Payments environment in Africa

Africa is a continent three times bigger than Europe, with state infrastructures inherited from colonization in sectors such as telecommunications, postal services and banking. Africa never took the bank card shift and it is still a very cash-oriented region. Because two-thirds of Africans cannot open a bank account, the establishment of connected payment infrastructures is a prerequisite to solve real challenges and accelerate growth and development. Therefore, in Africa, expanding low-cost, easy-to-use mobile banking has a huge potential impact.

The African continent is currently experiencing a period of strong and fast economic growth, where trade has turned out to be an important engine of this process. Before the Covid-19 global sanitary crisis, the African Development Bank had estimated a growth of the continent’s GDP by 3.4% in 2019 and projected an increasing trend in the following years. According to UNCTAD, intra-African exports were 16.6% of total exports in 2017, compared with 68.1% in Europe, 59.4% in Asia, 55.0% in America and 7.0% in Oceania. Thus, Africa needs to accelerate intra-regional trade and bring down market barriers, but the flow of goods and services should come together with the movement of financial flows across borders.


In order to facilitate market development and to promote trade in Africa a quicker, safer, efficient and harmonized regional payment system is needed, which can only be achieved through solid financial marketplaces, an appropriate legal framework and a technological infrastructure.

Many African countries are currently investing in financial market infrastructures (FMIs), especially at the regional level. Some initiatives include the Integrated Regional Electronic Settlement System, the East African Payment System and the West African Monetary Zone. Moreover, Afrenximbank is working on establish a Pan-African Payment and Settlement System (PAPSS), which will not only lower transaction costs but also facilitate informal cross-border trade.


Opportunities for the FinTech sector


In the current scenario, it is clear that the continent is offering plenty of profitable opportunities for the launching of Fintech start-ups to innovate payment services. As a matter of fact, FinTech start-ups in the rest of the world, are disrupting the already existing banking industry, and in Africa, the start-ups could play a very important role in building the infrastructure and the systems from scratch. The biggest obstacle to overcome is the regulatory pressure due to international regulations, which impose strict controls on transaction patterns that make it increasingly difficult to do business.

As the regulatory burden is overcome, the services offered by these start-ups will play a crucial role in facilitating savings, enhancing the financial inclusion of the unbanked (about 60% of the 2 billion unbanked people across the globe lives in Africa), and helping small businesses and individuals accessing to credit.


It is no accidental that innovative mobile payments services have led to most of the success stories in banking the unbanked, with Kenya and Ghana having the most mature mobile payment sectors of the region (in most other African countries, mobile payments account for less than 50% of financial transactions). Such success was driven, on the supply side, by the emergence of digital platforms that enabled business ecosystems to collaborate dynamically with other enterprises, and on the demand side, by the increasing use of mobile phones by African customers and the need for more accessible essential services.

Nowadays, cash and mobile wallets are predominant in Africa because of their strong interweaving. Thus, repaid SIM cards are supplied with cash in extensive distribution networks run by independent shopkeepers. This money credit can be exchanged quickly between cardholders on the same mobile telephone network, while the phone number ensures a proof of identification. In addition to this, the mobile wallet is secure, it avoids having cash with you, and offers a secure solution because the money, once received, cannot be claimed by the issuer.

Moreover, these new digital solutions make social distancing easier (which is becoming increasingly important after the COVID-19 crisis) and can help businesses and consumers cut their day-to-day expenses during a period of financial stress. At the same time, many African economies have strong and resilient fundamentals, including a young, fast-growing population and ongoing improvements in the business environment and governance. As a consequence, the African FinTech industry is seeing a surge in start-ups. By 2025, the mobile payment market could reach 650 million to 750 million customers and mobile payments revenue would rise from $3.5 billion today to between $14 billion and $20 billion. Hopefully, an easier payment system will also facilitate the launching of other start-ups in different sectors.

What’s going to happen tomorrow?

We can distinguish two major trends in the African market: financial inclusion and interoperability.

  1. Financial inclusion involves the possibility of being able to have payment infrastructures at competitive costs for the most disadvantaged people.

  2. Interoperability, by which we mean the emergence of mobile wallet aggregators to enable payments and transfers without the need for a bank account. Jumia, for example, the African giant competing with Amazon, continues to roll out Jumia Pay to make it possible to pay for purchases without a mobile wallet, directly linked to the customers’ bank accounts. Central banks, on the other hand, facilitate instant payment through the banking network such as in Ghana where this type of payment service was launched in 2018.

Analysis of some of the most relevant fintech firms providing digital payments services in Africa

M-Pesa: More about one of Africa’s most successful mobile money service.

M-Pesa is a Kenyan start-up founded in 2007 to manage micro-loans in the rural areas of the country. As many Kenyan inhabitants live in those areas far away from banks, physical payments imply logistic costs and higher interest rates of lending. M-Pesa revolutionized the payment system by transforming mobile phones into a device to lend and borrow money. This was an easy and practical solution, as 54% of the population already had access to mobile phones. Soon, the start-up began to be used also for P2P transactions.

The story of M-Pesa, shows us the potential strength of FinTech start-ups’ in the African continent, which could be the ability to provide quicker and easier solutions for money transactions in absence of adequate infrastructure. This solution will ultimately contribute to eliminate obstacles for economic development. In 2018, M-Pesa was estimated to manage 48.76% of Kenya’s PIL, corresponding to about 29 billion euros. Moreover, according to the Sector Statistics Report by the Communications Authority of Kenya (CA), in 2020 M-Pesa’s share of mobile money subscriptions was 98.8%.

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