Digital Payments For Africa

While cash remains prevalent across Africa, digital payments on the continent continue to gain momentum and are expected to grow by 20% annually, according to a recent McKinsey report.

Already, there are massive investments in this space, as the growth of artificial intelligence (AI) and the push for true digital inclusion drive the market forward, according to Yaron Assabi, Founder and CEO of Digital Solutions Group (DSG).

Another driver is that of blended financial systems – a combination of traditional finance and crypto – which is a reaction to the volatile currency trading in Africa, he says.

“Moreover, there is economic efficiency in going cashless, not the least because it helps to reduce crime. Remember that cash is not traceable the way digital transactions are, and the latter also makes it easier for businesses to innovate and focus on designing unique customer value propositions,” adds Assabi.

Transforming the landscape

“Digital can transform Africa, not only by increasing financial inclusion, but by allowing for unique business models, like the fractional ownership of shares or that of embedded finance – something I think we will see a lot more of as we move forward.”

Steven Cohen, a founder of Legend Tags, notes that the rise of digital payments is a genuine game-changer.

“It’s not just transforming the way businesses operate, but revolutionising the entire financial landscape in ways that empower workers who have traditionally been overlooked,” he says.

“For example, car guards who rely on tips often face the challenge of not receiving any payment, simply because many people no longer carry cash. With Legend Tags, customers can simply scan a unique barcode, using their smartphones, and instantly make a payment. This seamless process is not just convenient, but it also helps car guards and other service workers earn a steady income in a fast, secure, and modern way.”

Thea Sokolowski, Head of Marketing & Communications at Stitch Money, explains that, as a payments infrastructure business, Stitch is integrated with banks and cell networks to enable money movement between businesses, or between these and their customers.

“We have recognised the importance of this market, and now have a huge engineering team focused 24/7 on innovating, securing, protecting and generally making digital payments work as fast as possible,” she states.

“To see the transformative power of digital payments, look no further than Kenya’s MPesa solution, which allows people with no access to a bank account to nonetheless access the digital economy. This helps reduce crime and fraud, while encouraging things like savings and investments,”

Sokolowski adds that it also enables access to subscription services, or enables automated payments for services like insurance.

Africa’s digital challenges

“While Africa faces significant challenges, such as a lack of trust in banks and cards, it is crucial to acknowledge the efforts needed to build this trust. Educating the population on the benefits of digital payments and their potential to reduce consumer costs is essential,” she continues.

Chipo Mushwana, Executive: Emerging Innovation and Payments at Nedbank, identifies the core challenges in Africa as follows:

“Firstly, many regions in Africa lack the necessary infrastructure for digital payments, including reliable internet access and electricity. Overcoming these infrastructure limitations is imperative. Additionally, unreliable mobile network connections can disrupt digital transactions, leading to failed payments or delays,” she explains.

“Security concerns around fraud and cyberattacks are also prevalent, and a lack of digital literacy among the population further impedes the adoption of digital payments.”

Mushwana also highlights the complexity and inconsistency of African regulatory environments. Navigating these regulations can be challenging for businesses aiming to innovate and expand digital payment services, including cross-border business-to-business payments.

“Lastly, the cost of digital payment services can be prohibitive for many users, particularly in low-income areas. Reducing transaction fees and making services more affordable is essential for wider adoption.”

Despite these challenges, Mushwana suggests that there are significant opportunities for growth in the digital payments market in Africa.

Innovation and competition

Nedbank feels that the local market is balanced in terms of competition, with each organisation playing to their strengths and leveraging partnerships to drive organic growth.

Adopting an optimistic stance, one could argue that banks are uniquely positioned to harness the benefits of digital transformation. Their established brands, substantial financial resources, and expertise in legal, risk management, and compliance are invaluable assets. These capabilities have become increasingly crucial as the importance of cybersecurity has surged alongside the growth of digital payments and advanced technologies,” she asserts

Sokolowski points to other new entrants, like the The Foschini Group’s ‘Fash’ online solution. “TFG wants to offer a unique online shopping facility, which requires the payment experience in-store and online to be the same. This will allow them to remember individual customers’ preferences, allowing for more personalisation and more consistency across the omni-channel experience.”

