Africa: A Case for Instant Issuance

It is fair to say that although there are significant variations across the continent, the payments ecosystem in Africa is typically thought of as underdeveloped, with many of its inhabitants classed as unbanked. According to ATMIA, Southern Africa has a banked population of 51%, compared to 20% in North Africa and just 11% in Central Africa. However, despite the substantial unbanked population, individuals are not just making purchases out of necessity – average incomes are increasing, which is leading to a growing consumer middle class. The result of this is that many African economies are developing at high rates and the need for more robust and diverse banking and payments services are becoming essential.

The high percentage of the unbanked population alongside a lack of infrastructure are two of the main reasons that cash is king in the region. In fact, a large minority of the banked population primarily use their cards to withdraw cash at ATMs. However, with issues around the security and the logistics of having a cash-based society, many governments across Africa have put initiatives in place to encourage the move towards electronic payments in the hope that it will promote healthier economies and increase financial inclusion. Whilst the mobile payments innovation, M-Pesa, seems to have helped significantly in Kenya, there are a number of government-backed initiatives focused on increasing card usage: South Africa – South African Social Security Agency (SASSA) debit cards; Kenya – EMV cards; Nigeria – national eID MasterCard; Zimbabwe – mobile wallet cards (debit cards that work in conjunction with mobile wallets). However, with fraud rife in Africa – recently fraudsters successfully forged 1,600 cards to steal $13million in cash, for any emerging payment to be widely adopted, it is essential it is secure as well as accessible.

In a region where cards can take up to two weeks to arrive after application, where consumers are weary of the postal system, and where the associated logistical costs incurred by FIs can be high, moving towards a card-based society could be a challenge. There is, however, a solution that could help overcome these issues. Instant card issuance enables financial institutions to issue, personalise and activate EMV and magstripe payment cards in-branch in just a few minutes, enabling card penetration in markets where postal delivery is difficult or viewed as unsafe by the customer. As the cards can be personalised and the customer can set their own PIN on location, the service decreases  mail distribution costs for posting cards and PINs, and decreases the risks, for example cards being lost or stolen through the mail, which in turn reduces the risk of card fraud.

For financial institutions, this could be the figurative ‘foot in the door’ in gaining loyal customers. By offering an enhanced customer experience, instant card issuance could provide a real differentiator to a financial institution’s product and service portfolio, and could be instrumental in increasing a financial institution’s customer base as it is convenient, time-saving and, most importantly, secure. As the customer has to visit a branch to receive and activate the card and PIN, the in-person customer experience enables a financial institution to further engage the customer and provides them with cross-selling opportunities tailored to the customer’s needs to further increase their bottom line. Whilst the ability to instantly activate the customer’s card for use as soon as they leave the branch will significantly reduce the amount of inactive accounts, increase transaction volume and boost interchange revenue.

As the service is not tied to a specific card type – prepaid, debit or credit – it enables FIs to focus on the products that will suit their customers and potential customers the best. For example, in Nigeria, whilst the number of debit cards in circulation is dominant (67.3%), prepaid cards are being used to tackle financial inclusion. Therefore introducing an instant card issuance service will benefit both sides of the customer base.

Whilst geographical constraints are certainly a challenge with a service such as this, the increase in agency banking across the continent used by FIs to reach customers in remote locations should help to overcome this. For example, other regions across the globe have rolled out initiatives whereby mobile ‘banks on wheels’ are introduced to reach rural areas to offer banking and payment services to those unable to get to a branch.

The increasing middle class will be looking to forward-thinking financial institutions that can provide them not only the best rates, but added value, convenience and security. As a relatively inexpensive service to set up, offering instant card issuance can give this as a service that benefits both the FI and the customer.

Due to government-backed initiatives, the move to electronic payments in Africa has seen a significant, although not universal, adoption in emerging markets in recent years. For example, the rollout of SASSA debit cards in South Africa added 1.9 million people to the nation’s banked population in 2013. Although payment cards in circulation are certainly growing – in Kenya, the number of cards in circulation increased three-fold between 2009 and 2013 – there is still a long way to go to in the journey from cash to ‘cashless’ across the continent. The need for financial institutions to simplify card logistics to improve customer experience and bring down the costs associated with issuing cards is essential to remain competitive and, as such, FIs should be looking to implement services like instant card issuance to achieve this.