Why Africa is the Next Big Bet in Payments Innovation
A Wake-Up Call for Payments Companies and Professionals
In this newsletter, I will share why Payments in Africa is Booming and what elements make it one of the best regions to be active in as a Payments company.
In the hyper-competitive Payments space, finding new regions and opportunities to grow after you have established yourself in your home country or region is crucial if you want to eventually become a unicorn success story.
By understanding where the African Payments industry is going, you can consider it a viable place to expand your business or determine that it is the best place to go if you are looking for a greenfield opportunity.
The challenge for most payment companies is that they have been trained to focus on mature markets and provide solutions to existing companies, eventually leading them to compete with the same merchants with finite volumes.
However, payments companies that are able to shed that belief, more often than not, end up finding the true “Blue oceans” everyone is talking about.
Yes, it will probably be harder to convince investors to believe in it, but as some major successes have already come out of Africa, and legacy players still hold on to tech from the last millennium, the companies that succeed will undoubtedly go on to have tremendous success across the region, and maybe if beyond.
If You Are Still Overlooking Africa, This Might Be the Wake-Up Call You Need.
The African Payments Boom has been in the work for decades, but now that certain elements are coming together, such as:
Rapid Mobile and Internet Penetration
Youthful, Tech-Savvy Population
Increasingly Supportive Regulatory Environments
It has and will continue to create new companies that will allow the African Payments Industry to flourish.
Let me explain…
“Payments in Africa is Dynamic, Inclusive and Driven By Mobile.” - Dwayne Gefferie
The Macro Trends That Are Shaping The Payments Market In Africa
To understand payments in Africa, we need to take several key factors into consideration.
Firstly, across Africa, there is rapid population growth. The continent currently has the world’s fastest-growing demographic, as the United Nations expects that by 2100, there will be a population of over 4 billion people living in Africa, with a median age of just 20 years.
Secondly, banking in Africa is still mainly focused on large cities that have enjoyed a lot of economic prosperity, making the traditional banking infrastructure very limited, especially in rural areas where there is no access to physical banking.
Thirdly, unlike Europe or the US, where phone and internet connectivity was a gradual process, Africa has skipped that era and has rapidly adopted mobile devices and the expansion of internet connectivity with 3G, 4G, and, in some countries, even 5G. This has made mobile penetration very high and internet usage growing at explosive rates.
Fourthly, while cash is still king in most African countries, there is a rapid shift occurring to digital banking solutions that provide more convenience and a broader range of services. Digital platforms provide innovative banking and financial services that cater to the needs of the underbanked and unbanked populations by leveraging technology and, therefore, creating more financial inclusion.
Fifthly, as so many people in Africa have never been part of traditional banking services and, therefore, often don’t have a credit history, Fintech companies have turned to using alternative data, such as mobile phone usage patterns, to assess creditworthiness and provide loans.
The Micro Trends That Are Shaping The Payments Market In Africa
Now that we have a broad idea of the Macro trends in Africa, we need to Zoom in a bit to understand what is happening on a more micro-level, which can best be summed up in these six points.
Mobile Money Adoption: Africa leads in mobile money services, with Sub-Saharan Africa accounting for about 70% of global mobile money transactions. The ubiquity of mobile phones has allowed for the proliferation of mobile wallets, making them a cornerstone of financial inclusion and a primary method of payment.
Telecommunications Infrastructure: The privatization of the telecom sector has boosted mobile phone ownership, facilitating the rise of mobile money services. Telecommunications companies have leveraged their extensive networks to offer cost-effective financial services, reaching populations previously excluded from the formal banking system. One of the best examples is Kenya’s M-Pesa.
Regulatory Support: Flexible regulatory frameworks have been crucial in allowing the innovation and growth of FinTech solutions in the payments sector. Countries like Kenya and Nigeria have been at the forefront, providing regulatory sandboxes and guidelines that encourage FinTech development while ensuring consumer protection.
Increasing Smartphone Penetration: The growth in smartphone adoption, driven by decreasing device costs and investments in connectivity, is enabling a shift towards app-based financial services. This trend is expected to continue, further fueling the adoption of digital payments across the continent.
Financial Inclusion Initiatives: Efforts to bridge the gap between the banked and unbanked populations have been a significant driver. Digital payments platforms are reaching underbanked communities, offering services such as savings, loans, and insurance, which were previously inaccessible to many individuals.
Innovative Payment Solutions: The emergence of innovative payment solutions, including QR codes, NFC technology, and blockchain-based systems, is enhancing the payments landscape. These technologies offer secure, fast, and convenient transactions, catering to the needs of both consumers and merchants.
Why These Six Markets Are the Most Important for Payments in Africa
Now that we have laid a foundation that highlights the most important Marco and Microtrends, we have to face reality.
Africa is not a country.
So, instead of falling into that trap and treating it like such for this newsletter, I have decided to focus in-depth on what I believe are the African countries that are actually at the forefront for Payments in Africa and highlight what makes them unique.
As one of the continent's most sophisticated financial ecosystems, South Africa offers a high GDP per capita and a relatively mature banking and payments infrastructure. Mostly because of its long-standing relationships with European countries such as the Netherlands and Great Britain, it has developed an advanced financial services sector that serves as a hub for innovation and a gateway for international FinTech companies looking to enter the African market.
Nigeria has the largest population in Africa and a substantial GDP, so it won’t come as a surprise to many that it represents a massive market opportunity for aspiring payments companies. The country has seen significant growth in digital payments, driven by a tech-savvy population and supportive regulatory policies. Nigeria's large and growing FinTech ecosystem is heavily focused on payments, making it a critical market for payment services.
