The Rise of Digital Payments in Africa: Trends and Insights
The surge in digital payments in Africa is helping businesses and transforming economies. This is seen in the increasing adoption of e-commerce, mobile payments, and, most recently, contactless payments in most African countries.
The African digital payments market is expected to grow to $265.20 billion between 2023 and 2027, with an annual growth rate of 16 percent. This powerful, transformative wave of innovation and economic growth drives financial inclusion and accessibility at an unimaginable rate.
Smart businesses understand this remarkable transformation that’s reshaping how people engage with financial services and conduct transactions, and are looking for insights on how to key in.
But before we discuss the digital payment trends and insights these businesses can benefit from, let’s look at how important digital payments are in Africa.
The Importance of Digital Payments in Africa
Digital payments have transformed African economies, taken people out of poverty, provided better security and helped businesses serve their customers better. Here are some notable importance of digital payments in the African landscape:
Financial Inclusion
The inclusion of the unbanked and underbanked communities and individuals into the formal financial system is the most notable advantage of digital payments in Africa.
With the introduction of mobile money, digital wallets, and other digital payment systems, many Africans who lacked access to formal financial services are now able to save, invest, take credits, and perform other vital financial transactions.
By being able to save, invest, and access credits, individuals are taking advantage of wealth-building opportunities, reducing poverty, and ultimately making the economy better.
Enhanced Security
Digital payments promote safety and trust in financial transactions by making online transactions secure and more traceable than cash. The era of ambushing someone or robbing people in their homes because of the cash in their possession is gradually coming to an end, as people no longer keep huge amounts of money in cash.
People can confidently transfer huge amounts of money to people and even businesses they’ve not dealt with in person because of the traceability of digital transactions. This traceability has also reduced the rate of fraud and other financial crimes in Africa.
Efficiency and Cost Savings
Digital payments have made trade and payments for products and services more efficient and cost-effective. Businesses in local environments can make sales and receive payments for their products and services without experiencing the risk of traveling long distances to receive cash payments.
This has also been extended to the African market. KoraPay and other payment solutions enable people to send and receive payments across Africa at more affordable costs than traditional banking services.
The reliance on cash among businesses has drastically decreased as businesses look to reduce operational expenses and make their transactions more transparent.
Access to Credit and Insurance
Credit lending and insurance institutions can leverage data from digital payment transactions to assess the creditworthiness of their potential customers. This was previously unavailable due to the difficulty in accessing the financial histories of such individuals and businesses.
With access to credit, businesses can improve operations, expand their services to more locations, and create more jobs to enhance the African economy.
Data-Driven Insights for Businesses
Businesses can also use the data digital payment solutions generate to identify and analyze market trends, customer behaviors, and perceptions about their services. The result is a more efficient and proactive marketing approach, improved customer experience delivery, improved customer loyalty, and higher revenue generation capacity.
Key Trends in Digital Payments in Africa
Cross-Border Payments
Facilitating cross-border transactions and international remittances has become the major focus of most African economies as they look to accelerate trade in the continent.
Most recently, digital payment solutions are sprouting out everywhere as fintech companies and governments look to transform how payments are made across African borders.
The Pan-African Payment and Settlement System (PAPSS) and fintech companies like Kora are the frontrunners in this transformation, as we strive to make it easy for businesses to receive payments from anywhere in Africa and the world at large.
Mobile Money Payments
Mobile money services, such as M-Pesa in Kenya and MTN MoMo in Nigeria, Ghana, Uganda, South Africa, and other African countries, are among the digital payment trends making waves in Africa.
These services enable people to make payments, transfer money, and access other financial services with mobile phones.
Mobile money services have brought millions of previously unbanked individuals into the official financial system. And, unlike traditional or digital banking applications that can only be accessed over the internet, mobile money services can be accessed with basic phones and no internet connection.
Peer-to-Peer Payments
Peer-to-peer (P2P) is another digital payment trend in Africa that is gaining popularity due to its convenience, speed, and ease of use.
P2P payments are facilitated through digital platforms, often mobile apps or websites. Users create accounts on these platforms and then link their bank accounts, payment links, and digital wallets to send and receive money.
Many businesses, especially those in the e-commerce and payment industries, have adopted P2P payment systems as they offer reliable ways for them to receive money from their customers.
Buy Now, Pay Later
Another digital payment trend in Africa is the Buy Now, Pay Later payment method. This payment trend is gaining global adoption as businesses leverage it to facilitate conversions. It’s common among retail businesses dealing in luxury items and high-end devices.
