Digital economy: it's time for Africa!

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This is Payments & Beyond, a biweekly newsletter that will bring together news, data, reports, and insights on what's happening in the payments industry and digital commerce globally, taking a closer look at the world's fastest-growing verticals such as streaming, online games, creator's economy, SaaS & cloud, and retail.

Payments and digital commerce: what is going on in Africa

• Why Africa is considered the next growth frontier in the digital economy
• How digital payments are boosting digital commerce in the region

Driven by growing economies, a young, urban, and digitally savvy population and increasing digital penetration, Africa's digital economy is the fastest-growing one globally nowadays, making the region the next frontier in digital. This is the gist of the report "The Inflection Point: Africa's digital economy is poised to take off” recently released by Endeavor .

The report shows the continent is experiencing one of the fastest growth in GDP and consumer spending in the world – its GDP has tripled since 1990 and Africa is expected to have a total of USD$2.5 trillion in consumer expenditure from over 1.7 billion consumers by 2030. Besides this promising economic scenario, digital penetration in Africa is accelerating fast, and, by 2025, 1 in 6 of the world’s internet users could be in Africa. This increasing digitization allows more individuals and companies to participate in and grow the continent’s digital economy.

According to the report, although rapidly growing as the data shows, the continent has barely scratched the surface of its potential relative to other regions: Africa’s digital economy has a size of USD$115 billion and it is expected to grow to USD$712 billion in 2050.

This is the big picture.?

And how about payments?

Endeavor’s report shows the financial services industry in Africa is worth USD$165 billion and is dominated by payments, banking, and insurance. Cash is still dominant in the region, with over 80% of transactions still being done in cash in major African economies, due to low urbanization rates and lagging banking infrastructure. As only 7% of transactions are made via digital payments nowadays, the business opportunity is huge.

When it comes to which digital payment methods are going better in the region, a fragmented landscape is revealed, with different dominant methods in each country, such as mobile money, debit and credit cards, and e-wallets, which limit cross-border interoperability between players. Data from Statista shows the share of cards, bank transfers, e-wallets, and other payment methods, like mobile money, which represents a huge potential for digital payments in a continent where a limited share of the population owns a bank account, differs between countries:

Although cash is Africa's most common payment method, even when purchasing online (paying on delivery), the e-payments market in the region is expected to grow by around 152% between 2020 and 2025, reaching almost USD$40 billion in revenues from domestic payments alone, with about 188 billion in transaction volume, according to 麦肯锡 .

Part of this growth has to do with the proliferation of alternative payment methods. Digital wallets, for instance, are expected to experience the fastest growth, jumping from 23 billion transactions in 2020 to 88 billion transactions by 2025. Another study, from GSMA , shows in 2021, the number of active mobile money accounts reached 184 million, up 12% from 2020, and USD$701.4 billion transacted, an increase of 39% compared to the year before.?

Now, what does it mean for digital commerce?

Indeed, digital payments are considered the backbone of digital commerce in Africa. While in some regions, like Latin America, for instance, the growth of digital commerce, specially during the pandemic, helped to push digital payment methods, in Africa the opposite happens: mobile devices and digital money transfers are the foundation for digital services access for the continent’s massive population of more than 1 billion people and, now, they are driving access to digital commerce as well.?

According to Statista, e-commerce penetration in Africa is low, with just 28% of the population making online purchases as of 2021. But, this number should reach 40% by 2025, which means Africa’s e-commerce users are forecasted to surpass half a billion by then, reaching 519.8 million users.?

The rise of e-commerce penetration unveils a huge opportunity for global digital commerce players that do not yet have a strong presence in Africa, from global retail behemoths to streaming and digital games giants.?

Also, this scenario opens up a great opportunity for companies tackling the challenges of digital payments, especially in cross-border payments, like EBANX , which just arrived in South Africa, Nigeria and Kenya by offering a set of payment solutions that contemplate popular local payment methods, such as mobile money and bank transfers.?

"Africa is a region that combines a high mobile phone penetration rate and a population that is habituated to using cell phones to make payments. However, it is still in its early stages when it comes to digital payments and digital commerce. Accelerated digitization, economic growth, and an appetite for innovation make the region a melting pot of opportunities for global players who want to sell to African consumers, and for companies like EBANX disrupting cross-border payments," said Paula Bellizia , president of Global Payments at EBANX.?

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To keep an eye on: Pix, a game-changer from Brazil to the world?

Pix, the instant payment system developed by the Central Bank of Brazil, is about to complete two years having achieved record numbers and global success, placing Brazil at the forefront of global financial innovation. So much so that it is a case study for many financial hubs in the world and has inspired other countries to build their own real-time system.?

Recently, Roberto Campos Neto, president of the Central Bank of Brazil, said that expanding Pix across Latin America is the regulator's priority. According to him, Colombia, Uruguay, and Peru have already shown interest in developing a system similar to Pix.?

It does make sense. The Pix’ success can be translated by its impressive numbers, but also because it turned into a tool of financial inclusion.?

Fresh data from Brazil’s Central Bank shows the impact of Pix: 128.2 million people have used Pix at least once just in September'22 (this is over 75% of the country's adult population) and 11.2 million businesses have joined the system to make or receive payments. When we look at what it does mean in terms of money, people handled BRL$1.02 trillion through 2.3 billion Pix transactions in just one month.?

During the sixth edition of Latin America Summit 2022, an event held annually by EBANX that this time took place in Mexico City, Carlos Eduardo Brandt, head of Pix Management and Operation at Brazil's Central Bank, talked about Pix's role in democratizing access to new products and services. "From people's perspective, it's digital inclusion, not only financial inclusion. And for merchants, Pix means more people to do business with,” he said.

Find out more about Pix:

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EBANX at Money20/20 USA

Speaking of the potential of APMs in emerging markets, such as instant payments in Latin America (besides Pix in Brazil, we have good examples also in Colombia, with Nequi, and Peru, with Yape), or mobile money in Africa, this year Paula Bellizia, president of Global Payments at EBANX, will be a keynote speaker at?Money20/20 USA, one of the most important payments & fintech events in the world, talking about how to thrive in emerging markets and how APMs are crucial for the economic and business environment development.

She will also be sharing insights about how alternative payments are the key to promoting true financial and digital inclusion in regions where there are still a lot of unbanked people (and not just for unbanked people, but for anyone who wants more options, more ease, more agility and less friction when shopping and paying).

Catch your breath, we will come back soon to share more about this matter. For now, you can take a look at the Money20/20 agenda here.

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Data, Data, Data

88.5%?

Latin America has a heavy use of social media, with social network penetration reaching 88.5% of internet users, according to Insider Intelligence , the largest share in the world. Social media’s strong presence in Latin America helps to boost the so-called creator’s economy, which includes all kinds of influencers, streamers, and gamers.?

USD$16 billion

Influencer marketing revenue in LatAm is expected to reach approximately USD$16 billion in 2022, growing at 20-30% per year according to Statista/Fluvip/Martech Group.?This is twice the growth rate for Influencer Marketing spending in the US, for instance, considering the 2019-2023 period.

60%

The payout volume for influencers, streamers, and gamers in Latin America will grow at 60% per year through 2025, according to Americas Market Intelligence estimates, jumping from USD$14 billion in 2022 to USD$58 billion in 2025.?

Little by little

Payments for these content creators have created a recurring payment challenge for small-ticket values.

In this scenario, the micropayment solution lies in Alternative Payment Methods like digital wallets, which make small-value transactions profitable and agile. EBANX, for instance, uses digital wallets in four Latin American countries for retailers and social media companies to reward the user with very small-value payments.

That's all folks, see ya soon!