An Overview of the Digital Payment Landscape in Africa and Forecasts for the Upcoming Years

The twenty-first century has seen substantial changes in how individuals pay for goods and services, with electronic payments progressively replacing cash and, more recently, digital currencies emerging as alternatives to traditional money concepts.

FREMONT, CA: Somalia is deliberate in growing mobile money access to its people, 70 percent of adult Somalis use mobile money services on a regular basis. Currently, 96 nations throughout the world offer 310 mobile money services; 171 of them are in Africa, and 157 of them are especially in sub-Saharan Africa.

Payments have become more transparent and affordable as a result of digitization, which has promoted economic growth and efficiency. A payment system becomes a game changer for an economy if it operates successfully and efficiently.

Africa's mobile money transactions in 2020 will total $495 billion which amounts to about two-thirds of the $767 billion global value, demonstrating how the future of banking in the region is assured by monetary digitization.

Digital payments have been quickly adopted in Kenya and Ghana. In Ghana and Kenya, mobile wallet transactions accounted for 82 percent and 87 percent of GDP, respectively. According to the analysis, the amount of money spent on mobile payments in Africa might increase from $3.5 billion in 2021 to between $14 billion and $20 billion in 2025.

The digitization of finances has benefited Africa. For example, where national identity card programs have been adopted, it gives policymakers more and better information to help them create and administer rules. Additionally, it makes it simpler for citizens to comply with their tax obligations and minimizes the expense of tax administration.

Gradually, it is expanding the reach of policymakers to offer benefits to the population. Most importantly, it promotes financial inclusion by enabling money transfers between citizens using platforms for financial services based on mobile phones. Above all, this is increasing the efficiency of the financial system and expanding the ability of governments to provide public services at a lower cost and with less leakage, which is an important consideration where resources are limited. 

The use of mobile money has increased rapidly in sub-Saharan Africa. The platform is touted as a ground-breaking device for enhancing access to financial services in locations with limited resources. Users can speed up money transfers at a cheap cost and without requiring access to an existing bank account by using only a cell phone.

The adoption of payment digitization has varied among African states, with some demonstrating a high level of acceptance and others trailing behind. Creating a solid and predictable policy framework for financial service providers to adhere to is the prime challenge. It is crucial to maintain a stable macroeconomic environment so that nations may manage their fiscal and foreign policies without generating excessive imbalances that necessitate frequent policy changes.

Many nations are at risk of or already in debt distress, which would necessitate a significant restructuring of their macroeconomic policy. Since 2010, there has been a substantial increase in the debt-to-GDP ratio, which has resulted in a significant portion of tax revenue being used to pay debt interest.

East Africa is one of the regions where payment digitization has exploded, especially in Kenya and Tanzania, where mobile money platforms have been widely adopted. This is largely because mobile phone penetration is high and traditional banking infrastructure is sparse in these nations, making digital payments a more appealing option for many individuals. The necessity to modify the financial services architecture for low-income cohorts served as the motivation for this effort.

With the aim of engaging a broader customer base, African governments are applying use cases to help scale payment services. The adoption of payment technology is significantly influenced by supply and demand factors. The adoption of digital financial services will be higher when a nation has a high mobile penetration rate. A favorable regulatory framework, which would enable the scaling up of payments, is one of the factors affecting the supply side. With over half of the approximately 700 million individual users worldwide, Africa now has the highest concentration of digital financial services deployments worldwide.

In areas of urban and rural communities without bank branches, mobile money solutions and agent banking now provide alternatives for savings, credit, and even insurance in addition to affordable, instant, and reliable transactions.

Digital technologies are being used throughout Africa in different ways. Greater advancement in this area has been accomplished by nations with stronger institutions, stable administrations, and generally steady macroeconomic policies. Kenya, for instance, continues to lead the way in embracing new technologies.

Africa tends to embrace innovation at scale and forge ahead into the future of digital payments, even though some African nations lack the proper banking infrastructure to enable them to adopt conventional payment methods like cards. In Nigeria, the growth of instant digital payments compared to card payments or mobile point-of-sale (mPoS) has been dramatic. West African nations with large young populations, strong mobile phone penetration, and rising awareness of digital financial services have demonstrated a high level of acceptance. These nations include Ghana, Nigeria, and Senegal. Southern African nations like South Africa and Namibia, which have more sophisticated traditional banking infrastructures and lower mobile phone adoption rates, have been slower to implement payment digitization.

As cash is progressively replaced by electronic payments and, lately, as cryptocurrencies and digital currencies emerge as alternatives to traditional concepts of money, the 21^st century has seen significant changes in how individuals pay for products and services.