Africa is a model of digital disruption, carving out its own distinct trajectory when it comes to digital payments. However, there are still major hurdles to be crossed, if businesses are to be connected to the full range of consumers on the continent. Sike Bamisebi, group chief business officer at Cellulant, explains the challenges of the current landscape and explores how they can be overcome.
For a number of years, technology has been a driving force across Africa – and the payment space has not been left behind. However, much remains to be done: despite the tectonic shift in the market prompted by the emergence of fintechs, businesses trying to reach African consumers still face crippling burdens.
With no unified and reliable digital infrastructure, an overwhelming number of payments solutions have sprung up across Africa. And while this is hugely positive in many ways, the myriad of payment solutions used on the continent generate huge operational complexities for businesses, making it difficult for merchants of all sizes to provide a comprehensive set of payment options that covers their whole market.
Indeed, different users and countries tend to favour different solutions, while even similar solutions usually vary from country to country, with each country split across a range of different providers and a huge number of mobile network operators. This puts a lot of strain on businesses who have to engage with a vast number of payment partners to process the different types of payments needed to meet customer demand.
The fragmentation of Africa’s payments also has implications for economic inclusion. It tends to result in businesses either limiting the number of markets they sell to or the number of payment options they make available. Either way, the result is a narrowed range of possibilities for the continent’s considerable unbanked population, which comprises around 456 million people, or 42 per cent of the overall population.
Paralysis of choice
Can too many options really cause so many problems? To understand better, take Zambia, for instance – where card penetration is low. Mobile money is the preferred means of payment and three MNOs share a roughly even split of the market. To maximise their reach and effectively serve their consumer base, Zambian merchants, therefore, have to maintain three different phone contracts on three different phones in order to collect their payments in the corresponding mobile wallets.
This incurs bottlenecks both at the point of sale (POS) – where the salesperson needs to juggle three different phones and log-in details to cater for different customers – and in the back office, where teams have to reconcile these payments from different providers and handle data trapped in different systems.
It is worth noting that this is just one situation across one country. Now picture this encumbrance across multiple payment methods – and across multiple countries. In most cases, it is highly inconvenient and costly to receive payments from different jurisdictions, with the additional administrative workload eroding business margins. As such, many businesses decide that it’s simply not worth pursuing opportunities in Africa, despite the attractiveness of the market.
Improving financial inclusion
If the industry is to combat this issue – and improve both business prospects and economic inclusion in one go – the solution will be aggregation and collaboration.
Working together with MNOs, for instance, fintechs can take on the relationship and administrative challenges of operating mobile money payments, providing businesses and consumers with a single platform through which they can execute all their payments.
This has the potential to drastically simplify the user experience for cashiers processing transactions at the POS, while running all transactions through just one familiar platform will enable back-office staffers to streamline reconciliation processes across multiple methods.
This, in turn, opens up the prospect of businesses entering markets they have previously held back from or opening up their payment options in existing markets to embrace a wider range of consumers. In both cases, the result is a major boost to economic inclusion.
Banks can also help to accelerate this kind of solution by white-labelling platforms and offering their services to their existing corporate customer base, opening up the benefits to hundreds of thousands of businesses and hundreds of millions of consumers.
As a naturally progressive and disruptive market, the payments landscape in Africa is evolving fast, becoming more dynamic with the rise of different payments solutions. Collaboration between banks and fintechs can also spearhead newer, more efficient means of transferring funds, including direct transfers between bank accounts and mobile wallets.
For instance, M-PESA, a form of mobile money, is one of the most widely used payment methods, yet common customer behaviour means that using it can sometimes be more cumbersome and costly than it needs to be. Consumers generally keep only small amounts of money on their M-PESA accounts, opting to hold the majority with their bank. This means they tend to require an extra step when it comes to making payments, as they first have to top up their M-PESA account. This involves finding the nearest cash machine, then finding the nearest street vendor and then paying them in cash to finalise the top-up. All of this comes before the main payment itself is made.
Through bank-fintech collaboration, consumers could easily top up their account via bank transfer, eliminating the cash step. To take it further, if bank transfers can take off, the most efficient solution of all would be to simply make a bank transfer directly from the consumer to the business, avoiding the top-up altogether. This is not only more convenient for the consumer, but also more straightforward and cost-efficient for banks and businesses too.
Recent innovation has created a sophisticated and exciting digital payments ecosystem in Africa, spanning different cultures and regulatory systems. Through innovation, aggregation and collaboration, fintechs, banks and MNOs can connect the African payments landscape in new and efficient ways – acting as the catalyst for improving not only business efficiency, but also everyday life and economic inclusion for the whole continent.