As the world comes to terms with the impact that the COVID-19 pandemic continues to have on the health and lives of many, some are left wondering exactly what the consequences will be on economies and businesses. While there is of course uncertainty in these unprecedented times, it’s important we don’t forget the potential that was building in many countries, particularly those in emerging markets, that could in fact prove critical to the economic recovery of these regions.
Sub-Saharan Africa, for example, is a region full of potential. The opportunity for FinTech innovation is vast thanks to a combination of underdeveloped financial infrastructure and an unbanked population of 350 million. This presents huge opportunities for FinTechs to innovate and provide financial services to underserved communities across the continent – writes Corrie Bakker, Head of Business Development & Strategy for PayU in Africa.
There have already been some impressive strides made, as local entrepreneurs and international investors alike explore the capabilities of FinTech. Mobile payment companies in particular have recognised and capitalised on the need for financial innovation for African consumers and SMEs. Sub-Saharan Africa has one of the highest mobile phone penetration levels in the world, a fact that is reflected in how financial services are accessed. According to a 2018 report, the region is responsible for a staggering 45.6 percent of mobile money activity globally.
Before the crisis hit, Africa was experiencing a boom in mobile money and payment technologies; its importance in improving financial inclusion is even more pertinent now, particularly as it helps cut down the need for physical currency exchange. As an industry, we must ensure momentum is not lost in the world’s largest mobile money market.
The move to mobile
But how did it first start? Mobile payment companies have played a crucial role in filling the void left by banks, which have faced difficulties in overcoming barriers such as geographic logistics and a lack of legacy infrastructure when it comes to moving money. Without access to traditional financial services, African consumers have been forced to look for different ways to engage with their finances.
This is where mobile has proved invaluable. Sub-Saharan Africa is the only region in the world where close to ten percent of GDP in transactions occur through mobile money. This compares with just seven percent of GDP in Asia and less than two percent of GDP in other regions. Furthermore, PayU’s Financial Prosperity Barometer found that Africa was the only region to use mobile money more than traditional banks for accessing credit, and that smartphone apps were the most popular way to use a financial service.
In a region with so many barriers to financial inclusion, mobile services have succeeded in providing millions of people with access to basic financial services. This inclusion is key to reducing poverty, enabling socio-economic mobility and boosting prosperity.
An e-commerce explosion
It is a market that is both hungry and receptive. Take M-Pesa for example, a leading mobile payment provider in the region, which took only 214 days to acquire its first million active users back in 2007. The pioneering technology completely transformed the rate of financial inclusion in Kenya, which was only 27 percent in 2006. Today, it stands at 83 percent. Twelve years on, the appetite has continued, as Africa celebrates its first home-grown unicorn: the electronic payments company, Interswitch.
Facilitated by the surge in smartphone and mobile wallet adoption, e-commerce now represents an enormous business opportunity for Sub-Saharan Africa. Research suggests that there are currently 400 million internet users in Africa, the second-largest internet-user population on the planet after China.
There are a number of crucial factors now driving the growth of e-commerce beyond simply increased internet penetration, including a growing middle-class population that brings with it an increased disposable income and also merchants increasingly investing more in end-user experience.
Tackling the cross-border challenge
But that is not all. Improved cross-border trade is transforming e-commerce across the region. Historically, Africa has faced numerous challenges when it comes to both intercontinental and international cross-border trade, including outdated legacy systems, complex regulations and legalities, system inefficiencies and limited access to reliable and recognisable payment options.
Work is underway to change this and make the region a more hospitable place for merchants to operate. Pioneering initiatives like the African Continental Free Trade Agreement, which allows free access of commodities, goods and services across the continent, are integral to enabling successful e-commerce. Further to this, initiatives such as the Fund for African Private Sector Assistance (FAPA) are supporting the growth of SMEs in Africa. The FAPA has been specifically designed to strengthen the participation of SMEs in financial markets.
Payment service providers have a key role to play in streamlining cross-border payment systems even further by diversifying the range of payment methods available to consumers, ensuring they adhere closely to different local regulations and that solutions are tailored to specific consumer behaviour. Only when regulation, technology and the right user experience work in harmony will the full potential of e-commerce be truly recognised.
Looking to the future: what to expect?
Prior to the COVID-19 outbreak, economic growth was tipped to increase by four percent in 2020 alone, outperforming other emerging and developing markets. Naturally, forecasts will be changing as the impact on the economy becomes clear, but we are already seeing the continent look to its FinTech prowess to navigate the crisis.
Kenya for example, has turned to mobile money as a public-health tool and has implemented a fee-waiver on M-Pesa to reduce the physical exchange of currency. In Nigeria, mobile payment company Paga has made fee adjustments, allowing merchants to accept payments from Paga customers for free in an attempt to help slow the spread of the coronavirus by minimising cash handling. Today, mobile money has never played a more important role in keeping the economy afloat.
As technology continues to innovate and mobile payment capabilities become more advanced, cross-border trade will become easier, creating unprecedented opportunities for merchants and consumers alike. This will undoubtedly attract more merchants and investors (investments into Nigerian payment companies reached a staggering $400 million in one week in November 2019) from around the world looking to tap into new markets. Payment solution providers will have a key role in facilitating this trade with reliable, secure and trusted payment infrastructure.
As a region subject to natural and economic difficulties, Sub-Saharan Africa has long proved its ability to be both resilient and creative. In the last two decades, FinTech has shown how the region forges opportunity out of challenges, with the creation of the most popular mobile money service in the world as just one example.