Personal empowerment for African consumers

The African continent has witnessed progressive increases in financial inclusion, largely driven by mobile money and other technological advances, against a backdrop of limited banking infrastructure and ubiquitous mobile devices. It is estimated that adult ownership of financial services accounts in Africa has increased from 38% to 74% in the last decade, and mobile money has played a key role in this advancement, with Africa accounting for two-thirds of all the value of mobile money transactions globally in 2022. Without a doubt, the digitisation of financial services and distribution via mobile and agency banking channels has made them more accessible, but what impact has this had on the lives of Africans?

Traditionally, banking and other formal financial services were reserved for only big businesses and well-heeled individuals in African countries. The unit economics of establishing and running a branch network along with the requirements for opening and operating an account ensured that banking services only reached a minority of the population. As the 20th century came to an end, Africa witnessed a mobile phone revolution. GSM licences were granted by several nations, and within a decade, having access to a phone line was no longer a luxury on the continent. The decision by telcos to include mobile money wallets in their offering could not have come at a better time. Popularised by Kenyan Safaricom’s

M-Pesa, over the next decade and a half, this telco-led financial service model has boomed and continues to serve hundreds of millions of Africans today. Fintech firms have also joined the fray, disrupting the telco-led mobile money model in select markets. Generally, non-bank financial services have significantly boosted adult ownership of financial services accounts in many African countries.

The effect of widespread access to digital financial services has been significant on the lives of Africans. Sending money to a family member elsewhere in the country can now be achieved without leaving home. Consumers no longer need to make a journey to the office of a utility company or service provider (e.g., cable TV) to make a bill payment. They also do not need to travel to a bank to check their account balance or to access their funds. The savings in time and improvements in productivity for African consumers have been quite significant.

For individuals seeking to transact across borders, the possibilities have also expanded. Remittances into African countries are a major source of foreign currency earnings. In the past, a student in Dakar, Senegal, receiving money from his older brother based in Paris, France, would need to wait a couple of days for the funds to arrive, and he had to go to a bank branch or remittance agent to cash out. Today, he can receive the funds instantly into his account or digital wallet and pay for books or food directly from there.

To be sure, access to financial services remains a challenge in several communities in Africa due to several factors, including low or irregular income, attitudes toward banking, proximity to a financial services provider, and more. Distribution costs in the banking industry, including building branches, connecting them to a data network, and paying staff salaries, are prohibitively high. It is therefore not feasible to establish a bank branch in every community; however, agency banking, created by mobile money operators who already had a massive telco distribution network of agents selling airtime, makes it possible to have physical locations for financial services in the communities where customers live and work. This, along with the ubiquity of mobile devices, has contributed to the huge success of mobile money in Africa.

Mobile money is only the entry point to accessing financial services and is largely limited to a store of value wallet, which allows for funds transfers within the operator’s mobile network. Partnerships with other ecosystem players can radically improve the offering, adding credit, insurance, and other valuable services to the bouquet. For example, in 2019, Ecobank partnered with MTN Mobile Money in Ghana to include its microlending product, XpressLoan, on the mobile money menu, and within the first 6 months, loans worth $150 million were issued to over 1 million unique users.

Uplifting African communities with digital financial services

There are several studies that show the benefits of mobile money in Africa, such as in northern Uganda, where access to these digital financial services increased food security by 45%, and self-employment increased for individuals who lived far away from a branch. During the COVID-19 pandemic, several African governments leaned on the networks built by mobile money operators to deliver palliatives to their most vulnerable citizens. For example, as the economic effects of the lockdown started to bite, the government of Togo launched Novissi, which means solidarity in the local dialect, Ewe. The initiative was a money

Enterprise Evolution

Businesses have not been left out of the gains from digitisation. A decade ago, a bakery owner in Kigali seeking to accept digital payments could not do so easily or inexpensively. Today, thanks to simple lines of code provided by Fintech firms like Flutterwave and Paystack, they can easily receive online payment for orders. Even in-store payments have been enhanced by digitisation, with companies like Yoco in South Africa simplifying the process of ordering POS terminals and providing other services that empower businesses. With all this progress made, there is still a significant opportunity for the organisations that are able to transfer program in which eligible citizens received funds from the government into digital wallets. This cash transfer helped the poor with their immediate needs but also may become the basis of programs to identify the most vulnerable. Indeed, the increased adoption of digital financial services across the continent could lead to the accelerated achievement of several United Nations Sustainable Development Goals (SDGs).

In the last few years, there has been growing interest in venture capital investments in African Fintech, fueling the growth of digital wallets and payment applications. Many point to the 350 million unbanked Africans, waiting to be granted access to world-class financial services, and several have launched sleek applications and published them on Google Play or the App Store. These solutions largely target the few citizens who are already mostly multi-banked, with verifiable or high-income levels. They may do little to put a dent in financial inclusion, as only 43% of Africans have access to the internet, and even fewer can consistently pay for data. There are, however, some exceptions, for example, Wave, a Senegalesebased fintech firm, whose service is based on an app but also provides a printed QR code to customers who do not have a smartphone so they can transact at agent locations. capture the merchant payments opportunity in Africa.

The rise in mobile money and realtime account-to-account transfers is changing the business collections landscape. Businesses now expect instant settlement as they adopt virtual accounts, Quick Response (QR) payments, Near Field Communication (NFC) payments, albeit a nascent solution in Africa, and more. Collection solutions include an array of value-added services such as reconciliation, inventory management, loyalty, and others. This has simplified the lives of many small and mediumsized businesses who were previously overwhelmed by these tasks.

Digital banking and other financial services in Africa have significant implications for trade between nations, a key to improving productivity and growing the respective economies on the continent. A boutique hotel in Accra, Ghana, receiving a group of international guests from Spain, would have struggled to process the payments involved, facing high charges, or having to accept cash after failed attempts to settle the bill. Today, while cross-border payments can still be challenging in Africa, there are several solutions

Osahon Akpata

Group Head, Consumer Payments Ecobank Transnational Incorporated

emerging. The ratification of the African Continental Free Trade Area (AfCFTA) and the establishment of the Pan African Payment and Settlement System (PAPSS) is expected to ease intra-Africa crossborder payments and expand trade between the continent’s nations. PAPSS will facilitate cross-currency settlement, which would mean that a garment manufacturer in Abidjan, Côte d’Ivoire, will be able to receive instant payment in West African CFA Francs from an apparel retail chain in Zambia who paid in

Conclusion

The digital banking revolution in Africa has not only rewritten the financial landscape but has also reshaped the very fabric of societies. It has empowered individuals, catalysed enterprise evolution, and contributed to the communal upliftment of diverse communities. Africa’s journey to financial inclusion and prosperity is far from over, but the digital banking revolution has set it on an exciting and promising path toward a brighter future.

Kwachas without going through a third currency.

It is estimated that the informal economy in Africa represents 55% of the Gross Domestic Product (GDP) and employs nearly 83% of adults. These businesses are in agriculture, retail trade, transportation, and several other segments and are a critical part of our economies. Technology platforms have recognised the size and breadth of these businesses and are providing solutions to digitise their businesses and connect them with suppliers and offtakers. The availability of embedded finance solutions on these platforms has meant that these businesses may now access credit and buy now pay later (BNPL). A cosmetics trader in Kano, Nigeria, can order products from her wholesaler on credit and make payment when she has sold products. This will enable her to expand her business further and serve her community better.

Larger corporations in the formal economy are also adapting to the digital era. They use technology to optimise supply chains, track sales, and stay ahead of market trends. Digital banking is not just about convenience. It is a catalyst for innovation and resilience in the corporate world.