According to a report by Allied Market Research, the Buy Now, Pay Later market is growing at a staggering CAGR of 45.7% and is expected to reach $3.98 trillion by 2030.
With the economic fluctuations in most African countries, businesses that offer this payment option to their customers are more likely to experience an increase in conversions and customer loyalty.
Contactless Payments
Contactless payment is a payment method that gained momentum during the COVID-19 pandemic. Many African countries are fast adopting it, including Kenya, Nigeria, Senegal, Morocco, and South Africa, with South Africa at the forefront.
According to a MasterCard survey, 75 percent of South African consumers say they use contactless payments. In the same survey, 88 percent of South African respondents view contactless payment as a cleaner way to make payments, with 71 percent preferring to shop at merchants where contactless is accepted.
The potential of contactless payments in Africa is mind-blowing as governments are setting up policies for their adoption, and major enterprises are championing the cause. A 2021 “Get Together, Go Contactless” campaign by Emirates NBD, one of the largest banking groups in the Middle East, North Africa, and Turkey, reportedly caused the rate of contactless transactions to soar by 67%.
Smart businesses are adopting contactless payment methods to facilitate safe and transparent transactions.
Cryptocurrency Payments
Cryptocurrency payments are also part of the digital payment methods that have become mainstream recently, especially in Africa. This is evidenced by a Chainalysis report that reveals that crypto has penetrated key markets in Africa and become an important part of many residents’ day-to-day lives.
Many African countries struggle with rising inflation and debt, making cryptocurrency a safe and attractive means for people to preserve their wealth and attain greater financial freedom.
Besides being a great store for value, cryptocurrency adoption is on the rise in Africa because of the anonymity it offers in transactions, coupled with the unlimited volume of transactions one can make. Smart businesses understand that offering cryptocurrency payment options to their customers will increase their trust and loyalty.
Challenges of Digital Payments in Africa
The rise of digital payments in Africa is a welcome development, especially as it promotes economic growth and helps businesses and individuals build wealth. However, it also comes with its challenges, which might limit adoption. Here are some of them:
Infrastructure Limitations
Many African regions lack the necessary infrastructure for digital payments, such as reliable internet access and electricity. This makes it difficult for people in rural and remote parts of Africa to access digital payment services.
Financial Inclusion Barriers
Despite the role of digital payment services in promoting financial inclusion, there’s still a significant percentage of unbanked and underbanked Africans. These are mainly older people and people in rural communities.
Businesses are creating awareness in this regard, helping their customers understand the need for digital payments and guiding them to get acquainted with digital products and gadgets.
Security Concerns
The security concerns surrounding digital payment services are a major challenge to its success in Africa. People are scared and don’t want to risk losing their funds to cybercriminals at the wrong click of a button.
Identity theft and data breaches are common examples of inadequate security measures in the digital payment industry. Individuals and businesses are wary of these and other cybercrimes because of their ability to wipe people’s accounts in seconds.
Digital Illiteracy
The inability of some people, especially the older and less educated ones, to use digital payment tools such as mobile apps and websites is another challenge to the rise of digital payments in Africa. This divide can exclude many people from enjoying digital payment services.
The Future Outlook of Digital Payments in Africa
The African digital payments market is rapidly evolving due to technological advancements and the increased demand for innovative financial solutions.
With an annual growth rate of 16.01% and a projected total transaction amount of $265.2 billion in 2027, smart businesses are getting on board with digital payments. That shows that in a couple of years, businesses hesitant to offer digital payment options are at risk of being left behind as their customers move towards their competitors for more convenient means of payment.
Furthermore, cross-border transactions are becoming seamless, making pan-African transactions more efficient and cost-effective for individuals and businesses. Digital payment companies are unifying African countries through their solutions, strengthening the vision of an Africa with no payment borders.
However, to facilitate seamless payment experience delivery in Africa, there’s a need for regulators, innovators, and legacy financial institutions to collaborate.
Conclusion
As Africa continues to embrace digital payments, the future seems promising with increased financial inclusion and economic growth. However, overcoming challenges like infrastructure gaps, security concerns, and digital literacy will be crucial to fully harness the potential of this transformation. Businesses and policymakers must collaborate to foster an environment that not only supports digital payment technologies but also ensures they are accessible and secure for all Africans. In this digital revolution, the opportunity for innovation is boundless, paving the way for a more interconnected and prosperous continent.
