By VERICASH Articles January 19, 2023

Digital Payments in Africa

With a population of over 1.2 billion people and an ever-growing middle class, Africa is a ripe market for digital payments. There has been a rapid uptake of digital payments in Africa in recent years. This is due to digital payments’ many benefits, such as convenience, security, and efficiency. As per research agency Statista, in 2023, the total transaction value in the digital payments segment is expected to reach US$131.10 billion. Mobile POS payment is the market’s largest sector, with a total transaction value of US$65.40 billion predicted in 2023.

The current state of digital payments in Africa

Africa has seen rapid growth in digital payments over the past few years. This can be attributed to several factors, including the increasing number of mobile phone users on the continent and the rise of eCommerce.Several different digital payment systems are currently being used in Africa, including debit cards, digital wallets, mobile money, and online banking. The most popular payment system is mobile money- which allows users to send and receive money via mobile phones. Also, there is a lot of diversity regarding digital payment systems across the African continent. This is because each country has unique challenges and opportunities, and so does Africa. However, several common trends in digital or electronic payment platforms and technologies can be seen throughout the continent. Some of these common trends include:

A Growing Preference for Digital Payments: African consumers have a growing preference for digital payments because these payments are fast, convenient, and secure.
The Dominance of Mobile Payments: Mobile payments are prevalent in Africa and account for a large majority of all digital transactions on the continent. This is mainly due to many African countries’ high mobile penetration rates.
The Emergence of Fintech Companies: There has been a surge in fintech companies operating throughout Africa over the past few years. These companies are working hard to improve access to financial services for Africans and drive innovation within the sector.

Potential growth statistics

E-payments have been growing in Africa since 2000, and the COVID-19 pandemic accelerated their adoption. In the last two years, e-payments have grown at a record rate in many African countries. According to the Central Bank of Nigeria, the number of mobile-money transactions in Nigeria doubled to around 800 million in 2020. South Africa’s online commerce grew by about 40 percent during lockdowns in 2020 and 2021.

The value of mobile money transactions processed by African banks increased from $5 billion in 2012 to over $60 billion in 2020. There are currently over 330 million active mobile money users across the continent. These numbers clearly illustrate the immense potential for growth within the African digital payments market.

Some countries, like Egypt, Ghana, Kenya, Nigeria, and South Africa, have adopted the right infrastructure and policy frameworks to provide a sophisticated electronic payment system. About half of the money from electronic payments in the future will likely come from these five countries, with Nigeria having the fastest growth at 35% per year. Ghana, Ivory Coast, Kenya, Senegal, and Uganda are some other countries that will grow by more than 20% per year.

This has driven away business from traditional lenders, whose services are significantly cumbersome and challenging to obtain. But one challenge that the digital lending space in Africa faces is fragmentation in the loan market. Lenders frequently handle geographic variation linearly rather than as a marketplace. Despite increased lending to the small and microfinance industries in Sub-Saharan Africa, they faced a US$ 331 billion funding shortfall in 2018.

Growth challenges

Despite this impressive growth, there are still many challenges facing companies operating within this space. The challenges that need to be overcome before digital payments can fully take off on African territory:

Lack of awareness and trust: One of the biggest challenges confronting digital payments in Africa today is the lack of awareness and confidence among consumers and small businesses about the safety and security of these payment methods.
Limited infrastructure and connectivity: Another challenge facing African countries is the lack of infrastructure and almost non-existent connectivity, which hinders the full integration of digital payment systems in local economies.
High transaction costs: Many African governments are imposing stiff tariffs on digital transactions, affecting mass adoption.
Restrictive regulations: Governments on the continent have been slow to address the new technologies affecting financial services and adopt restrictive regulations impeding the spread of digital payment solutions.

Digital payment solution providers

In this section, we will also take a look at some examples of successful companies operating in the African digital payments space and discuss the strategies they are using to succeed:

Paytm

Paytm is one of Africa’s largest players in the digital payments industry and has a major presence across the continent. It focuses on young users who prefer peer-to-peer(P2P) transactions and merchant acquisition.

M Pesa

MPesa is a fintech company incorporated in 2007 focused on East African markets. Mpesa is one of the largest players in chargeback solutions providing coverage across 22 countries in a south central-African region.

Orange Money

It is an international money transfer platform provided by French telecommunications giant Orange Group. It started operations in 2008 and reached over 200 million customers in 25 African countries.

Bancora Network

Bancora network is an open protocol designed to provide universal liquidity to route Ethereum-based tokens between users without reliance on seller trust. In a nutshell, the future of electronic payments in Africa is of tremendous growth and opportunity. But, the government has to work hand-in-hand with digital payment platforms and technologies to overcome the challenges and make digital payment methods accessible to everyone in Africa. CIT Vericash is working towards enabling FinTech providers with the right tool and technology to rapidly scale their business and provide better financial services to a large proportion of the unbanked and underbanked population. VERICASH’s end-to-end digital banking platform creates a single digital ecosystem with all the infrastructure needed to serve different types of customers.

Conclusion

The 80 million to 90 million SMEs in Africa represent a largely untapped opportunity in the payments arena. Merchant acquisitions and associated offers have played a significant part in the recent growth in African payments spurred by fintech innovation. In the last two decades, Africa’s digital payments industry has expanded to include a variety of new and incumbent firms tackling diverse client concerns. In 2021 alone, approximately 250 new financial start-ups received investment, up from 38 in 2019.

The future is digital!

About CIT Vericash

CIT VERICASH is a division of CIT GLOBAL, an international leading provider of innovative eCommerce and mCommerce software solutions and services with solid expertise spanning 25 years, since its establishment in Toronto, Canada in 1993. By applying CIT Global’s dedicated centers of excellence and its specialized leading products, in cooperation with its strategic partners, the company has delivered innovative and award-winning solutions to its clients in more than 48 countries, serving leading brands from North America, Europe, Asia Pacific, the Middle East, and Africa.