Payments, the backbone of the financial services industry, have rapidly evolved in the past few years, especially since the COVID-19 pandemic. In Africa, digital payments were once a blip in an otherwise cash-based economy, but with increased adoption of mobile phones and internet penetration, they have become a mainstay in daily life.
The value of Africa’s digital payments market is projected to reach $195 billion in 2024, more than double the value in 2020. This exponential growth is due to the increased adoption of POS devices, digital remittances, e-commerce, blockchain technology, and mobile money.
Blockchain Technology
Blockchain technology stands out as a transformative force in the realm of digital payments. Africans have turned to cryptocurrencies as a means of sending money across countries and as a hedge against inflation. The revenue of the continent’s cryptocurrency market is projected to reach $457 million in 2024.
Beyond cryptocurrencies, blockchain’s decentralized ledger technology offers significant potential. Its ability to provide secure, transparent, and immutable transaction records makes it an ideal solution for various payment processing challenges.
Traditional cross-border payments often involve multiple intermediaries, leading to high fees and slow processing times. Blockchain can eliminate these intermediaries, reducing costs and increasing transaction speed. Companies like Zone, Africa’s fastest growing payment infrastructure company, allows financial institutions to connect directly with each other, enabling real-time settlement, reconciliation, and dispute management through their regulated blockchain network for payments.
By leveraging blockchain, Zone ensures that transactions are not only faster and more secure but also more cost-effective compared to traditional methods. At least Fifteen of Africa’s largest banks and fintech companies have signed up on Zone’s network with most of them, currently using the network to process payments.
One unique feature of Zone’s technology is its ability to support both fiat currencies and digital assets, including stable coins. This dual capability enables seamless back and forth transitions between traditional and decentralized finance, creating a hybrid financial ecosystem that caters to a broad spectrum of users.
Contactless Payments
Contactless payments refer to transactions made using near-field communication (NFC) technology, allowing users to make payments by simply tapping their cards or smartphones against a payment terminal. These cards and phones must be equipped with Radio Frequency Identification (RFID) technology.
Contactless payments have witnessed significant growth in Africa, driven by technological advancements, increased smartphone penetration, and the need for secure and efficient payment solutions. In Kenya, mobile money services such as M-Pesa have integrated contactless payment solutions. South Africa has also seen significant growth in contactless payments, driven by major banks and retailers.
Mobile Money
While mobile money might not necessarily qualify as an emerging technology since it launched on the continent in 2007, there is still significant room for growth. The service has become a cornerstone of digital payments in Africa, with platforms like M-Pesa in Kenya, which has 56.7 million users, leading the charge.
Before the advent of mobile money, a large portion of Africa’s population was unbanked due to the scarcity of banking infrastructure. Mobile money allows users to deposit, withdraw, transfer money, pay bills, and even access credit and insurance products through their feature phones or smartphones.
With over 835 million registered mobile money accounts across the continent, mobile money is a critical driver of financial inclusion. In 2023, Africans processed 62 billion mobile money transactions worth $912 billion. The industry is rapidly growing as transaction volume grew by 28% while value grew by 12% in 2023.
Challenges to Overcome
Regulatory Hurdles: The regulatory landscape for digital payments in Africa is complex and varies significantly between countries, hindering continent-wide innovation. Policymakers need to develop frameworks that facilitate cross-border transactions, protect consumers, and encourage the growth of digital payment ecosystems.
Infrastructure and Connectivity: While mobile phone penetration is high, internet connectivity remains a barrier in many parts of Africa. The continent contributes only 13% of global internet users, with less than 580 million people connected to the internet. Expanding internet access and improving digital infrastructure are essential for the widespread adoption of digital payment technologies.
Security and Trust: Building trust in digital payment systems is critical. Ensuring robust security measures to protect against cyber threats and fraud is essential for gaining user confidence. Education and awareness campaigns can also help users understand the benefits and risks associated with digital payments.
Conclusion
The future of digital payments in Africa is promising, with emerging technologies offering solutions to long-standing financial challenges. Mobile money, blockchain, and contactless payments are at the forefront of this transformation, driving financial inclusion and economic growth. However, realizing the full potential of these technologies requires addressing regulatory, infrastructural, and security challenges. With continued innovation and collaboration between stakeholders, digital payments can play a pivotal role in Africa’s economic development and integration into the global economy.