An African economy where access to the latest digital payment solutions is as easy as swiping a screen is fast becoming a reality. All thanks to the rapid growth of Africa’s internet economy and fintech sector.
According to the Google/IFC e-Conomy Africa report, the Internet economy has the potential to contribute $180 billion to Africa’s economy by 2025 and grow to $712 billion by 2050. A major driver of this growth would be the payment infrastructure set up by African fintech startups and disruptors.
In this article, we identify 5 key trends today that are accelerating growth in Africa’s digital payment economy in the race to 2025:
The rate of African urbanization is one of the fastest in the world. As of 2021, there were 68 cities in Africa, each home to over a million inhabitants and projected to increase to 85 cities by 2025. By then, Africa’s urban population will increase by 190 million people, meaning that at least 1 out of 3 Africans would be living in a city.
A primary driver of this projected urbanization would be the migration of young Africans from rural areas to African cities in search of better work opportunities. Such urbanization would drive economic growth, as history has shown, and bring about greater financial inclusion. Currently, the money spent in Africa’s largest metropolitan areas is 79% higher than the national average.
Africa’s young population have emerged as the continent’s largest consumer by demography. How large? Excluding South Africa, the middle-class in Sub-Saharan Africa spends over $400 million per day. A key driver of this trend is the increase in Africa’s working class and the sophistication, globalization and cost-consciousness of young people.
Nigeria, Egypt and South Africa remain Africa’s largest consumer economies by volume, averaging a combined $830 billion annually in household consumption. However, more African economies – particularly Ghana, Sudan, Algeria, Kenya, Angola, and Rwanda – are transforming into consumer giants owing to economic booms in recent years. By 2030, Africa would be home to over 1.7 billion consumers with a spending power north of $2.5 trillion.
All that spending power would inevitably further open Africa to the global financial influx and drive innovation in Africa’s remittance and payment market.
By the end of 2020, 495 million people in Sub-sahara Africa were subscribed to mobile devices services and mobile money transactions in Africa peaked at $490 billion, according to the GSMA’s 2020 Mobile Economy Sub-Saharan Africa report.
While this accounts for only 45% of Africa’s market penetration, mobile services subscribers are expected to reach 615 million people by 2025 generating $155 billion in economic value. Meanwhile, the number of internet users in Africa is predicted to grow by 11% and contribute $180 billion to Africa’s economy by 2025.
Now, since 60% of Africans access the internet through mobile devices, we expect to see an explosion in mobile banking and payment technologies over the next half-decade. Already the shift from traditional banking and cash payment method is evidenced in the boom of fintech startups in Africa.
Tech talent in Africa is at its historic height and continues to rise. As of 2019, there were nearly 700,000 professional developers across Africa with more than 50% concentrated in five key African markets: Egypt, Kenya, Morocco, Nigeria, and South Africa. While 33% of developers are produced by universities, informal pathways (self-teaching, online schools, boot camps and on-the-job training) account for the remaining 67%.
The African tech industry pulled in $2.02 billion in funding in 2020, a good portion of that money pouring specifically into Africa’s fintech sector. This inherently means that a large portion of Africa’s tech talent is focused on building payments and other financial solutions.
Although African tech startups are predicted to lose 40% in funding owing to the impact of COVID-19 till at least 2023, more funding post-2023 would attract more tech talents to the fintech sector.
Across Africa, fintech companies are building infrastructures to ease remittance into Africa and payments within Africa. This coupled with increased favourable regulations has expanded peer-to-peer transactions in Africa and lowered the cost of remittance.
Since 57% of Africans are unbanked, fintech companies are set to create digital payment solutions aimed at including this large market. Mobile money and e-money remain the most viable instrument to accomplish this, although the rise of Central Bank Digital Currencies (CBDC) might challenge fintechs to come up with something entirely game-changing.
The fact remains that by 2025, more Africans would be financially included and the ease of cross-border payments into and across Africa would double.
The growth of Africa’s payment ecosystem would directly influence remittance inflow. Most notably, more foreign investments and venture capital funds would flow into Africa. Aside from that, more African merchants would be connected to the global market, paying for supplies and collecting payments for goods sold with ease.
For personal remittance, the reduced cost of remittance would prompt more Africans in the diaspora to send money to beneficiaries back home, relying less on orthodox methods of sending money. Furthermore, more Africans in the diaspora would see the need to send money home in form of investments into thriving African economies.
To take advantage of the ripples a thriving African payment system would create, international remittance companies would need to develop the capacity to process remittances into and from all 54 African countries. This translates to building robust remittance switches, establishing relationships with African banks and payment service providers, handling the entire business operation as well as investing in marketing.
An easier route would be to leverage a reliable Africa-centric payment network like CSL Pay, which provides a powerful payment switch and gives instant access to African financial institutions. By moving the technological and logistics burdens to a Pan-African payment network, you focus on enhancing business operations. This helps better position your business for making the most of remittance opportunities bound to stream out of Africa in the coming years.
Learn more about CSL Pay and take a cheer to your potential profits.