Regulatory initiatives are increasing competition for financial services in the Middle East and Africa with fintech and telco firms launching digital wallets as a first step to gaining banking licences.
According to a whitepaper, authored by Omdia and commissioned by digital banking platform CR2, the adoption of digital wallets in the region has been growing steadily over recent years and this has been accelerated as a result of the Covid-19 pandemic.
In Africa, the shift to digital wallets is in full swing in countries with high smartphone penetration. Mobile industry body GSMA forecasts that smartphone adoption in emerging markets will reach 79 per cent by 2025.
Telco and fintech firms are taking advantage of the governmental push toward digital banking services and cashless economies with banks facing increasing competition from nontraditional rivals.
In Africa, fintech startups are becoming increasingly common, particularly in Nigeria, where payments players OPay, PalmPay and SeamPay all launched within the last three years. The majority of startups initially focus on providing mobile money/payments services but are quickly expanding into mobile banking as a means of competing with incumbent banks.
In western Africa, both Orange and MTN have been issued banking licences. Sixteen licences have been issued to fintech firms for payments services in Saudi Arabia. Meanwhile, in Kenya where smartphone penetration is now at 60 per cent, telcos, such as Safaricom, are creating ‘super apps’ that can offer services beyond money management. These include everyday services, such as restaurant bookings, food delivery and taxi hailing.
The Digital Wallet Opportunities in Middle East and Africa whitepaper offers recommendations on how incumbent banks can embrace digital wallets to engage with new and existing customers. It also warns that banks will lose out to fintech rivals if they fail to embrace digital wallets.
Fintan Byrne, CEO of CR2, says: “Customer behavior has changed rapidly in response to Covid-19, and the banks that will win are those that can respond with speed and agility. Working with a specialist digital payments provider allows banks to incorporate emerging payments types in response to their customers’ needs while improving operational efficiency within their wider digital-first strategy.
“Selecting the right partner is more crucial than ever for the banks in Africa as the shift from branch to digital and cash to alternative payments accelerates.”
The report says while digital wallets have largely benefited from the growth of e-commerce, the introduction of QR codes was the fundamental reason behind the success of digital wallets as an in-store payment method in Asia, and they are beginning to become more prevalent in other regions too.
Ghana was the first African country to introduce a universal QR code, and South Africa is in the process of standardising QR codes across the sector as adoption of alternative payment methods continues to rise.