PayU: The Pace of Fintech in Africa

By Karen Nadasen, CEO at PayU South Africa

The past year has for so many been difficult on an unprecedented scale, but there has also been some fascinating growth and resilience that deserves credit. COVID-19 has accelerated the rate of digitisation across the globe, and Fintech solutions are no exception. The growth of Fintechs across Africa has in fact been one of the shining light’s of the year.

13 years after the launch of mobile money transfer service M-Pesa in Kenya, there are now nearly 200 million consumers subscribed to popular mobile money services in Africa such as Paystack and MoMo. In fact, mobile payments across the continent saw large growth even prior to the pandemic. Africa was actually responsible for two-thirds of total global mobile money transactions recorded in 2018 alone. As mobile payments continue to lead Africa’s Fintech revolution, three things remain clear: the migration to digital payments is here to stay; the acceleration of Fintech-led solutions will continue to see support by governments and regulators; and, cross-border payments will continue to grow, becoming the norm rather than an anomaly.

A cashless society

The pandemic has been a huge factor in the acceleration of digital payments. Africa has historically been a region living by the mantra that ‘cash is king’, but with more than half of its population having not just limited, but no access to traditional banking at all, mobile money has been a life-altering revelation. Services like M-Pesa, Paystack and MFS Africa have made immense strides in bridging the financial gap to the rural majority who now don’t need a bank account to buy goods, services and transfer money. As such, Fintechs have added stability and security whilst reducing the need to store all cash savings at home or on person at all times.

Before the pandemic, a study in Kenya showed that households with access to M-Pesa during volatile times were in a better position to respond and did not have to make drastic changes to reduce their spending. COVID-19 strengthened this position, showing that in regions with prominent gaps in wealth distribution, mobile payments provide access to essential resources and services.

With 475 million people across the continent predicted to be mobile internet users by 2025, an increase of 42% from the 272 million in 2019 – online payments show no signs of slowing down. In South Africa alone, 85% of payments through PayU during the lockdown were recorded to be via mobile in 2020. It’s not just individuals either, the banks are beginning to adopt a mobile-led digital transformation strategy to reach more customers. After all, the majority of people still do not have access to traditional banking, it’s a no brainer. Ecobank in Nigeria for example, introduced Rapidtransfer, a mobile service which instantly sends cross-border payments across 33 countries in Africa.

Of course, in a region where cash has historically been the preferred method of payment, the shift to mobile banking still has room for progress. While great improvement can be seen by retailers introducing mobile friendly payment methods, additional innovation can be seen to accommodate a cash-carrying society still in transition, such as ‘click and collect’.

According to a survey by McKinsey & Company late last year, 68% of South African consumers who used alternative mobile methods such as delivery pick-up point service for the first time during the lockdown said that they will continue using this method due to its flexibility. It’s clear that the region has been receptive to mobile services such as ‘click and collect’. My prediction is that in time, customers will be open to using mobile payments more broadly.

The digital acceleration introduced by the global pandemic has proven how accessible mobile payments services are now, and we expect that its innovation will continue, filling more gaps in societies across Africa and other booming emerging markets.

The role of African governments in accelerating digital payment

When the COVID virus first took hold this time last year, the World Health Organisation cautioned against the use of hard currency, instead encouraging the use of digital payments. This recognition that cash could be an active tool for transmission prompted many African governments to introduce measures to facilitate more cashless transactions where possible.

Beyond individuals making more use of mobile money, this past year has also seen an increasing number of businesses and governments partnering with mobile payments providers. According to GSMA, last September saw 35 government agencies partner with mobile money providers to digitise value chain payments to smallholder farmers across the continent.

This can also be seen beyond smallholder farmers. Kenya, for example, used mobile money as a public health tool and introduced a fee-waiver on M-Pesa to reduce physical currency exchange. This is also true for countries like Nigeria. Kuda for example, Nigeria’s first mobile-only bank, launched a COVID-19 fund in partnership with Lagos Food Bank to distribute food and essential services across the state. Initiatives like these show the socio-economic benefits of mobile payments.

With the pandemic continuing to cause uncertainty for the foreseeable future, my prediction is that more governments will look to Fintech-led solutions to accommodate the needs of its population.

The rise in cross-border payments

African governments are also recognising the potential of cross-border payments. Historically, their traders have faced a plethora of challenges when it comes to cross-border trade – challenges that eat into bottom lines, reducing the value of the transaction. From outdated legacy systems, complex regulations and legalities, to system inefficiencies, the issue of cross-border trade has long been fraught with complexities. Customers in Africa still pay the highest transaction fees globally to send money across borders and the demand in cross-border payments is something that MNOs recognise. Take Orange in West Africa for example, it was able to leverage its multi-country presence in the region to connect mobile money users within the operator group, in turn, making cross-border transactions far more accessible and cost effective.

In the past couple of years, we have seen an increasing use of mobile payments in remittances. Even before the pandemic, cross border remittances in sub-Saharan Africa was predicted to pass $67 billion in 2021 – a significant increase in comparison to the $46 billion in 2018. With cross-border payments and trade both helping to alleviate the economic impacts of the pandemic, we will see an increased determination to facilitate this further. For example, we are already seeing these facilitations being introduced through financial market infrastructures such as the East African Regional Payment System (EAPS), a cross border system that facilitates the transfer of funds within the East Africa region.

As borders begin to reopen, global e-commerce remains the best way for businesses to recover. As a result, we expect to see more merchants tapping into cross-border payments, specifically in high-growth regions such as Africa, which is home to millions of potential consumers.

Looking ahead, what can we expect?

As technology continues to innovate and mobile payment capabilities become more advanced, cross-border trade will become even more accessible and common-place across Africa, creating unprecedented opportunities for both merchants and consumers.

The pandemic has certainly challenged the idea of cash being king, and proven the convenience of mobile payments and the freedoms they offer to businesses and individuals alike. As mobile payments continue to rise and there is an increased recognition of its socio-economic benefits, 2021 will see more partnerships occur between financial institutions, governments and mobile payments providers. This will ultimately create more choice, opportunity and day-to-day improvements for the millions of people across the globe’s largest continent.

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