There is a fundamental shift taking place in the African payments sector, driven partly by public and private sector efforts to bring more people into the formal economic fold, and partly by a proliferation of mobile phones that is connecting more of Africa’s citizens to vital information and app-based services.
The World Economic Forum estimates that 93% of African have access to a mobile phone. In contrast, only 65% have access to electricity at their homes, and only 30% live in areas with functioning sewerage systems.
This over-reliance on cash transactions has stunted efforts to foster greater financial inclusion, but it has also inspired a new generation of fintech innovators to develop and launch novel ways to introduce African customers to modern financial and value-added services. Global investment into payments alone amounts to $40bn in 2017 following more than 1800 deals. In Africa, investors provided funding of more than $92m to 57 fintech start-ups between January 2015 and May 2017.
What’s fuelling innovation in Africa’s thriving payments sector? Through our work with retailers and service providers across the continent, we’ve seen the following five factors driving innovation and change in payments:
In 2012, a study by the International Finance Corporation found that only a quarter of adults in Africa had access to the financial tools needed to grow small-scale businesses, plan for future household expenses, make investments into schooling and health, and deal with emergencies. By 2018, this figure had grown to a hugely encouraging 43%. In countries such as Kenya, Tanzania and the Democratic Republic of Congo, the financial inclusion rate has more than doubled in the space of six years.
The South African Reserve Bank has written financial inclusion into its strategic objectives, commenting that “cooperation and collaboration among industry stakeholders should ensure that the national payments system contributes to deepening financial inclusion by providing access to the effective use of formal financial products for all South Africans.”
Retailers will need to look for payment options that connect the online and in-store shopping environments and enhance the overall shopper experience. By using data, retailers can choose to engage with customers at every stage of the customer journey. The payments experience will need to be a primary consideration for retailers in this era of connectedness and should build seamless customer experiences into their DNA.
In Africa, a number of banks ranging from Citibank to Barclays to Standard Bank, have established fintech accelerators, made direct investments and engaged in exciting proofs of concept to gain affordable access to innovation capabilities. Financial institutions such as Old Mutual are partnering with start-up initiatives to gain improved visibility over emerging fintech innovation and identify opportunities for updating its business model.
In Europe, the prospects for future payment innovation are rosy as the second Payment Services Directive (PSD2) makes its effects felt. PSD2, which was implemented in 2018, aims to improve competition and innovation in payment services through informed consent of data sharing and improved security and customer authentication. It breaks up the banks’ monopoly on customer data and relationships by giving merchants and processing companies access to customer account information to improve the speed and efficiency of payment services.
In the realm of digital financial services, data can guide the development of market insights, improve operational management and ease credit scoring. Mobile use and social media give financial services providers access to additional data sources that can be used for improved risk assessments, especially among those who were not part of formal financial services in the past. In this way, data can support greater financial inclusion by opening the door for unbanked people to gain access to loans or credit.
Most importantly, data enables payments providers to make decisions based on actual evidence. The growing sophistication of data analytics tools has also improved the quality of insights gained from analysing data.
