Published : 5 years ago, on 08/01/2020

By Corrie Bakker, Head of Business Development & Strategy for PayU in Africa

Sub-Saharan Africa is a region of unimaginable potential for fintech innovation.

According to 2015 figures from the World Bank, Sub-Saharan Africa is home to 350 million unbanked individuals, 17% of the global total. That’s a huge untapped market.

The region’s underdeveloped financial infrastructure and largely unbanked population presents fintechs with the opportunity to provide unrivalled access to financial services. We’re already seeing this take effect in the form of mobile payment companies. With one of the highest mobile phone penetration levels in the world, Africa is currently experiencing a boom in mobile money and payment technologies.

Africa’s mobile money shift

Particularly in Sub-Saharan Africa, mobile payment companies have been filling the gap left by banks. PayU’s global Financial Prosperity Barometer found that Africa (50%) is the only region that uses mobile money more than traditional banks for credit compared to a global total of 16%. Indeed, Sub-Saharan Africa is the only region in the world where close to 10% of GDP in transactions occur through mobile money. This compares with just 7% of GDP in Asia and less than 2% of GDP in other regions. (World Economic Forum). By tailoring the offering to the specific country in which they operate, mobile services are experiencing huge success in providing more people than ever with access to basic financial services.

Yet, the region has historically intimidated international investors, even though the opportunities and available insights are ever more apparent. Businesses are, and should be, paying more attention. PayU’s global Financial Prosperity Barometer found that smartphone apps are the most popular way to use a financial service in Africa. Indeed, the region is currently responsible for an astonishing 45.6% of mobile money activity in the world (GSMA).

Africa’s e-commerce opportunity

Eyes are also turning to the continent’s “biggest business opportunity”, according to Jack Ma: e-commerce. There are currently around  65.4 million e-commerce users in Africa, a number set to rise by another 20 million over the next two years. In part, the incredible rise of smartphones and mobile wallets is facilitating this growth in e-commerce.

The African e-commerce market has already been successfully harnessed by e-commerce entrepreneurs and mobile solutions such as Jumia, Mall For Africa, PayU and M-Pesa. You only need to look at how many days M-Pesa took to reach its first one million active users- a mere 239 – to see how receptive the market is.

Increasing internet penetration is driving the growth of e-commerce across the continent in conjunction with improved economic conditions, streamlined consumer experience and a growing middle-class population. However, there is another factor propelling e-commerce coming in the form of improved cross-border trade.

It remains the case that over 80% of Africa’s exports go outside the continent (as opposed to intra-African exports); an incredibly high proportion compared to most other parts of the world (Brookings). Initiatives, such as the African Continental Free Trade Agreement, highlight the continent’s appetite for cross-border trade and demonstrate the work being done to modernise both regulation and processes. This agreement, pioneered by the African Union and signed by 54 members of the state, requires members to remove tariffs from 90% of goods, allowing free access to commodities, goods, and services across the continent.

Arrangements like this are a crucial step in overcoming many of the continent’s hurdles, from legacy systems with a lack of transparency and complex regulations and legalities to system inefficiencies and limited access to reliable and recognisable payment options.

Streamlining cross-border payment systems even further is critical to enabling the huge growth of cross-border trade and e-commerce activity that is possible. Opening up African countries to more trade is vital to bringing on board the predicted 20 million e-commerce users Statista research shows will be active by 2022 year.

Kenya leads the way

Kenya has oft been touted as the leading country when it comes to mobile money and e-commerce. As such, Kenya represents massive potential for e-commerce. This is driven by a number of things, not least the country’s young population – one in four of the population is under the age of 35. In addition,  Kenya’s internet accessibility is the highest in the whole of Sub-Saharan Africa, with internet penetration up at 89.4%. As you might then expect, Kenya’s rate of financial inclusion is now 83%, up from just 27% in 2006. And there’s no doubt that investors and entrepreneurs are taking notice – e.g. Copia, the e-commerce platform serving unbanked customers in rural Kenya, recently raised $26 million. Kenya’s fintech hub is located in Nairobi and home to more than 50 fintechs, most of which are looking to dominate the payments landscape.

And it’s not just investors taking notice. Kenya’s government has even decided to introduce a new tax on digital markets to bring digital platforms under its VAT and income taxes. Though somewhat controversial, this move indicates the extraordinary growth potential recognised by investors and regulators alike.

A recent study from McKinsey predicting electronic-payments revenue in Sub-Saharan Africa could reach up to $16 billion annually in the next few years if the growth of mobile payments in Kenya is repeated across the continent. This will bring with it even more growth in e-commerce, as both consumers and merchants take advantage of the new technology at their fingertips

This is only the beginning

According to the World Economic Forum, the continent’s growth is projected to increase to 4% in 2020; higher than other emerging and developing regions. It’s clear that this is in part facilitated by the global rise in mobile payment capabilities, in turn fueling the demand for e-commerce across Africa’s once obstacle-filled borders.

The digitalisation of payments in Sub-Saharan Africa is aiding the increase in cross-border activity and opening up opportunities for merchants to reach audiences who were previously inaccessible. By the end of 2018, there were 395.7 million registered mobile money accounts in Sub-Saharan Africa, representing nearly half of total global mobile money accounts (GSMA). To capture this vast audience, payment solutions providers should look to provide both businesses and consumers with reliable, secure and trusted payment infrastructure, whether domestically or across borders.

Africa’s population has proven that it is hungry for digital innovation. The region has the potential to embrace the eBays and Amazons of the world and is increasingly creating its own, as international investment is made easier and more appealing.