade between countries. For example, the Common Market for Eastern and Southern Africa (COMESA) is implementing regulations which assist small-scale traders in crossing borders with simplified clearance procedures for low-value transactions they typically conduct.

“With support from the World Bank, the governments of the Democratic Republic of Congo, Rwanda, and Uganda, in cooperation with COMESA, are increasing the capacity for commerce and reducing the costs faced by traders, especially small-scale and women traders, at key borders in the Great Lakes region.”

However, with global trade still predominantly conducted in USD, the apparent lack of USD liquidity in some Sub-Saharan African countries can present problems for cross-border trade. Furthermore, as Steven Marshall, chief commercial officer from Crown Agents Bank relays, “with delays to initiatives like the African Continental Free Trade Agreement, ecommerce offers SMEs a vital chance to reach over borders and expand from local enterprises.

“It’s certainly unfortunate that the wider AfCFTA programme has been postponed as it has the potential to boost Africa’s trading position in the global market, but certainly understandable in the current climate.”

Olivier Lens, head of Sub-Saharan Africa at SWIFT, adds that taking South Africa as an example and considering the success of the Southern African Development Community real-time gross settlement system (SADC RTGS), it is clear that the financial systems in this region are well developed, especially as the adoption of ISO 20022 is also being considered for various projects.

“In the cross-border payments space, several of the region’s largest banks are live on SWIFT gpi and many are in the process of adopting it. In 2019, more than 50% of SWIFT gpi payments globally were credited to end beneficiaries within 30 minutes, bringing more speed, transparency and end-to-end tracking to market players worldwide,” Lens explores.

SWIFT gpi will increase competition in the cross-border payments space, delivering faster, more transparent and traceable payments and supporting the expansion of intra-African trade and international trade.

With strong and secure financial market infrastructures (FMIs) such as the SADC RTGS and others such as the East African Regional Payment System (EAPS) and the regional RTGS system launched by the Economic and Monetary Community of Central Africa (CEMAC) emerging, it is evident that harmonisation is important.

“Pan-regional payment systems operating within harmonised legal and regulatory frameworks of regional economic areas will make intra-regional payments easier, faster and cheaper. This will help to increase cross-border trade within regional communities,” Lens adds.

Central bank intervention

Central banks and banking regulators are playing an active and supportive role in the growth of payment services in Africa. An example that Abban references is the Banque Centrale des États de l'Afrique de l'Ouest (BCEAO) based in Francophone West Africa, that has approved KYC friendly basic accounts with the intention of expanding financial inclusion and in turn, digital payments.

The Central Bank of Nigeria has also pushed a cashless agenda by reducing card fees, limiting ATM withdrawals and levying large cash deposits. The number of electronic payment transactions in Nigeria grew from 66 million in 2008 to over two billion in 2018. It is a fact that digital payments market has matured faster in Africa than it has in Europe: the number of electronic payments in France has grown in the past decade, but from 33 million in 2009 to 61.5 million in 2018, according to Statista.

Ethiopia is another market with bank-led mobile money and a single national carrier serving the population’s mobile telecommunication needs. Araba explains that the National Bank of Ethiopia has, in a new directive, said it will allow new entrants to offer mobile money services and that it will be selling a 40% stake in the state-owned monopoly Ethio Telecom. She adds that the central bank “is granting two licenses for firms to compete with the incumbent. The companies that are successful will likely seek to cash in on the untapped potential for mobile money in the market.”

While M-Pesa’s success has demonstrated the potential for payments in this region, the maturation of the fintech industry in this region has also attracted the attention of investors, as Marshall points out that startups operating on the continent received a total of $1.3 billion in funding in the last year and giants like Interswitch have emerged.

“Africa has also celebrated its first home-grown unicorn Interswitch, after payments giant Visa acquired a 20% minority equity stake in the firm. There’s been so much innovation in the last decade, but there’s still a lot of people and communities to reach,” Marshall says.

The GSMA states that Sub-Saharan Africa is mobile payments' biggest market, accounting for a staggering 45.6% of all activity globally in 2018. Marshall believes that “digital payments are reaching new heights and, in a reaction to this, traditional banks in the region are increasingly working to digitalise their services and welcome more pay-out methods.”

As has been seen in Kenya, traditional lenders in Africa are innovating, embracing new technologies, streamlining their operations and collaborating with fintech firms - building on their strengths of having a large established customer base and rich customer data; risk management capabilities; balance sheet strength; industry knowledge and trust, as Lens explains.

Diverse customer distribution = enhanced financial inclusion

As host to almost half of all mobile money registered accounts globally, it calls into question whether Sub-Saharan Africa will remain the epicentre of mobile money. Customer distribution across the region has become more diverse and mobile money agents have played a key role in driving customer adoption and enhancing financial inclusion across Africa.

According to an IMF Financial Access Survey, there are 60 agent outlets per 1,000 km² vs. two ATMs and one bank branch in the same area in Sub-Saharan Africa. Abban believes: “The proximity of service is critical to the adoption of digital financial services as most people cannot afford to travel long distances to transact.”

With over 1.4 million active mobile money agents in Sub-Saharan Africa, some of which also serve as banking agents, and 90% of transactions still being conducted in cash, it is without a doubt that mobile money agents have played a critical part in strengthening the banking industry, helping extend reach through popular services such as bank to wallet transfers and overcoming logistical issues to do with proximity to bank branches and ATMs.

