Note: This post is adapted from an earlier version published in Global Banking & Finance Review.
Sub-Saharan Africa is a region of unimaginable potential for e-commerce and mobile payments innovation.
Home to 350 million unbanked individuals – close to one-fifth of the global total – the region’s underdeveloped financial infrastructure is a global development imperative for increasing financial inclusion and access to financial services.
It’s also a huge untapped market, presenting savvy fintechs with an opportunity to provide access to traditional financial services in new and innovative ways. We’re already seeing this take effect in the form of mobile payments.
Africa’s mobile payments shift
Particularly in Sub-Saharan Africa, mobile payment companies have been filling the gap left by banks. Last year PayU’s global Financial Prosperity Barometer found that Africa (50%) is the only region that uses mobile money more than traditional banks for credit compared to a global total of 16%.
Indeed, Sub-Saharan Africa is the only region in the world where close to 10% of GDP in transactions occur through mobile money. This compares with just 7% of GDP in Asia and less than 2% of GDP in other regions (World Economic Forum). By tailoring the offering to the specific country in which they operate, mobile services are experiencing huge success in providing more people than ever with access to basic financial services.
The African market has historically intimidated international investors, even though the opportunities and available insights are becoming ever more apparent. With Africa currently responsible for an estimated 45.6% of mobile money activity in the world, businesses are, and should be, paying more attention.
The boom in African e-commerce
Eyes are also turning to what Alibaba founder Jack Ma has called Africa’s “biggest business opportunity”: e-commerce. There are currently around 65.4 million e-commerce users in Africa, a number driven in large part by the rise of smartphones and mobile wallets.
The African e-commerce market has already been successfully harnessed by e-commerce entrepreneurs and mobile payment solutions such as Jumia, Mall For Africa, PayU and M-Pesa. You only need to look at how many days M-Pesa took to reach its first one million active users- a mere 239 – to see how receptive the market is.
Growing internet penetration is driving the growth of e-commerce across the continent in conjunction with improved economic conditions, streamlined consumer experience and a growing middle-class population. However, there is also another factor coming in the form of improved cross-border trade.
Currently over 80% of Africa’s exports go outside the continent (as opposed to intra-African exports); an incredibly high proportion compared to most other parts of the world. Initiatives, such as the African Continental Free Trade Agreement, highlight the continent’s appetite for cross-border trade and demonstrate the work being done to modernise both regulation and processes. This agreement, pioneered by the African Union and signed by 54 members of the state, requires members to remove tariffs from 90% of goods, allowing free access to commodities, goods, and services across the continent.
Arrangements like this are a crucial step in overcoming many of the continent’s hurdles, from legacy systems with a lack of transparency and complex regulations and legalities to system inefficiencies and limited access to trusted and reliable cross-border payments.
Streamlining cross-border payment systems even further is critical to enabling the huge growth of cross-border trade and e-commerce activity that is possible. Opening up more trade across the continent will be vital to bringing on board the 20 million additional e-commerce users expected in Africa by 2022.
Kenya leads in mobile money innovation
Kenya has oft been touted as one of Africa’s leaders when it comes to mobile money and e-commerce. This is driven by a number of things, not least the country’s young population – one in four of the population is under the age of 35. In addition, Kenya’s internet accessibility is the highest in the whole of Sub-Saharan Africa, with internet penetration up at 89.4%.
Kenya’s rate of financial inclusion is now 83%, up from just 27% in 2006. There’s no doubt that investors and entrepreneurs are taking notice – Kenya’s fintech hub is located in Nairobi and home to more than 50 fintechs, most of which are looking to dominate the payments landscape. Copia, the e-commerce platform serving unbanked customers in rural Kenya, recently raised $26 million.
And it’s not just investors who are taking note. Kenya’s government has decided to introduce a new tax on digital markets to bring online platforms under its VAT and income taxes. Though somewhat controversial, this move indicates the extraordinary growth potential recognised by investors and regulators alike.
A recent study from McKinsey predicts that electronic-payments revenue in Sub-Saharan Africa could reach up to $16 billion annually in the next few years if the growth of mobile money seen in Kenya is repeated across the continent. This will bring with it even more growth in mobile payments and e-commerce, as both consumers and merchants take advantage of the new technology at their fingertips.
This is only the beginning
Before COVID-19, the World Economic Forum predicted the African region as a whole to grow by 4% in 2020 – and while the pandemic is sure to put a dent in these numbers, Africa remains on a faster growth trajectory than many other emerging and developing regions. It’s clear that this is in part facilitated by the global rise in mobile payment capabilities, in turn fueling the demand for e-commerce across Africa’s once obstacle-filled borders.
The digitalisation of payments in Sub-Saharan Africa is aiding the increase in cross-border activity and opening up opportunities for merchants to reach audiences who were previously inaccessible. By the end of 2018, there were 395.7 million registered mobile money accounts in Sub-Saharan Africa, representing nearly half of the global total.
To capture this vast audience, payment solutions providers should look to provide both businesses and consumers with reliable, secure and trusted payment infrastructure, whether domestically or across borders.