Africa’s Rise of Digital Wallet-Based Apps

Africa and Asia are the birthplaces of mobile money, and the transition to digital wallets is well underway in countries with high smartphone penetration.

According to a recent report, African and Asian consumers are increasingly accepting digital payments.

This is the conclusion of a white paper published by TerraPay in collaboration with IBS, highlighting trends and insights specific to the African and Asian regions. The report discusses how Africa is the “enduring epicenter of mobile money,” with the continent alone adding more than 60 million registered accounts in 2020, compared to one billion globally. This was fueled by strong growth in West Africa (21 million new accounts), Central Africa (six million), and East Africa (six million) (22 million).

It discusses the rise of digital wallets and how mobile wallets have successfully targeted the continent’s underserved banking population. The white paper focuses on the cross-border and increasingly domestic remittances business, as well as the role of digital wallets and app-based solutions in serving the unbanked and underbanked populations. This is accomplished by broadening reach and improving usability. The white paper also provides an overview of the challenges that banking institutions and other solution providers face when processing cross-border payments, as well as the potential for wider adoption, particularly for small ticket transactions.

The market report notes the adoption of digital wallets has been steadily growing for some years, while the Covid-19 pandemic accelerated the need for online and in-store payments, forcing merchants to prioritize acceptance of new payment tools such as digital wallets.

Ubiquitous cross-border remittances

The report finds that remittances made by digital wallets provide food and secondary education, as well as funding local businesses and land purchases in countries such as the Democratic Republic of the Congo, Kenya, Tanzania, and digital powerhouses Nigeria and South Africa. This has led to increased spending on education, nutrition, and healthcare, but it has also expanded beyond cross-border remittances into uber-hailing, restaurant bookings, and food delivery.

As such, domestic remittance volumes are more sensitive to cost and convenience factors than international transfers, with total volume increasing as options become cheaper and more convenient.

Underpinning what has been a sharp growth in digital wallets within the context of remittance services is mobile money transfers which capitalise on the ubiquitousness of mobile phones to provide cross-border transfers.

This is expected to further increase. Holding back even stronger growth is that women on the continent are still a third less likely than men to have an active account due to their reported lack of knowledge on mobile financial services.

There isn’t much encouragement needed.

There are numerous examples that demonstrate that the rise of mobile money transfers appears to require little encouragement: in Rwanda, for example, the Central Bank’s implementation of multiple policy changes resulted in a phenomenal 700 percent increase in the weekly value of funds spent digitally at merchants, a 450 percent increase in person-to-person payments, and a 200 percent increase in the number of people using mobile payments.

Ghana was the first African country to introduce a universal QR code, which allows customers to make instant merchant payments using mobile money wallets, bank accounts, or international cards. Airtel Africa partnered with MoneyGram enabling Airtel Money customers to receive MoneyGram transfers directly into their mobile wallets from over 200 countries globally.

While digital wallets have benefited greatly from the growth of e-commerce, the introduction of QR codes was the primary reason for digital wallets’ success as an in-store payment method in Asia. This is now becoming more common in Africa as well.

PayPal’s money transfer service, Xoom, has begun accepting international remittance payments from users in the United Kingdom, the United States, Canada, and Europe to mobile money wallets in African markets. Safaricom and M-Pesa, the mobile money provider, have partnered with Amazon to run the Big Tech’s cloud sales out of Nairobi, thereby assisting the growth of e-commerce and digital payments.

Cryptocurrency and digital currencies: the next frontier?

According to the report, cryptocurrency is expected to be the future of cross-border remittances in Africa, where the market for crypto-based remittances is already growing.

Willie Kanyeki, Regional Director: East and Southern Africa at Terra Payment Services, comments on the report, noting that, in addition to the development of cryptocurrencies highlighted in the white paper, the central banks of Ghana and Nigeria have been doing pioneering work in their respective development of national digital currencies in the market. “Ghana and Nigeria are leading the way in Africa in the development of digital currencies rather than cryptocurrencies.”

The Central Bank of Nigeria is already planning to launch an eNaira digital currency with the same value as fiat naira. The Bank of Ghana is also nearing the launch of its e-Cedi, and Tanzania is following suit.”

Though cash is still widely used in Kenya, the mobile money market is equally popular. It is one of the best examples of a mature mobile money market, with over 100 percent penetration attributed to customers who own multiple SIM cards. M-Pesa, which has a 98 percent market share in Kenya, allows users to access a variety of financial services through their phones without having a bank account. Smartphone penetration in Kenya is expected to reach 60% in 2021 and more than 80% by 2025.

M-new Pesa’s app allows users to book bus or train tickets, buy insurance, and purchase tickets for various events, with more services planned in the future.

Nigeria is the fastest-growing market, poised to outpace the cash-to-card revolution as consumers shift to mobile-enabled payment methods. According to the report, the demand for cashless and frictionless payments is being driven by youth demographics.

In both Nigeria and South Africa, reliance on cash has decreased significantly. In the latter country, the majority of people (43 percent) prefer card-based payments to digital wallets.

In Congo DRC, there is the CongoPay platform, a new mobile payment platform developed by the Congolese government in collaboration with TerraPay. CongoPay will improve interoperability between Airtel money, mobile money, and merchant accounts. In Congo, the platform will promote financial inclusion, financial resilience, and the reduction of inequalities. It is a centralized and secure system that allows for fast and transparent multi-channel payment changes.

“One of the key takeaways of the white paper is that in-country regulatory initiatives are increasing competition for financial services, with financial and telco firms launching digital wallets as a first step to gaining banking licenses,” Kanyeki concludes.