While often mentioned as part of the MENA area, Egypt is definitely in Africa. It actually boasts the largest GDP in Africa and a significant population. Many in Africa see Egypt as a pioneer in the FinTech space, mostly because it has been benefiting from close ties with Gulf countries. The Egyptian market is witnessing rapid growth in digital payments amidst challenges like currency devaluation and inflation. Especially Egypt's strategic position and governmental support for digital transformation make it a vital market for payments.
As already mentioned above, Kenya is known as the birthplace of mobile money and continues to be at the forefront of the payments revolution in Africa. The success of M-Pesa and other mobile money services has made Kenya a model for mobile-first financial services, fostering a highly conducive environment for payments and financial inclusion.
Despite economic challenges, Ghana's payments market is not to be overlooked, but it is gaining traction, with significant growth in mobile money usage and digital banking services. The country's focus on digital financial services and efforts to enhance financial inclusion position it as an important market for payments in West Africa, and also greatly benefits from a diaspora that is based in the United States and Europe, who continuously work on collaborating with their counterparts back home.
The final country that I consider to be one of the most important ones in Africa is Senegal. Although its FinTech sector is relatively nascent, Senegal has shown that it is able to attract investment and has huge potential for growth in the payments space. The country also benefits from a stable currency and strong GDP growth, alongside efforts to digitize payments and enhance financial inclusion, making it a market to watch in the Francophone region.
Trends and Opportunities in the African Payments Market You Should Know
So now that we have an idea of the Macro trends and Micro trends and which specific countries have the best opportunities for growth, let’s combine them and discuss how Payments companies can capitalize on them.
Expanding Financial Inclusion: Africa's significant unbanked and underbanked population presents a vast opportunity for companies to offer digital financial services. By providing accessible banking, lending, and payment services, international firms can tap into a large market of first-time users eager for financial products.
Leveraging Mobile Money Success: Africa's global leadership in mobile money can serve as a model for international companies looking to offer or expand mobile financial services. Partnerships with existing mobile money operators or launching new mobile-based solutions can help companies integrate into the local financial ecosystem.
Innovating with Digital Platforms: The rapid adoption of smartphones and increasing internet penetration in Africa encourage the development of app-based financial services. International firms can introduce innovative digital banking, payments, and fintech solutions tailored to the needs and behaviors of African consumers.
Engaging with a Young, Tech-Savvy Population: Africa's youthful and digitally-savvy population is open to adopting new technologies. Companies can leverage this demographic trend by introducing cutting-edge financial services and marketing strategies that appeal to younger consumers.
Navigating Regulatory Landscapes: Several African countries are establishing conducive regulatory environments for fintech innovation, such as regulatory sandboxes and digital banking licenses. International companies can benefit from these regulatory frameworks by collaborating with regulators and local partners to ensure compliance and smooth market entry.
Exploring Cross-Border Payments: With intra-African trade and diaspora remittances playing significant roles in the economy, there's a growing demand for efficient cross-border payment solutions. International firms can offer services that facilitate cheaper, faster, and more transparent cross-border transactions.
Collaborating with Local Partners: Partnerships with local banks, fintech startups, and telecom companies can provide international firms with valuable insights into market dynamics, consumer preferences, and distribution channels. Such collaborations can also help navigate regulatory requirements and cultural nuances.
Addressing Specific Market Needs: Tailoring products and services to address specific challenges and opportunities in individual African markets can enhance adoption. This includes focusing on solutions that overcome infrastructure limitations, offer low-cost services, and provide financial literacy and inclusion.
Conclusion
In conclusion, the African payments landscape presents a vibrant and dynamic market ripe with opportunities for innovation, growth, and meaningful financial inclusion.
As we've explored throughout this newsletter, the combination of macro and micro trends—ranging from rapid mobile adoption and regulatory support to a burgeoning young, tech-savvy population—creates a fertile ground for payments companies looking to expand beyond saturated markets and tap into new, high-growth territories.
The highlighted six markets—South Africa, Nigeria, Egypt, Kenya, Ghana, and Senegal—each offer unique advantages and challenges, underscoring the importance of a nuanced, informed approach to market entry and expansion in the region.
For payment companies willing to navigate the complexities of the African market, the rewards can be substantial. By leveraging mobile money success stories, engaging with the digital preferences of a young population, and tailoring solutions to meet the specific needs of diverse markets, companies can not only profit but also play a pivotal role in driving financial inclusion across the continent.
This requires a commitment to understanding local contexts, innovating with digital platforms, and collaborating with local partners to address infrastructure limitations and regulatory landscapes.
Africa is not just a market with untapped potential; it's a testament to the transformative power of fintech in fostering economic empowerment and inclusion.
As such, overlooking Africa could mean missing out on one of the most significant opportunities of the decade for payments companies. Whether seeking greenfield opportunities or aiming to become a global unicorn, the African payments boom offers a compelling narrative for why this region should be at the forefront of any forward-thinking payments company's expansion strategy.
Let this newsletter serve as your wake-up call to the unparalleled opportunities that await in the African payments landscape.
Thank You for Reading. Feel free to Like, Comment, Share, or Post on Your Socials, as I appreciate all the feedback I can get.
P.S. Whenever you're ready, this is how I can help you:
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Thanks Dwayne. I agree with you Africa is the next blue ocean for payments and e-commerce. Also Africa is not one. It's super diverse with as many diversity in Africa itself than within the whole world. In my opinion the way next gen payments will evolve in a lot of African countries will be through leapfrog methods like Brazilian PIX or Indian UPI (even more so than the Chinese APIs way... And even more so than the traditional rails). I see a lot of African countries (being Algerian myself) have similarities to LATAM and India both from an institutional culture (the government needs to be involved) and the problems they share (financial inclusion, the need for services growth facilitated by effective payment rails). This is also the cheapest and most independent way to do it.
Informative! Thanks for compiling this.