“An increasing number of organisations are studying consumer behaviour and creating specific types of products to meet these needs. Stitch Money works closely with them to make the digital payment aspect that much more effective,” she adds.

Co-founder of Legend Tags, Darryl Froom, notes that the use of QR codes has also been a game-changer, making digital payments simple and accessible for everyone.

“QR codes make it easy for even the smallest businesses or service providers to accept digital payments. No need for expensive terminals or complicated setups—just scan and pay,” he states.

“Additionally, mobile wallets and contactless payment systems are making paying easier and faster than ever. We’re also seeing incredible growth in sectors like hospitality and retail, where businesses are quickly adopting cashless solutions to streamline their operations and provide customers with the convenience they demand.”

Assabi agrees that digital payment has to be easy, noting that there is a lot of innovation in the Blockchain arena, with financial entities looking at how to improve on lending, borrowing, directing investment without intermediaries, managing issues around inflation and dealing with currency fluctuations.

 African advantage

“Africa has a young, tech-savvy population, high mobile penetration, a strong entrepreneurial system, and less-developed banking systems – so there are unique models to be developed on the continent. This should lead to more innovation and improved economic growth, as local start-ups become global players and bring jobs back home,” he says.

“Blended financial services is a key area here, as there’s a lot of opportunity to innovate around tokenisation, as well as from simplifying cross-border payments to enable easier trade. Africa – without any real legacy technologies to worry about – is potentially the biggest growth economy in the world.”

Froom believes that digital payments will continue to grow at an exponential rate, as people are increasingly looking for simple, secure, and quick payment options.

“In the near future, we expect to see more businesses in sectors like hospitality, retail, and even informal sectors like parking and street vending, adopting cashless solutions,” he says.

Sokolowski adds that with increasing access to connectivity and cheaper smart phones, Africa’s population will become more digitally literate.

“As this occurs, so growth will happen and we will likely see more solutions tailored to specific market segments. It is a really exciting time in the digital payments space, with huge levels of growth, rising e-commerce spend, and – as Africa’s population becomes more comfortable with interacting and paying online – I have no doubt we will see an increasing number of thrilling and positive developments in this arena,” she concludes.

Tangible benefits of going digital

According to Nedbank, the continent stands to gain significantly from the adoption of digital payments, with several key benefits:

• Enhanced Convenience and Accessibility: Digital payments facilitate quick and easy transactions at any time, from anywhere, setting a new standard for user experience.
• Increased Financial Inclusion: Nedbank’s initiatives aim to bring financial services to under-served populations, including those in remote areas, bridging the gap in financial accessibility.
• Reduced Transaction Costs: Digital payments generally incur lower transaction fees compared to traditional methods like cash or cheques, making financial transactions more affordable.
• Improved Security: Leveraging advanced technologies such as encryption and multi-factor authentication, Nedbank enhances the security of digital transactions, significantly reducing the risk of fraud and theft.
• Real-Time Transactions: Nedbank’s digital payment solutions enable instant fund transfers, improving cash flow for businesses and providing immediate access to money for consumers.
• Economic Growth: By making transactions more efficient and inclusive, Nedbank’s digital payment solutions contribute to overall economic growth, fostering a more robust financial ecosystem.

Nedbank’s commitment to innovation and excellence positions it as a leader in driving the digital transformation of financial services.

Fast Fact 1:

Digital Solutions Group was involved in one of first digital transactions in the country, via Vodacom, in 2000, through its Digital Mall subsidiary. Today, Digital Mall – with a quarter of a century legacy – offers everything from From Grocery Store goods to retail products, to health and wellness solutions, and has extended its e-tailing experience beyond the sale of traditional e-commerce goods, by enabling service providers that focus on customer experience and digital services.

(Source: DSG)

Fast Fact 2:

Developed by South African entrepreneurs, PayPal has led the charge for online payment gateways. What PayPal did differently was to create a secure platform that made online transactions feel as safe and straightforward as exchanging cash at a local store. Once trust was established, both businesses and consumers became more eager to embrace online commerce.

(source: https://www.y.uno/post/history-of-digital-payments)