Connect the Dots: Fragmentation in Africa

The narrowing digital divide in Africa means that more people can access previously inaccessible services. Digital banking and on-demand services are now at people’s fingertips, with markets like online food delivery projected to reach US$9.40bn in 2024. Enterprise businesses are poised to expand their markets to the continent but are hampered by some major obstacles, one of which is processing payments. It stands to reason that this will be a complicated endeavour, as each country has its own ecosystems of payments and regulations to navigate.

This fragmentation not only impedes the enterprises wanting to access the African market but also limits Micro, Small, and Medium Enterprises that would leverage the technology of these providers to expand their markets.?

Connecting the dots of providers, payment processing, merchants, and users is crucial in expanding financial access in Africa and growing its respective economies.?

Drivers of fragmentation

Africa is not a single, unified market, and in the past, countries and regions did little to facilitate cross-border transactions. However, in recent decades, this has begun to change as the benefits of collaboration and regional integration have become increasingly clear.?

The fragmentation is a result of diverse regulatory frameworks and payment method preferences, limited infrastructure, fragmented financial institutions, currency and exchange rate volatility, and access and inclusion challenges. Great strides have been made to improve access and inclusion, with improved digital access providing financial services to more people. It’s estimated that around 68% of the population will have a bank account by 2029, compared to 48% today.

Transferring money in such a fragmented system is complex and therefore costly. Inbound remittances into Africa are the most expensive globally, for example, with the cost of sending US$200 an average of 8.5%.?

Closing the digital divide

The push to address fragmentation is fueled by the shrinking digital divide, which refers to the disparity between those with access to modern technologies—such as the Internet, smartphones, and digital financial services—and those who remain excluded from these advancements.?

Digitalisation drives job creation and contributes to reducing poverty and reducing inequality. It’s estimated that for every 10% increase in broadband access in low and middle-income countries, the GDP increases by 1.38%.

Governments and development banks are investing in digital infrastructure to support financial services, particularly in rural areas. Projects like undersea cables and mobile broadband expansion aim to reduce the digital divide and provide the foundation for more integrated financial systems.

While digitalisation is not uniform across the continent, its growth is undeniable with more than 160 million Africans gaining broadband access between 2019 and 2022. This growth can also be seen in the 191 million additional individuals who made or received a digital payment between 2014 and 2021.?

Digitisation faces many challenges such as affordability, infrastructure gaps, lack of financial access points, lack of trust, low digital literacy, and internet penetration that still lags behind the global average.

Of note is the role that Unstructured Supplementary Service Data (USSD) continues to play. Approximately 6 out of 10 phones are feature phones or non-smart phones. Leveraging the more widely available GSM networks, people use USSD to access services like money transfers, balance inquiries, and airtime top-ups.?

This raises the question: Where should enterprises focus when trying to tap into the market? On USSD, which has been around for more than 20 years but has very little room for innovation, or digital access which currently only makes up around 6% of transaction volume?

These roadblocks provide fertile soil for innovation such as Cellulant’s own platforms that enable access to both these technologies (and multiple other payment methods) through a single, seamless entry point via API.?

Fintech is stitching the fragments.

Fintechs in Africa are stepping in and stitching together the financial landscape fragments by driving digital transformation for digital trade and financial services.? Its innovative solutions? bridge the gaps in infrastructure, financial inclusion, and service delivery and allow it to:

• Drive financial inclusion via aggregation of different payment methods.
• Overcome infrastructure barriers through agent networks and low bandwidth services.
• Improve affordability and accessibility compared to traditional banks, and enable traditional banks to access previously inaccessible markets.
• Build trust in digital infrastructure through improved UX, transparency, and security.
• Facilitate cross-border transactions like remittance services and pan-African payment solutions.
• Innovating Know Your Customer (KYC) and identification solutions.
• Support MSMEs by simplifying and expanding payment access. MSMEs also benefit from access to enterprise businesses that can now access the market through fintech innovation.?
• Partner with traditional financial institutions through banking-as-a-service and APIs.

Africa has fewer legacy challenges to deal with and can adapt faster to this rapid expansion of digital offerings, but risk and reputation management will remain crucial. The expansion of digital access also brings an expansion of competition as more providers enter the market. Businesses will do well to keep ahead of the curve by establishing trust in their products and brands through seamless payment experiences built on reliable infrastructure.?

Building such a stable base enables businesses to leverage another major advantage of fintech: its agile innovation keeps its partners at the leading edge and ready to deliver when their customers demand more. Industries like banking have already moved beyond digitisation as the ‘next big thing’ as consumers become more savvy and demand more sophisticated products and services. Keeping up with these demands requires sound decision-making based on firm and reliable data. As digital access continues to spread across Africa, data is becoming the next frontier to conquer in the quest to improve customer retention and growth.?

Data-driven Innovation

A recent survey concluded that there is a 79% higher chance of business success if strategies are based on accurate data rather than intuition.

Understanding the market is a key step in ensuring business longevity, especially in the African market, which is characterised by rapid growth and dynamic markets.??

Data collection in Africa is hampered by the same factors as those that cause financial fragmentation. By addressing the fragmentation of financial services in Africa, digitisation also unlocks access to previously inaccessible data about consumer behaviour.

A prime example of this synergy is the banks that partner with Cellulant to deliver innovative solutions to their corporate clients in Africa. Not only can they offer a single point of access to multiple payment methods and channels, but they also gain end-to-end visibility of their client’s behaviour and financial status without contravening privacy requirement laws. This in-depth insight allows the banks to provide more customised products and services to improve retention as clients increasingly demand all-in-one solutions from financial institutions.

A single point of access to Africa’s potential

Despite major improvements, fragmentation remains one of the key challenges to unlocking Africa’s digital economy. Despite this, the continent is on a strong upward trajectory and offers major room for growth to enterprises. It’s estimated that Africa will be home to one-third of the global workforce by 2030, increasing spending power as wealth continues to equalise.?

Fintech is crucial in narrowing the digital divide while unlocking valuable data businesses can use to drive growth and make informed decisions.? As a leader in African fintech, Cellulant stitches together the fragments of Africa’s payment methods, making it easier to navigate the complexities of African markets and reduce delays.? It offers established access to anchor markets and more than 300 payment integrations across bank, wallet, and card. It processes more than 20 million transactions each month, with over $12.8 billion handled annually.?

By addressing market fragmentation, the future of African finance will be one of inclusion, opportunity, and growth for merchants, providers, and users.