The perception that Africa is behind the times when it comes to the payments industry is an interesting one. It is easy to assume that the continent as a whole is still cash-based with large rural unbanked areas widespread across the region.
This assumption isnt entirely unfounded, with the exception of the highly publicized success of the M-Pesa mobile payments initiative in Kenya, what do we really know about payments in this continent? It turns out a number of financial institutions are using emerging technology to deliver payments on the continent.
Home to approximately one billion people across 54 different countries, Africa represents nearly one seventh of the worlds population; a population that is largely unbanked. With the exception of South Africa, which boasts just over 50% financial inclusion according to Mercator Advisory Group, the percentage of people banked in each country largely ranges from 10 to 50%.
So, how do you serve a region so diverse in its religious, socio-economic, political, cultural and geographic convictions? This is where innovation comes in. The challenges to the development of the payments industry stretch across a lack of infrastructure, a largely uninformed, unbanked consumer base and a sparse geography. However, as the economist Ester Boserup once said, necessity is the mother of all invention and as such, the African nation drives the majority of innovation through necessity. This means that most innovations are led by customers, rather than technology, and therefore have a much higher penetration rate.
Stepping aside from the undisputable success of M-Pesa in Kenya (two thirds of the adult population are now subscribed), banks in the country are also driving innovation and change. Kenya Commercial Bank for example, is using the recent migration to EMV to rollout contactless cards as part of a government-led initiative.
Other countries in the region have also been quick to innovate to increase their market share of electronic payments. In Egypt, an emergency cash initiative has been adopted, which allows for cardless cash withdrawals at an ATM using a code sent to a mobile phone. Nigeria is one of the first countries worldwide to rollout an electronic national ID card which allows users to make prepaid payments anywhere that MasterCard is accepted and to receive funds such as social security (as a small example of its functionality). The card has an EMV chip and includes biometric authentication, opening up secure financial inclusion to millions of Nigerians. In fact, both South Africa and Nigeria have launched real-time payments solutions comparable with that of Faster Payments in the UK, and South Africa is quickly becoming an important player in the banking app space.
Africa as a continent is not held back by aging legacy systems. This factor combined with continued economic growth and a young, increasing middle class population makes for a bright future in payments innovation. The willingness of the government to get on board with financial inclusion twinned with innovative technologies and the potential of a largely untapped population, make this a region worth keeping an eye on.
Bethan Cowper is head international marketing for Compass Plus.
