Payment aggregation: bringing together the African economy

Africa’s vibrant economy and lack of significant legacy payment infrastructure have led to a curious phenomenon on the continent. On the one hand, it has given rise to an explosion of payment platforms and solutions designed to respond to the different needs of businesses and consumers on the continent – making the region a beacon of innovation in the payments space. On the other hand, with no historical or dominant infrastructure to knit it together, the resultant set of payment methods favoured across Africa is highly diverse and supplied by a vast range of different providers. As a result, businesses looking to capture a share of Africa’s growing market must engage various payment partners to process the different payment methods that their customers use.

Complexities of the ecosystem

So what does this landscape look like? Unsurprisingly, more people in Africa use digital payment services than any other continent. While many economies such as those in Europe and the US favour the use of cards, in Africa, many different solutions take their place – led by various forms of mobile money, while cash is also highly prevalent. On the other hand, Card makes up less than 3% of transactions.

Africa’s payments market is highly fragmented, with no dominant payment method or provider. Different users and countries favour varying payment methods.

The main obstacle for businesses is that it can be highly inconvenient and costly to receive payments via all the prevailing methods in the market – mainly if they are operating across multiple countries.

For example, there are three telcos in Zambia accounting for the majority of all mobile payment services, with a fairly even split of market share. For businesses to receive mobile money from any customer that comes to their storefront, they have to maintain three different phone contracts for each mobile money provider, collecting their payments in three mobile wallets.

As a result, bottlenecks occur both at the point of sale (POS) and in the back office. At the POS, the salesperson needs to operate three phones, consistently switching between each for different customers while juggling the various log-in details (which must be different for security reasons) and user interfaces. Teams have to reconcile these payments from different providers in the back office and deal with data trapped in different systems and formats.

Now multiply this additional workload across multiple payment methods – and then across multiple countries – and you have a picture of why this is such a massive issue for businesses, especially multinationals. In some cases, the administrative burden is such that companies choose to withdraw from the market, despite its opportunities simply.

Collaboration at the core

There is a way to solve this fragmentation for both the businesses and their consumers. In particular, partnerships between banks and fintech have the potential to streamline the connection between businesses, banks and consumers.

Fintechs partnering with banks represents a mutually compelling proposition. The broad range of payment methods offered by fintechs gives banks the possibility to increase the range of payment options available to their client base. Similarly, the banks’ extensive corporate clients allow fintechs to expand their services to more merchants. Beyond easing access to popular payment methods, this form of collaboration could also help popularise newer, efficient means of transferring funds.

Working together, fintechs and banks can enable direct transfers between bank accounts and mobile money wallets, removing the need for a customer to have cash in hand to transfer either to a bank or a mobile money wallet. To take the same principle further, the same transaction could be carried out in its entirety via bank transfer, requiring no intermediate top-up transactions. This process would be more cost-effective for both the merchant and the bank and more accessible for the consumer.

In effect, this opens up doors – enriching Africa’s economy and making the movement of money across all sectors easier.