Okoudjou follows this up and states that “mobile money agents are the unsung heroes of the digital payments evolution in Africa. Mobile money is not about the mobile, it’s about the agents. In time, you will see agents becoming more sophisticated and they will be allowed to distribute or facilitate different types of services like insurance or investment.”

While making a payment is now cheaper, faster and safer than ever before, the next step according to Marshall is to stop customers from “cashing out” after they have received a mobile remittance. Referencing Center for Financial Inclusion data that registered accounts increased by 11.9% in 2019 and transaction value was up 27.5%, Lens notes that “mobile money has grown at pace in countries where regulation has evolved to enable low-cost services.”

Lens exemplifies this and reveals that Ghana has seen a 400% growth in the use of mobile money after rolling out a number of policies that addressed financial inclusion and allowed full interoperability among telecommunications companies and with banks. “Established financial institutions are collaborating with fintechs to build out the ecosystem, increase financial inclusion and deliver enhanced services to end users.”

Overtaking traditional infrastructure to offer value

Digital technology is allowing emerging markets in Africa to leapfrog traditional financial processes and process payments quicker than is perceived in developed countries such as the US. Innovations such as electronic cash tokens for agent or ATM withdrawal, issuance of virtual cards, payments via SMS or email are in circulation. In addition to this, Abban highlights that in Zimbabwe, Kenya and Nigeria, “transfers can be made between banks instantly and this has been the norm for some years now, in contrast with countries like the US where legacy systems might hinder such innovation.”

While the US is seemingly a laggard in the payments arena in comparison, she goes on to state that in addition to M-Pesa in Kenya, Africa has also since seen the rise of stalwarts such as Nigeria’s Interswitch and Morocco’s Hightech Payment Systems. Marshall reiterates: “By removing some of the biggest obstacles, namely having to be physically at a bank, digital finance directly offers an accessible way for people to fulfil their financial needs. As a result, we have seen it overtake traditional banking methods that are less relevant to an increasingly digital savvy population.

“In the past few years, digital payments in Africa have become world-leading in terms of adoption and volume.” Nadia Costanzo, head of banks for Africa & Latin America at TransferWise takes this point further and surmises that on a continent where most live far from traditional bank branches, banks are providing liveness checks so that customers can complete KYC verification services from the comfort of their homes.

While Costanzo highlights that this is dependent on internet access, “something which is not always reliably available across rural areas,” M-Pesa must continue to be hailed for being the first of its kind in Africa to enable international money transfers, small loans, bill payments, airtime top ups and high interest savings accounts (up to 6.65%).

Following in M-Pesa’s footsteps, startups across the continent are “doing incredible things to replace banks,” Costanzo says. “Farmers in Senegal and Mali are able to develop savings habits through mobile layaway platforms such as myagro, where they usually would have had to go to traditional financial institutions to get loans at high interest rates. Similarly, people without access to energy in Madagascar can access solar lamps through loans that link activation of lamps to repayment of debt via baobabplus.”

Thriving and surviving in the ecommerce sector

Smartphone penetration could unlock access to a broader customer base over time and allow micro, small or small to medium businesses thrive. According to The United Nations Conference on Trade and Development (UNCTAD), the number of online shoppers in Africa has surged annually by 18% since 2014 and this has occurred on the back of rapid smartphone penetration, as the primary means of accessing the web in Africa is via mobile device. But it takes more than mobile penetration as Abban explains.

Abban says: “This trend can be expected to continue with the introduction of less expensive ISP data packages, evolution of payment solutions including virtual cards, inexpensive web acquiring solutions and improved logistics infrastructure. To be sure, it takes more than access to smartphones for e-commerce to thrive. Nigeria, Kenya and South Africa account for more than half of online shoppers in Africa. Market access is key for businesses and with the right investment in infrastructure and well written policies, there should be growth in the businesses reaching clients online,” she continues.

Marshall has a similar view and refers to mobile technology as a “primary engine of economic growth. Mobile has enabled innovative business models that have helped SMEs compete on an even footing with much bigger companies.” He calls attention to the fact that ecommerce in Africa was valued at $16.5 billion in 2017 and a McKinsey report revealed that this value could well go up to $75 billion by 2025.

“Mobile money would further empower the growth of ecommerce in Africa and the growing penetration of smartphones opens up a wider opportunity both in terms of accessing online stores and in enabling a range of payment methods. This is key in facilitating cross-border transactions, particularly in a market that has been nervous about ecommerce until Covid-19 accelerated its relevance.”

It goes without saying that mobile phone penetration is high across Africa, usually significantly higher than bank account ownership. Costanzo mirrors this and says “mobile providers do not only develop mobile money services for smartphones, but also for feature phones, so people at all income levels in countries, where mobile money services are available, can receive remittance payments and make local payments.”

For MSMEs, this is positive as they would be able to leverage mobile money tools to improve accounting processes and reduce the risk of theft for example, where mobile money is a commonly accepted form of payment and will slow down the use of cash or hand-written accounts. However, as Costanzo explicates, there are still challenges that can’t be solved through smartphone penetration alone.

“In countries where mobile money is not as high profile, accepting payments through cards or bank transfers would be the only viable ecommerce alternative. Debit card ownership in countries like Nigeria and South Africa were less than 50% in 2017, thereby significantly reducing the addressable market in ecommerce.”

Okoudjou concludes by saying that typically, when coming across headlines about African payments, leapfrogging is used as a description, “which implies that Africa is catching up. In many ways, Africa is on its own path and some of what we’re doing is ahead of what is being done in Europe or the US. Our path is also not to replicate what is being done in Europe or the US. Payments have been instant across Sub-Saharan Africa since 2010.”