Payments in Africa: Only the beginning

Photo by  Benny Jackson  on  Unsplash

Photo by Benny Jackson on Unsplash

Innovative payments solutions are growing throughout Africa.

This is thanks to a huge wave of money being funnelled towards the African fintech sector, with the majority being invested into blockchain, cryptocurrency and payments startups. This wave of investment is both challenging and spurring on the incumbent, slow-moving financial services industry, bringing cutting-edge solutions and cheaper fees to a fast developing nation.

The volume of investment that Africa tech is attracting shows it’s a market with huge potential. But, with few success stories, many failures, low electricity and internet coverage and an ever-present threat of fraud and corruption, it still could be some time before Africa is truly considered a digital payments world leader.


Slow but steady progress

A report published last year from Disrupt Africa showed that there were over 125 payments and remittances startups in Africa, each focused on making the process of sending and receiving money easier. Payments technology in Africa will benefit all people and professions, from finance to farming, education to healthcare. As a result of its expected utility, the digital payments sector is the largest and fastest growing fintech sector on the continent.

It’s estimated that 330 million African adults (80% of the population) have no access to basic financial services we take for granted. But Africa’s population is urbanising and growing more tech-savvy each year. Hence, the prize for providing payment and banking services throughout a continent where the majority struggle to find basic financial services is vast.

Mobile banking in Africa is gaining in popularity. It’s thought that near half of the total mobile money services operating worldwide are located in Sub-Saharan Africa, with 100 million mobile money accounts being used by 10% of the population. Whilst this penetration has a way to climb, it’s worth noting that this figure far exceeds adoption in South Asia, the second biggest region for mobile money, with 40 million mobile money accounts, a mere 2.6% of the population.

So Africa seems open to mobile banking and payments apps, and technology startups, banks, and the investment that follows, are looking to take advantage. Further, it’s estimated that approaching half of adults in sub-Saharan Africa use mobile phones. So the required tech is in place. However, most consumers still use cash for all transactions, and few have access to credit cards, bank accounts and mobile banking.


Problems and pitfalls

For years, Africa’s progress has been hindered by corruption, fraud and complex regulation, which often varies between countries, meaning it’s incredibly complex to build tech that can be adapted for use throughout the continent. These problems mean African technology companies need longer to test and develop products, giving them a chance to navigate early days in development as they adapt products to new surroundings. Thanks to big investment, companies are now being given that chance. 

Mobile payments also rely on widespread broadband (not to mention, stable electricity), and in Africa this isn’t always in place. Slowly, this is changing, too, and whilst internet in Africa is notoriously slow, given how cheap smartphones are becoming, access to the net via mobile is on the rise. It is in fact the challenges presented by Africa’s age-old infrastructure deficiencies that are leading to this wave of innovation, entrepreneurship and investment in technology.


The future’s bright 

Coupled with the rise in mobile and smartphone adoption, there has also been a significant upswing in the number of people using mobile banking and payment apps. Where traditional, large financial services companies have failed, fintech startups are looking to use their agility and innovation to offer solutions where there were none before. Some of these startups are often partnering with large financial institutions, but many are going it alone.

A blueprint for how to use all of the elements mentioned above correctly is payments services provider, M-Pesa, which launched in 2007 in Kenya and Tanzania, and whose app has lifted almost 200,000 families ( 2% of all Kenyans) out of poverty. M-pesa is used by about 70% of the Kenyan population for banking and money transfers, and is part-owned by Vodafone. Its growth continues from strength to strength and more companies will be looking to follow M-Pesa’s lead.


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Much like the continent as a whole, Africa’s fintech sector is undergoing huge change. A technology-led revolution started slowly but is gathering pace throughout the continent. Great strides have been made, great companies like M-pesa have formed, but it feels like mobile and financial services technology and its material impact on society are only just getting started.

Significantly, big banks have noticed the opportunity, and they’re investing in fintech startups throughout the continent, offering future technologies the opportunity to test, fail and develop. History shows that when banks get involved and begin to risk their own capital on sector or geographic expansion, they’ve likely done their due diligence and, hence, they are fairly sure that their investment is not going to waste.

It is this sort of development that leads us to believe that the payments sector in Africa has a bright future. Development has been swift. But there is still a lot of work to be done.

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This article was created in association with Shieldpay a payment protection platform that allows you to transact with total confidence. 

Edward Playfair