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%.

OnePay: Who is OnePay, this new fintech specialized in electronic payment?

OnePay is a Moroccan fintech start-up created in 2020, based in Casablanca, Morocco. It is a distributor and an aggregator of payment which offers electronic transaction services. The funds raised will be fully invested in Morocco and will help the company to acquire technical, marketing and sales resources to extend its network to a greater number of users.

They aim to become a key player in payments in Morocco and to help current payment players, banks, acquirers and payment institutions accelerate their financial inclusion. OnePay also makes personalized and highly accessible offers to businesses. Lastly, this company has the potential to grow in Morocco and to expand in the African continent, by being an innovative and dynamic player and by making its financial services open to everyone.

Cellulant: Who is Cellulant, one of the most successful African FinTech companies?

Cellulant is a leading multinational payments company in Africa on a mission to digitize payments for Africa’s largest economies. It is Africa’s no.1 company in the payments & transfers category — Fintech Awards 2016. Their mission is to create business opportunities for organizations and to provide solutions to everyday payment challenges across Africa.

It was founded in 2004 in Kenya and now has operations in Nigeria, Zambia, Tanzania, Uganda and Rwanda. Cellulant started as a music and news streaming software enterprise ten years ago. Today, the company is a well-known digital payments service provider that prompts, collects, settles and reconciles payments in real-time, allowing customers to shop, pay bills, save and get loans easily. Currently, it serves 220 million customers across 34 countries and has 12% of the market share in digital payments.

Paystack: Why do 60,000+ businesses love Paystack?

Paystack is a technology company that aims to help ambitious African businesses to solve payment problems and become profitable. The firm enables businesses to accept secure payments from multiple local and global payment channels and then provides tools to help them retain customers and acquire new ones. Paystack only charges a tiny fee per successful transaction and it has a combination of automated and manual fraud systems to protect customers from fraudulent transactions.

In 2020, Paystack has about 60.000 business customers in Nigeria and Ghana, managing 50% of the total volume of digital payments in the former. In October of this year, it was purchased by the Californian FinTech firm Stripe, an American technological firm, founded in 2010 in San Francisco, that offers an economic infrastructure for digital financial transactions. Not only start-ups but also big corporations, use this software to make payments and manage their online business. Stripe objective is to digitalize rapidly and create a global international FinTech structure.

Interswitch: The switch, expanding the frontiers of digital payments

The company started its operations in 2002 as a transaction switching and electronic payments processing company that built and managed payment infrastructure. It is now an integrated digital payments and commerce company, operating in Nigeria, Kenya and Uganda, that facilitates the electronic circulation of money and exchange of value among its African customers. It also offers training and advisory services in the e-payments and e-business industry.

Through a direct connection with leading banks and other International payment platforms, Interswitch helps customers to reduce costs, increase revenues, tight security, expand product offerings, and to improve service levels on technology while having secure and continuous access to all the ATMs present on the Interswitch network regardless ownership and location.


Bocconi Students Fintech Society


Authors:

Maria Teresa Bogliardi

Ghali Taoussi


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