There is no denying the continued relevance of cash in Africa. According to McKinsey, cash still represents approximately 90% of all payments across the continent. However, we are witnessing an ongoing transformation as a growing number of businesses and consumers embrace the era of digital payments.
A survey released in 2022, for example, shows that 41% of Africans made a digital payment in 2021, compared to 27% in 2017. The growth of these payments is important for both ordinary Africans and businesses operating on the continent. For the former, not only do they offer greater security and lower risk, they can also be a vital access point to other formalized financial services. Businesses that embrace digital payments, in turn, can expect to realize cost savings, faster payment processing, simplified record keeping, greater security and a better customer experience, among other things.
But they are not the only ones to benefit from digital payments. Increasing its use and adoption also benefits the countries in which these payments are made. Here's how:
Reap the rewards of empowered consumers and companies
Some of the greatest benefits that countries can hope to obtain are a direct consequence of the benefits obtained by consumers and businesses.
The improved data and record keeping that digital payments offer businesses, for example, also makes it easier for them to access formal financing from banks and other institutional lenders. This means they can take advantage of the enhanced customer experience that digital payments offer to expand and grow. In turn, this means more economic growth, more jobs and more tax revenue.
However, when it comes to consumers, the benefits are multiple, but the financial inclusion provided by digital payments is especially important. Encouraging digital payments can help promote financial inclusion by providing access to banking and financial services to underserved populations. This, in turn, helps to reduce income inequality and support economic development, which in turn results in an even broader tax base.
One of the other positive effects resulting from the widespread use of digital payments is the fact that governments have much more data at their disposal. This data can provide valuable insights into economic trends and consumer behavior. Governments can also use this data for economic planning, policy formulation and decision making.
Central banks, in turn, can benefit from the data generated by digital payments to make more informed decisions about monetary policy, interest rates and inflation objectives, contributing to economic stability.
Direct benefits
The increased use of digital payments also has direct benefits.
Governments can, for example, streamline their financial processes by accepting digital payments for services such as taxes, fines and fees. This can reduce administrative costs and improve efficiency. Digital payment systems can also be used to improve the provision of public services, making them more efficient and accessible to citizens.
Another major advantage that digital payments offer countries is that payments with robust security features can help reduce fraud and corruption, which can have a significant impact on public finances and public trust.
The growth of digital payments can also boost investments in technological infrastructure, including Internet access and digital payment processing systems, which can benefit other sectors of the economy. Not to mention the fact that digital payments allow for simpler international transactions, further strengthening the economy by stimulating trade.
All of these benefits contribute to economic development, financial stability and improved government operations, ultimately promoting the overall well-being of a country.
Maximize the benefits
For African countries to reap the full benefits of digital payments, they need to ensure they have the right conditions in place. While part of this means ensuring that regulatory environments are in place that support secure digital payments (something a growing number of African governments are doing), it is not just about that.
Governments can, for example, work with the private sector to drive the growth of digital payments. This means working together to provide support, funding and regulatory sandboxes to encourage the growth of FinTech startups offering innovative digital payment solutions.
The South African Reserve Bank (SARB), for example, has created a fintech unit to regulate and support fintech innovation. The unit developed the central bank's initial position on innovation-facilitating structures (such as regulatory guidance units and “sandboxes”) and also took initiatives such as hosting the South African leg of the Global Fintech Hackcelerator, Project Khokha.
This type of assistance, coupled with the country's pre-existing financial expertise and resources, has helped create an environment in which some of the country's fintech startups are ranked among the best in the world and in which the country is responsible for 40% of all fintech revenues in Africa.
Meanwhile, from a transcontinental perspective, aspects such as the African Continental Free Trade Area (AfCFTA) have led countries to improve cross-border digital payments infrastructure to simplify intra-African trade.
This includes efforts to harmonize payment systems and reduce the costs of cross-border transactions. Perhaps the most prominent of these efforts is the Pan-African Payment and Settlement System (PAPSS).
First mentioned in 2019 and launched in 2022, the system is designed to ensure that payment facilitators (whether banks or fintechs) can connect to it and make instant and secure payments on behalf of their customers. It is, in other words, a prime example of a rising tide lifting all proverbial boats.
Lots of room for growth
While cash will likely continue to play an important role in Africa's payments landscape, it should be clear that the use and importance of digital payments will only increase in the coming years. Since some of this growth will be organic, the benefits of high levels of digital payments for individual countries and the continent as a whole are very significant. Therefore, it is essential that public and private actors do everything in their power to encourage its adoption.
