Innovations shaping Africa's payment sector

Kenya's M-Pesa, launched in 2007, is often credited as the catalyst for the African digital payment boom. As one of the world's most successful mobile money platforms, M-Pesa demonstrated the potential of mobile-based financial services and served as a blueprint for other digital payment providers.

M-Pesa allowed users to store and transfer money using their mobile phones, even without a traditional bank account. The service quickly gained popularity and became widely adopted by Kenyans, particularly those in rural and underserved areas. Currently, there are 110,000 M-Pesa agents, which is approximately 40 times the number of bank ATMs in Kenya, highlighting the extensive reach and accessibility of the platform.

M-Pesa's success in Kenya first inspired the expansion of mobile money services across Africa. Primarily, this was achieved through the introduction of non-conventional banking services, filling a gap that was previously unaddressed for many Africans, particularly those in rural areas. From this point, the continent experienced a proliferation of diverse payment options, leading to increased financial inclusion and access to digital financial services.

The rise of innovation on the African continent

Africa is of course a large continent with over 50 unique nations. However, over the last few years, certain developments have had an impact across most of these countries. For example, the increasing affordability of smartphones has played a crucial role in the growth of digital payments. The availability of low-cost smartphones has expanded access to mobile banking and payment apps, facilitating financial transactions for more people.

Africa has become a hub for FinTech innovation. Startups such as Flutterwave, OPay and Chipper Cash are developing innovative digital payment solutions tailored to local needs. These solutions include peer-to-peer payment platforms, remittance services, and digital wallets, making financial services more accessible to individuals and small businesses.

Africa’s future in eCommerce

Digital payments have fueled the growth of eCommerce in Africa. Online marketplaces and platforms have emerged, providing opportunities for businesses to expand their reach and allowing consumers to access a wider range of products and services. eCommerce looks as though it will keep growing in Africa, which will increase digital payments further.  

By 2025, it is predicted that Africa will have more than 500 million people using eCommerce, which indicates a consistent annual growth rate of 17% for online shoppers in the market. The level of eCommerce usage is expected to reach 40% of the population by 2025.

Absa, one of Web Shield’s clients is a prominent financial institution based in South Africa. It offers a wide range of banking and financial services, including retail banking, corporate and investment banking, wealth management, and insurance. Amy Green, Ops Risk Head at ABSA commented:  

“Even though cash still accounts for about 90% of payments across the continent of Africa, there has been a YoY growth in digital payments since 2017, with significant increase during the COVID 19 Pandemic. I, therefore, foresee constant growth as businesses continue to evolve into the Digital world.”

How to trust something new

M-Pesa's robust security measures and user-friendly interface instilled confidence in users regarding the safety and reliability of digital transactions. As people experienced the convenience, speed, and security of mobile money services, trust in digital payments increased. This trust created a positive environment for the adoption of other digital payment solutions, contributing to the overall rise in digital payments in Africa.

The state of compliance today

To understand this better, it is important to look at the activity of the card networks, like Visa and Mastercard. As African economies experienced growth in the 1990s, and digital payment infrastructure improved, card schemes witnessed significant growth in their activity. They expanded their operations, worked with local banks to issue more cards, and collaborated with merchants to increase card acceptance.

The rise of mobile money services in Africa opened new opportunities. The card networks collaborated with mobile operators to integrate mobile money with card-based payments, leveraging the widespread adoption of mobile phones in the region. In recent years, card schemes introduced innovative solutions such as prepaid cards, contactless payments, and digital wallets to meet the diverse needs of African consumers and businesses. They also formed partnerships and invested in FinTech startups and payment service providers to expand their influence in the evolving payments landscape.  

While digital payments have transformed the financial landscape in Africa, challenges remain. These include limited internet access, infrastructure gaps, regulatory complexities, and cybersecurity risks. However, these challenges also present opportunities for innovation and investment in building a robust digital payment ecosystem.

In recent years, several new digital payment compliance measures have been introduced in Africa to enhance financial transparency, security, and regulatory oversight.  

• Strengthening Know Your Customer (KYC) regulations to verify customer identity and address money laundering and fraud risks.
• Enacting or enhancing Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) laws to combat illicit financial activities.
• Adopting data protection and privacy laws to safeguard personal information handled by digital payment providers.
• Requiring transaction reporting and monitoring of large or suspicious transactions to track financial flows and identify potential risks.
• Introducing licensing and registration requirements for payment service providers to ensure compliance, consumer protection, and risk management.

Mobile payments are currently the dominant mode of transaction in countries such as Kenya and Ghana, contributing to more than 80% of all payments. Yet, this isn't to suggest that card payments aren't gaining momentum. Interestingly, the primary driving force behind this transformation has been the FinTech sector.

However, it's essential for card schemes to acknowledge and act upon the need to enhance their presence. With a clear appetite for digital payments apparent across the continent and an ever-improving infrastructure, any delay in action could potentially lead to them being left behind.  

Amy Green commented on what she expects from the next few years:

“The digital landscape is expected to become more dynamic, with the evolution of different payment methods & digital currencies. Bringing a wider range of market players to the table is going to be vital to a sustainable and effective payments infrastructure in ABSA and Africa as a collective.”

Signifying the evolving landscape

The Central Bank of Africa declared at the start of 2023, plans to launch its own card scheme. This serves as a reminder of the importance of continued innovation and adaptability for the existing player on the market, so they can keep pace with the changing preferences of consumers and businesses.

Considering these factors, it is evident that Africa's remarkable growth in recent years shows no signs of slowing down. As the digital payment landscape continues to expand, the focus on security measures is expected to increase significantly. The implementation of compliance measures is likely to become more prevalent and stringent, offering substantial benefits to customers, merchants, and card schemes alike. This heightened emphasis on security and compliance will foster a safer and more reliable environment for conducting digital transactions, instilling greater trust and confidence among all stakeholders involved.

As compliance measures grow throughout the African continent, Web Shield looks forward to partnering with more businesses in the region. Contact one of our experts at hello@webshield.com to find out more.