Africa’s e-Payments market set to surge, challenging cash dominance

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Human commerce undergoes rapid transformation as electronic payments gain momentum, reshaping Africa’s financial landscape. In a recent survey conducted by McKinsey, experts from major African economies, including Egypt, Ghana, Kenya, Nigeria, and South Africa, predict that e-payments will challenge the long-standing dominance of cash in the region. With banks and nonbank players innovating to streamline domestic and cross-border payments, Africa’s domestic e-payments market is projected to reach approximately $40 billion in revenues by 2025, growing at a rate of 20% annually. This surge in e-payment adoption presents both challenges and opportunities for organizations navigating the evolving landscape in Africa.

The Rise of E-Payments in Africa

Africa has witnessed a surge in e-payments as the continent keeps pace with global trends. In 2020, Africa’s e-payments industry, comprising both domestic and cross-border transactions, generated around $24 billion in revenues. However, electronic transactions accounted for only 5 to 7 percent of total payments, leaving significant room for growth. The COVID-19 pandemic further accelerated the shift to digital payments, with countries like Nigeria experiencing a doubling of mobile-money transaction volumes, and South Africa recording a 40 percent growth in online commerce during lockdowns.

Driving Forces and Growth Prospects

A survey conducted by McKinsey revealed that 80 percent of payments experts across Africa believe the momentum of e-payments will not only persist but accelerate. Respondents anticipate e-payments to grow by at least 30 percent annually through 2025, with some expecting a 50 percent increase each year. McKinsey predicts the e-payments market will expand by approximately 150 percent between 2020 and 2025, reaching nearly $40 billion in revenues from domestic transactions alone, with transaction volumes exceeding 188 billion.

The growth of e-payments is expected to vary across different countries in Africa, depending on their level of infrastructure readiness and adoption of digital technologies. Countries like Egypt, Ghana, Kenya, Nigeria, and South Africa have been at the forefront of the digital transition and have made significant progress in developing the necessary infrastructure and policy frameworks for electronic payments. These countries are likely to contribute around half of the future electronic payments revenue in Africa, with Nigeria expected to experience the fastest growth at 35 percent per year. Other countries such as Ghana, Ivory Coast, Kenya, Senegal, and Uganda are also expected to see strong growth rates above 20 percent per year. While South Africa will remain the largest e-payments market in Africa, its share of the overall market is likely to decrease as other markets expand.

Four key forces are shaping the future of e-payments in Africa. Firstly, the favorable demographics and strong economic growth in the region, coupled with the rise of urbanization, provide a fertile ground for the adoption of e-payments. Africa has the fastest population growth rate globally, with a young median age, which presents a ready market for digital payment solutions. Secondly, technology innovation plays a crucial role in driving the adoption of e-payments. As technology advances, alternative payment methods are proliferating across the continent, offered by local and international fintech players and telecom companies. Mobile money accounts are already widespread, with more than 1.2 billion registered accounts globally in 2020. Additionally, new technologies such as integrated universal QR codes and interoperability between mobile wallets are making transactions easier for consumers and merchants.

Thirdly, investments in payments infrastructure are reducing friction and boosting integration within countries and across borders. African countries are making significant investments in real-time payments infrastructure, enabling instant account-to-account transactions. Moreover, initiatives such as the Pan-African Payment and Settlement System (PAPSS) and regional systems like SADC RTGS are facilitating cross-border payments and improving transaction settlements. Offline channels, especially agent networks, also play a critical role in bridging the gap between cash and electronic payments in Africa.

Finally, disruptive innovations such as digital currencies and open banking are emerging in Africa and have the potential to significantly impact the e-payments landscape. Central bank digital currencies (CBDCs) are being explored in several African countries, offering potential solutions for offline payments, cross-border transfers, and targeted cash transfers. Additionally, privately issued stablecoins are gaining traction and could facilitate cross-border payments and corporate transfers. While the adoption of cryptocurrencies and CBDCs in Africa is still uncertain, their potential impact cannot be ignored, considering Africa’s track record of embracing innovative solutions.