Africa’s e-payments market is experiencing unprecedented growth. According to a report by McKinsey, it was projected to grow by 20% each year until 2025. That means, by next year it could surpass $40bn.
This growth rate surpasses the global average of 7%, highlighting Africa’s importance in the changing global payments landscape, with e-payments steadily overtaking cash transactions. It illustrates that the continent is not only keeping pace with but also leading broader shifts in how people transact for goods and services. More recently, this includes the adoption of cryptocurrencies and digital currencies, which continue to gain traction. In fact, in 2023, sub-Saharan Africa experienced a significant upswing in Bitcoin adoption and usage, reaching the highest levels globally. Countries like Kenya, Ghana and South Africa have even achieved high rankings on the Global Crypto Adoption Index, which measures where the greatest share of people’s wealth is being invested in cryptocurrency.
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By GlobalDataThis trend demonstrates how emerging markets like Africa are at the forefront of innovations in global e-payments and other cashless systems.
So, are we on course for a cashless reality? What will this mean for Africa and other emerging markets? And how can businesses effectively navigate these complex regions?
Emerging markets are at the forefront of e-payments
In Africa and other emerging markets, traditional banking has had limited penetration, affecting competitiveness both locally and globally. As of 2022, traditional banking services were accessible to just 48% of the African continent. That’s in stark contrast to somewhere like the UK, where 97% of adults have a current bank account. However, recent innovations in e-payment technologies have enabled these markets to leapfrog directly to mobile money and digital wallets. E-wallets are leading the charge in Africa specifically, with McKinsey predicting an annual market revenue growth rate of 17% for e-wallets from 2020 to 2025. Such technological advancements have helped to strengthen financially underserved areas.
Telcos, banks and FinTechs are increasingly collaborating to develop new payment solutions, capitalising on high mobile penetration to enable solutions like mobile money and digital wallets.
This has helped platforms like M-Pesa and cross-border payment networks such as Verto to thrive in Africa. Solutions like these have brought millions into the formal financial system, facilitating e-commerce, encouraging digital entrepreneurship, and driving economic growth. Consider business leaders in Africa who have previously grappled with currency exchange risks, regulatory challenges and transfer delays typical of traditional banking. Thanks to the advent of fintechs and innovative platforms, they can now enjoy swift, streamlined and accessible payment solutions.
Cutting-edge technologies like blockchain, AI and biometrics are also being adopted to enhance payment security.
Yet, while it is a rapidly developing landscape, it’s also deeply complex. For companies navigating these markets, a mobile-first, localised approach is essential. Understanding the unique cultural, economic and regulatory landscapes of each region is key, as is focusing on improving the financial inclusion for historically underserved populations.
Government initiatives and digital trends
If certain emerging markets are setting the standard for becoming truly cashless societies, this is partly down to collaborations between businesses, as highlighted earlier, and partly because of governmental actions.
These initiatives have both spurred on, and been inspired by, digital trends like mobile money, digital wallets and cross-border payment services. Solutions like QR code payments have also helped to bridge the accessibility gap. The 2024 Budget Review in South Africa highlighted several government-backed fintech initiatives aimed at enhancing financial inclusion. These initiatives include a digital tipping solution for restaurant workers, payment technologies for low-value cross-border trade, and community digitalisation projects to establish digital payment infrastructure in rural areas and townships.
While these initiatives boost financial inclusion, reduce costs and promote e-commerce and economic growth, emerging markets also face challenges such as declining trust in digital payments, regulatory obstacles, cybersecurity threats, and privacy concerns. In fact, in 2023, the number of cyber-attacks on businesses in South Africa, Kenya and Zambia surged by 76%, resulting in significant financial costs, loss of customer trust and reputational damage.
Political, economic and market factors
Businesses considering investing in emerging markets must assess local factors, especially the region’s political and economic stability. Instability could affect critical aspects like skilled-labour availability and the infrastructure viability. As many emerging markets face substantial youth populations with high levels of unemployment or underemployment, there is often not only a shortage of jobs and opportunities but also significant skills gaps that exacerbate the issue. This gap can be attributed to various factors, including educational deficiencies caused by social and political instability, as well as a lack of specialised skills training.
Companies should also closely analyse economic growth rates, market potential and currency volatility, alongside even more localised factors such as consumer behaviour, cultural nuances and market competition levels. Best practice for navigating markets such as Africa is to establish local partnerships.
A local partner can provide invaluable advice on essential day-to-day aspects such as finding a reliable courier service or effectively communicating with local employees. And having a partner on the ground like this can help a business more closely monitor political and economic developments, as well as ensuring compliance with local regulations and laws over areas such as data protection, cybersecurity and taxation. For larger multinational companies entering these emerging markets, it’s crucial to genuinely engage and actively participate in the development of these markets, rather than merely adapt to them.
Rapid developments, which are currently occurring in emerging markets globally, have a profound impact on transforming these societies, their work habits, social interactions and feedback processes. Different preferences and habits arise, and local partners are best equipped to understand these nuances.
Opportunities and risks for future business
The e-payments arena is rapidly evolving, presenting opportunities like the growth of e-commerce, the emergence of alternative payment methods, and integration with technologies. The digitalisation of B2B payments and supply chain finance also offer significant untapped potential.
However, as highlighted, emerging markets like Africa face unique challenges – and addressing these can be complex.
To capitalise on opportunities in these markets while mitigating risks, businesses need to adopt a customer-centric, innovative approach, while keeping abreast of local factors that can have both short-term and long-term impacts.
Ola Oyetayo is co-founder and CEO, Verto
