While financial inclusion has long posed a significant challenge, it is now increasingly attainable.
This challenge is being tackled through various innovations emerging from both conventional banks and non-banking institutions, including fintech firms.
The push for digital financial inclusion is underpinned by sound economic principles—lowering transaction costs can greatly enhance economic growth, as detailed in a World Bank report.
Africa has historically been a leader in payment technology innovations, highlighted by the introduction of Mpesa in 2007 by Vodafone and Safaricom in Kenya, which allows users to transfer money easily. Mpesa now has over 60 million users and processes in excess of $1 billion (more than R18 billion) daily.
“The payments sector in Africa is witnessing remarkable growth,” states a report from Swift (Society for Worldwide Interbank Financial Telecommunications).
“Electronic and instant payment solutions are revolutionizing daily transactions in a continent still dominated by cash, driven by a youthful demographic that is rapidly embracing digitalization.
“Currently, Africa accounts for 70% of the global mobile money market valued at $1 trillion,” claims Swift.
Rufaida Hamilton, head of payments for Standard Bank in South Africa, emphasizes that a pivotal moment for Africa was the understanding that merely providing access to bank accounts was insufficient for true financial inclusion.
“In South Africa, the potential market for banking services has mostly been saturated, yet the demand for quick, simple money transfers remains unmet by traditional payment services.
“The next stage towards financial inclusion involves enhancing the accessibility of payment systems.
“I do not foresee a complete removal of cash in the near future,” she adds. “However, we believe that decreasing reliance on cash offers major benefits.”
“The future of payments will encompass a variety of competing and interacting payment methods.”
South Africa’s financial services sector is more advanced than many others in Africa, primarily due to the widespread adoption of card payments.
This development has been supported by card payment systems initiated by the government for 28 million social welfare recipients, ensuring extensive card usage even among the most impoverished communities.
Innovation in digital payments and mobile money within Africa is emerging from various sources: banks, fintech companies, retailers, and mobile network carriers, all aiming for effective collaboration between these entities.
Currently, there are 28 instant payment systems across Africa, spanning nearly as many countries (some countries operate multiple systems), and while the technological capacity for interaction is largely in place, regulatory frameworks still need improvements.
“The primary challenge now is for regulators to create an ecosystem that fosters seamless transactions across these technological platforms among all participants,” says Hamilton.
“In South Africa, regulators are poised to adopt a framework that anticipates a rise in non-bank participants entering these systems. This signals a significant change. Banks have thrived in traditional financial services, but now, with the entry of fintech and non-bank entities, they are expanding payment services to meet demand. Regulators must stay ahead of this evolution.”
In 2025, South Africa will lead the G20 working group on Accessible Instant Cross-Border Payments, focusing on accelerating cross-border payment processes, enhancing accessibility, reducing friction created by regulatory entities, standardizing data storage protocols, and aligning contrasting standards for market supervision.
While it remains uncertain which technology will dominate this evolving environment, Hamilton anticipates that electronic instant payments will outpace other options like cards and cash.
Although card payments offer benefits—such as loyalty perks—many Africans do not have access to these options. Physical cash presents risks of loss or theft and entails hidden costs due to the need to travel to bank branches or ATMs for transactions.
With over 50% smartphone penetration in South Africa, the era of widespread and immediate electronic payments is tantalizingly close. Increased usage is expected to drive economic growth.
The potential brought by digital mobile devices promises to deliver convenience, speed, and an overall uplift for the country.
While cash circulation presents risks and costs, a World Bank report suggests that digital money can foster enhanced economic growth.
Another crucial area of focus in instant payments is cross-border transactions. Currently, around 80% of cross-border payments in Africa are conducted through the Swift-enabled correspondent banking model. Hamilton asserts that Africa must establish linking networks similar to Project Nexus in Asia, initiated by the Bank for International Settlements, to facilitate connections and immediate transactions across diverse payment systems on the continent.
“We have moved past just having instant payment technologies; the next phase is to break down regulatory barriers to reduce friction among nations,” Hamilton insists.
“A vital step towards achieving financial inclusion involves providing digital IDs to every African citizen. This will allow regulators to recognize dependable digital IDs, enabling lower transaction costs through bilateral agreements with South Africa. While 78% of the population possesses some form of formal identification in Africa, the focus should shift to digitization and building mutual trust in this identification.”
This message is presented by the Standard Bank Group.
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