Will mobile overtake card as the dominant form of payment in Africa?

By Osahon Akpata

Payments are expected to increase by 7% amid global economic challenges stemming from the pandemic and the war in Ukraine, according to a recent report by McKinsey & Company. Revenue growth is expected to be nearly three times faster in Africa, with financial inclusion growing rapidly, largely due to the adoption of mobile money and several innovative payment solutions launched by banks, telecoms and fintech companies. While cash is still king and its reign is expected to continue for years to come, the rapid growth of electronic payments challenges that notion.

The opportunities in the payments ecosystem on the continent are promising. For example, sub-Saharan Africa dominates the mobile money market, which is responsible for 70% of the $1 trillion in mobile money transactions processed globally last year. The ubiquity of mobile devices has naturally led to the proliferation of mobile payment applications, and the channel is fast becoming a leading form of payment. However, mobile payments are not without challenges – the essence is interoperability. Consumers can use a mobile banking application to transfer money to any other domestic bank account. However, this is not always the case for transfers between mobile wallets, as this exchange is still in the early stages of development.

Cards are easy to use and offer benefits to consumers and the payments ecosystem. Given regulatory pricing pressures in select markets and supply chain challenges, could mobile payments surpass cards as the leading electronic payment channel?

Offline and in-store payments

Cards are convenient for in-store payments as one can receive a paper receipt at the POS terminal to facilitate reconciliation, which is usually built into the till. Most large and medium-sized merchants are used to accepting card payments. However, a POS terminal or card reader is not affordable for micro and small merchants as most struggle with merchant service fees. Additionally, since payment processing is typically completed a day later, micro and small retailers are constrained by day-to-day inventory financing needs.

Mobile payments are becoming increasingly attractive for consumers and merchants. For digital natives, using the phone as a means of payment is a matter of course. Payments are generally instant, and merchants don’t need to set up a POS or pay fees to raise funds. Since these are push payments (initiated by a consumer), the risk of rejection is low. However, some merchants are still having issues with payment confirmation and reconciliation. In Nigeria, fintechs like Traction Apps and Collect Africa are bridging the gap by offering transaction confirmation, settlement and reconciliation services. By leveraging telecom infrastructure and local switches, mobile payments can avoid expensive rails, a key benefit for scaling.