How Africa Can Benefit From Making Digital Payment Access More Inclusive

BySabine Mensah – Deputy Chief Executive Officer at AfricaNenda.

From Dakar to Kigali, individuals and businesses across Africa are increasingly using digital channels to pay merchants and utility providers and send money to friends and relatives. As a result, digital payments have become the most-used financial service among African account owners, according to the Global Findex. Governments likewise are delivering social payments using digital channels, and accepting payment for public services—both of which serve as key motivators for individuals to open their first account.

The increased availability of instant payment systems (IPS)—the multilateral platforms that enable retail payment fulfilment—is one enabler of increased usage. The transactions handled by IPS in Africa in 2022 alone totalled approximately US$1.2 trillion, according to the State of Inclusive Instant Payment Systems in Africa 2023 Report (SIIPS 2023). This represents 47% year-over-year growth in the volume of instant payments, and 39% growth in value across mobile money, bank, and sovereign currency payments.

Yet there is still a great deal more to do to provide inclusive access to digital payments—which are a critical element of digital public infrastructure. Across Africa, over 400 million adults are still excluded from the formal financial system, meaning they do not have a bank, credit union, microfinance institution, or mobile money account. Furthermore, 27 out of the 54 countries in Africa do not yet have a domestic IPS, according to the SIIPS 2023 report. This lack of comprehensive infrastructure furthermore makes cross-border payments inefficient and expensive, which hinders intra-African trade. To address these deficits, it is important to understand how digital payments benefit individuals and countries and what needs to happen to make them more inclusively available.

The benefits of instant payments for individuals and the economy

Digital financial services such as mobile money and digital payments increase physical safety and convenience by doing away with the need for people to store money at home or to travel to or from a bank branch carrying cash. An added advantage comes from having a digital confirmation of all payments and transactions’ history. This makes it easier to manage personal finances. In time, that documented transaction history may serve as the proof of income and cash flows that lenders can use to underwrite credit. These benefits and others have helped motivate users to adopt digital payment channels.

Over time, bigger socio-economic opportunities can be unlocked using digital payments. Account holders are better able than the unbanked to make regular transfers into a savings account to finance future investments in education or a business, or to manage unexpected events like an illness or accident. Having an account can also facilitate access to government support payments, as was the case during the COVID-19 pandemic. 

Despite these benefits, many barriers exist that keep end users from embracing digital payments. One of them is a lack of infrastructure.

Overcoming barriers to digital payment access

Instant payment systems are essential infrastructure that countries need to ensure that digital payments are accessible for everyone, everywhere. The 27 countries that have invested in instant payment systems are putting the necessary foundations in place to expand access to digital financial services, with the potential to positively impact millions of households.

Yet too many countries lack instant payments systems. Even those that have one may not yet have the policies, programs, and incentives in place to encourage participation by all the country’s payment service providers (including non-banks and mobile money operators—some of which have established their own multi-lateral payment process capabilities). Without broad participation, it is challenging for a multi-lateral IPS to achieve the scale needed to ensure instant payment functionality is widely available and costs are low.

Achieving wider IPS availability and sustainable scale will require all stakeholders, including governments, financial service providers, private sector innovators, and funders, to work together to invest in instant payment infrastructure, policies, and programs to make instant payment available and affordable in all corners of the continent, including in the remotest villages. A vibrant digital payments industry will encourage different players to participate, spur competition, and birth a variety of low-cost solutions that are relevant for all. 

Besides addressing barriers on the supply side, stakeholders in the financial services ecosystem must also tackle the barriers that suppress demand from end-users. Despite the significant growth in adoption and usage of digital payments over the past 10 years, the SIIPS 2023 report finds that a lack of familiarity, lack of trust, concern about scams, and lack of acceptance across the broader economy keeps more users from adopting digital financial services—particularly those who have been underserved by the traditional financial system. It will require dedicated effort on the part of payment service providers to bridge the information gap, tackle the scams that have discouraged usage, and win trust, including by mitigating the risk of fraud. The digital financial services industry must also take steps to make digital payments more attractive than cash by enabling versatile use cases. Digital payments must be safe and easy to use, with different ways of making and accepting digital payments—such as through agents, apps, QR codes, among others. 

Working together to address end user needs, it is possible to promote a digital payments ecosystem in Africa that leaves no one behind.

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