Telcos Set to Dominate Mobile Financial Services in Africa's Market
In the 21st century, the payments landscape has undergone a remarkable metamorphosis, with electronic payments and digital currencies making significant inroads, even challenging traditional money concepts. Africa stands out as a continent that not only keeps pace with this transformation but often leads the way. New investments and regulatory changes are continuously shaping Africa's e-payment landscape.
Despite cash remaining the dominant form of payment in Africa, owing to the over 350 million adults without a bank account or credit card, mobile money is swiftly gaining ground, fueled by improved technology accessibility, concerns about traditional financial services, and the rise of contactless payments. In fact, sub-Saharan Africa accounts for over 50% of the world's mobile money accounts, according to the World Bank.
Africa's domestic e-payment market is projected to witness a staggering 20% annual growth, reaching an estimated $40 billion by 2025. This rapid expansion outpaces the global market, where payment revenues are predicted to grow only 7% annually in the same time frame. As mobile accounts become the primary means of verification and access for governments and retailers catering to the vast unbanked population, there is a tremendous opportunity for telecom businesses to expand their mobile payment services.
Mobile money has proven to be an effective solution for Africa's unbanked population, addressing traditional challenges such as
- Scarcity of banking infrastructure like ATMs and point-of-sale (POS) machines,
- Complicated application procedures,
- Requirement for official identification documents,
- High service fees,
- Informal economies and cash transactions stifling banks' adaptability,
- Low levels of financial literacy,
- Delayed settlements, and
- Fraud concerns.
Mobile money services offer simplified onboarding processes, access via Unstructured Supplementary Service Data (USSD) – a text message-based mobile communication protocol that doesn't necessitate internet connectivity – and enhanced security, affordability, and instant transactions. Over 63% of mobile users already pay in-store with their phones, and this trend will likely escalate with the advent of 4G and 5G networks.
African telecom companies have significantly contributed to the growth of mobile payments, offering innovative solutions and value-added services to their extensive customer bases. In sub-Saharan Africa, there are currently over 144 providers of mobile money services. These companies rely on networks of agents, including traditional and independent traders, to provide nearby ATM services for households. Interoperability systems across different operators have further improved mobile money services since 2018.
Customers have transitioned from basic mobile money services to a broader range of financial services such as bill payments, savings, loans, and insurance. The transaction values of bill payments have seen the most rapid growth, increasing by 36% to nearly $88 billion in 2022. Ongoing enhancements to these services are leading to feature-rich wallets with in-app shopping, access to various services, and integration with online merchants, marketplaces, and platforms as payment options.
This shift is reshaping the industry and the future of those who can integrate themselves into the mobile money ecosystem through innovative APIs. It's streamlining relationships between customers and vendors, signifying one of the most considerable financial shifts to date, contributing to a more interconnected, accessible, and thriving business ecosystem globally.
The innovative approach is supported by increased smartphone ownership, with the number of smartphone connections set to rise to nearly 700 million by 2025. While banks seek collaborations with telecom companies to combine licensing and lending functionalities with vast mobile networks, these telecom operators are gradually moving towards offering services like lending, insurance, and savings independently, sans bank partnerships.
In the end, success in the competitive consumer digital payments market hinges on entities that can achieve scale and swiftly introduce new products meeting customer needs. Given that telecom providers already serve a large portion of the unbanked population through their mobile networks and possess unique data for lending purposes, they are well-positioned to dominate the consumer digital payments market.
Article by Craig Palmer, CEO, *VAS-X*
(Craig Palmer highlights how African telecom companies play a pivotal role in the rise of mobile payments and financial inclusion, shaping a more interconnected and accessible business ecosystem in sub-Saharan Africa.)
(References omitted for brevity.)
- The rapid expansion of mobile money in Africa, driven by improved technology accessibility and the need for alternative financial solutions, is fueling the growth of the region's e-payment market, with telecom companies like VAS-X at the forefront.
- With Africa's domestic e-payment market projected to reach an estimated $40 billion by 2025, and 63% of mobile users already paying in-store with their phones, there is a significant business opportunity for telecom providers to expand their mobile payment services, particularly in areas where traditional banking infrastructure is lacking.
