From the innovative MoMo to a diversified and promising payments landscape, Africa's digital market is geared up to grow

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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.

From the innovative MoMo to a diversified and promising payments landscape, Africa's digital market is geared up to grow

When it comes to payments, global companies need to think in terms of localization, in order to provide payment solutions that better fit with the culture and the consumer behavior. This is especially true in rising economies. While in developed markets the majority of people have access to an international credit card and, through it, to global digital commerce, in rising markets, the credit card penetration rate is very low. Instead, there is an innovative, diversified and flourishing payments industry developing payment methods that go beyond cards: from cash vouchers to account-based payments, from wallets to mobile money (Alternative Payment Methods, or APMs), and making it possible for millions of consumers to access products and services from any part of the world.

Africa is the perfect example of how payment innovations are leading a huge transformation in the way people buy goods and services online and make payments on a daily basis: while 97% of Africans don't have a credit card, according to the latest 世界银行 Global Findex, the region accounts for 70% of all mobile money volume transacted worldwide.?

We can say the so-called MoMo is a "payment of its time". Developed in the early 2000s, it met, at that time, the needs of a region with limited access to the internet and banking services, but where more than half of the population had a mobile phone.?

Given this, African telecom companies started offering P2P (person-to-person) payment solutions via SMS messages, in a prosaic but very creative way of using the available infrastructure to include more people in the financial system. In short, MoMo works like a wallet but is tied to a SIM card, allowing sending and receiving money without an internet connection.?

Africa currently has an 83% penetration of mobile subscribers and through mobile money, mobile phones became key to driving more financial inclusion and enabling digital payments in the region. Data from EBANX 's latest Beyond Borders study shows mobile money is responsible for up to 40% of account ownership in some African countries, such as South Africa (85%), Kenya (79%), and Nigeria (45%). And, nowadays, besides telecoms, many African-born fintechs now enable payment solutions via mobile phones, adding other financial products, such as savings and loans.

Alternative payment methods lead the way in Africa's digital commerce

Mobile money turned Africa into a digital-payments-first region and paved a way full of opportunities for the financial services industry. Now, it's time for digital commerce to flourish.?

Although Africa is still at a very early stage of its digital commerce industry, with only 12% of the population having made an online purchase in 2022, the region is forecasted to have the largest number of digital buyers growth worldwide, expanding by more than 8% annually through 2026, much faster than any other region in the world. Also, Africa's digital economy is expected to reach USD 180 billion by 2025, 5% of GDP.?

Payments should play a key role in driving digital commerce adoption, as consumers gain trust and new digital habits. Research from 麦肯锡 shows by 2025, at least 70% of all online transactions across the continent are expected to be done with alternative payment methods, such as digital wallets, mobile money, and instant payments. In this scenario, cards only represent around 30% of the volume.

The proliferation of alternative payment methods in Africa is being led by both telecom companies, offering mobile money, and local and international fintechs, improving the payments offered by making new payment methods available to consumers.?

According to McKinsey's study, wallets stand out as having the strongest value proposition for the region, especially for integrating several payment methods into one, including mobile money. They should be the fastest-growing payment method in Africa, expanding at 25% per year through 2025, for both online and offline transactions. Meanwhile, cards are expected to grow 20% per year in the same scenario, and electronic transfers will be a bit behind, at 18%.?

For comparison, Africa is actually where Latin America was 8 years ago in digital consumption. During the last decade, LatAm's digital commerce grew by about 30% per year, even though digital payments were just embryonic. Africa now has an edge with its digital payments penetration and a more mature fintech ecosystem. In other words, while e-commerce drove digital payments adoption in Latin America, in Africa digital payments are driving e-commerce.?

"Latin America and Africa have a lot in common when it comes to payment fragmentation and digitization. What we are seeing happening in Africa now is the experience of access to the global digital economy. That is to say, the region has been successful in developing efficient financial and payment solutions according to the available infrastructure and catering to a specific cultural and behavioral scope. Now we are in a new phase, where the global digital economy turns its eyes to the business and consumption potential of the region. It is a melting pot of opportunities. In the coming years, any global company that wants to continue to grow will have to pay attention to Africa and develop localized strategies to address this market," said Wiza Jalakasi , Africa Market Development Director at EBANX.?

And where are the best opportunities in Africa's booming digital commerce??

Everywhere.?

Africa is already the fastest-growing continent in several digital verticals worldwide, such as SaaS, gaming, streaming, delivery apps, and online retail. Over the next few years, these industries are expected to expand at double-digit rates, between 11% and 25%, which is up to 5 times the global average. Find out more about the most promising verticals in the African digital market here .?

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To keep an eye on: Generative AI's rising market influence?

Data from 国际数据公司 (International Data Corporation) shows that global spending on Artificial Intelligence (AI), including investment in software, hardware, and services related to these systems, is expected to grow 26.9% by 2023, reaching USD 154 billion.

"The ongoing incorporation of AI into a wide range of products will result in a compound annual growth rate of 27% over the 2022-2026 forecast with spending on AI-centric systems expected to surpass USD 300 billion in 2026," said IDC.?

According to IDC , the two industries expected to invest the most in AI in 2023 are Banking and Retail, while the fastest growth in AI spending should come from the Media industry, with a five-year CAGR of 30.2%.

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Just to bring some payments perspective to the matter, this article from PYMNTS examines the role of predictive AI versus the role of generative AI in the payments journey. While AI solutions can improve virtually any process involving a large volume of data and complexity, predictive AI and generative AI are ultimately distinct, as the article points out:

"For its part, predictive AI is focused on analyzing data to make predictions about future events by running statistical discriminations to identify core threads of replicable patterns.

Generative AI is something slightly different. Its algorithms are meant to create new content based on the increasingly large data sets it is trained upon, weaving something new from the threads it uncovers." Read it in full here .?

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Data and some food for thought

The future of streaming

This article from The Verge sheds light on a growing and seemingly irreversible trend: from here on out, free ad-supported streaming services will only grow . "The future of TV is free, it has ads, and it involves a lot of channel surfing. It’s a lot like the TV business of old, really. That’s actually kind of the point," said the article.?

India's plan to export its wildly successful digital payments system

Launched in 2016, the unified payments interface (UPI), India's digital payments system, has already surpassed the use of credit and debit cards in the world's most populous country. According to this Rest of World story, UPI is already used by 260 million Indians , and in January of this year, the system processed 8 billion transactions, handling nearly USD 200 billion. The success of the system is such that it has even been recommended by Google to the US Federal Reserve (FED), as a reference for the real-time payment system developed by the US regulator, called FedNow.?

That's all folks, see ya!