The opportunity to participate in the digitalization of Africa’s largely cash economies has resulted in significant investment by big players hoping to shape its infrastructure. Yet, the space remains heavily fragmented, with many different payment types and complex processing requirements.
One organization making headway is Kenyan-based Cellulant. Established in 2003, it operates in 35 countries in Africa, providing businesses and consumers with easy payment and collection options. The company has developed an API platform to enable consumer payments via mobile money, local and international cards, or directly from their bank.
In an interview with Quartz, CEO Akshay Grover explains why the digital payments landscape of Africa remains persistently fragmented and the challenges and opportunities this presents.
Why Is the African Payments Market so Fragmented?
Africa is a large continent with many countries, each having its own currency. But one of the key factors differentiating it from similar—but more developed—regions such as Asia or the Americas is its low level of credit card and debit card penetration.
While on the other hand, mobile money penetration is comparatively relatively high. Of the 257 payment methods Cellulant connects to across the continent, approximately 60 are mobile wallets. (The remaining others are different bank accounts or centrally controlled switches.)
Merchants in any single country need to offer connections to numerous service providers to process their customers’ payments. And there’s no uniform standard to follow, so each integration is unique and potentially arduous. So would-be competitors to companies like Cellulant face high barriers to entry.
The High Business Cost of Fragmentation
For merchants themselves to deal with multiple payment connections requires access to technical resources internally. Unfortunately, such resources are expensive, difficult to source, and challenging for non-tech organizations to manage.
Secondly, reconciling payment collections gets even more complicated when the different providers operate on different credit advancement terms. For example, one may have a cut-off time of midday for credit to reflect the following morning. And another may cut off at midnight and keep merchants waiting two days before reflecting their credits. As a result, it’s easy for businesses to lose track of collections.
Thirdly, there’s no reporting tool to give merchants an overall view of all payments. Merchants must collate the views provided by different operators themselves. And further, integrate them into their inventory and accounting software to produce meaningful operating analytics.
African Markets Are in Different Stages of Digital Evolution
Payment landscapes can differ significantly between African countries. For example, Kenya is digitally advanced and has a high mobile money penetration. In contrast, there is almost zero mobile money wallet penetration in Nigeria.
Additionally, provider concentration patterns make for significantly different playing fields even within similarly advanced countries. For example, in Kenya and Zimbabwe, you’ll find a single dominant mobile money provider, but in Ghana, three providers share the market almost equally. Also, bank switching systems’ availability, acceptance, and performance can make a big difference.
Market differences like these change the dynamics of competition and cooperation and determine how fintech works with banks and regulatory bodies.
Countries Also Differ in Their Regulatory Evolution
Several African countries, such as Kenya and Nigeria, have advanced regulatory environments that have been in place for many years. Others are still forming regulations, and some, like Ghana, have a policy framework in place, but enforcement is still evolving. But in general, Grover says, Cellulant has found regulators to be reasonably cooperative, typically willing to listen and provide guidance on possible solutions.
What Opportunities Does Africa Present?
Grover is upbeat about the opportunities presented by the problems Africa faces. He says incumbents and new entrants should look to address the following problems:
Digitization of Cash
Cash is still a significant share of the African economy. Digitizing means faster, more efficient transactions with greater transparency. In addition, it will facilitate business funding and better tax collection, both essential to the growth of local economies.
Access to Capital
Borrowing money is hard for Africans, as consumers, even for legitimate, profitable businesses. This means that solving the continent’s access to capital presents a significant opportunity.
Globalizing African Businesses
There is massive potential in enabling African businesses to sell their goods and services beyond their borders. This doesn’t imply selling to Europe, the US, or Asia—just helping Africans sell to other Africans offers many opportunities.
Right now, it’s hard for one African country to do business in another. How do they collect money in different currencies, secure credit, and pay for imports? Fintechs can make the entire ecosystem more efficient so that African businesses can grow faster.
Financial Inclusion of the Unbanked
When African businesses are supported, they will create employment and stimulate demand for higher levels of education. Moreover, as more people are included in the money economy, they’ll increase the available customers for African businesses and ensure expansion, further alleviating the chronic poverty levels currently characterizing the continent.