A new dawn for Africa’s trade networks

The African continent has experienced an exponential rise in digital payment systems over the past decade and is projected to grow by 12.65% by 2028. Nations like Ghana, Nigeria, and Senegal have experienced significant adoption of these systems fuelled by a youthful population, widespread mobile phone usage, and growing awareness of digital financial services. Mobile money services, internet banking, and digital wallets have become household names, facilitating millions of transactions daily. While the rapid increase of these platforms might seem unnecessary, they are in fact complementary, offering unique strengths that enhance financial inclusion and economic development.

For years, African trade has been countries belonging to eight regional economic communities including the East African Community, the Southern African Development Community and the Economic Community of West African States thus inhibiting economic growth at a Continental scale. These blocs, while integral in fostering regional integration, often struggle with inefficiencies caused by varying currencies, fragmented payment platforms, limited movement of capital, and regulatory bottlenecks. Traditional banking systems have proven ill-suited for facilitating cross-border trade, particularly for small and medium-sized enterprises.

A Patchwork of Solutions for Financial Inclusion

Africa’s banking infrastructure has historically been limited, with many rural and remote areas left without access to formal financial institutions. Digital payment systems like M-Pesa, Airtel Money, and MTN Mobile Money have filled this gap by offering a bridge to financial services for unbanked populations. With Africa accounting for 70% of the world’s $1 trillion mobile money value, these systems allow individuals to transfer money, pay bills, and save funds without the need for a traditional bank account.

“By having multiple options, the financial ecosystem becomes more inclusive, allowing both rural and urban populations to engage with different payment systems that suit their respective needs.”

For instance, in response to the financial disruptions caused by the pandemic, Togo launched Novissi, an all-digital government to person payment program in alignment with Africa’s Digital Financial Services Policy 2020. This program facilitated government payments to hundreds of thousands of Togolese, targeting the poorest and most vulnerable populations, including those in rural areas. By doing so, Novissi played a significant role in advancing financial inclusion across the country. Conversely, where mobile money might have limitations in certain cases, internet banking platforms provided by established banks complement these services, allowing for more complex financial transactions like accessing loans and investment services.

Bridging Urban and Rural Financial Gaps

While mobile money has been revolutionary in rural areas, urban users with greater internet access often prefer online banking or digital wallets like Flutterwave, which allow for seamless e-commerce transactions and cross-border payments. These systems cater to the growing middle class and entrepreneurial segments that require more sophisticated digital payment solutions.

Most importantly, it is the way these systems complement each other that offers the most promise for regional trade. While M-Pesa dominates the East African market, facilitating both local and cross-border payments in the EAC, MTN Mobile Money has a robust presence in West Africa. Flutterwave, with its pan-African reach, acts as an intermediary that can bridge payments across these systems, allowing a Kenyan business to seamlessly trade with a Nigerian supplier. Instead of one payment system trying to monopolize the market, these systems are becoming interoperable, creating a web of connectivity that accelerates trade between African nations. By having multiple options, the financial ecosystem becomes more inclusive, allowing both rural and urban populations to engage with different payment systems that suit their respective needs. Instead of competing, these platforms create a holistic financial system that bridges geographical divides.

Fostering rivalry while promoting cooperative growth

Via digital payments, A trade in Kenya can easily relate with a Supply on Nigeria. Image| Viktoria Slowikowska via Pexels

The existence of several digital payment systems has also fostered healthy competition. As companies strive to outdo one another, they are pushed to innovate and reduce transaction costs, benefiting consumers. At the same time, they have realized the importance of interoperability. For instance, mobile money platforms across different telecom providers are increasingly working together to allow cross-platform transfers, boosting user convenience as it happened recently between M-Pesa and Airtel Money in Kenya.

As outlined in the 2022 State of Instant and Inclusive Payment Systems, IIPS enable near real-time digital processing of retail transactions and are available 24/7, 365 days a year, or as close to that as possible. These systems support low-value, low-cost push transactions that are irrevocable and operate on open-loop, multilateral interoperability frameworks. Licensed payment providers have equitable access to the system, with all participants having an equal say in its operation. Central banks play a key role in governing these schemes, while end-users benefit from a wide range of use cases, access channels, and transparent, effective recourse mechanisms. The result is a robust ecosystem where competition drives innovation, while interoperability fosters user convenience.

Accelerating Economic Integration

Another significant benefit of having multiple payment systems in Africa is the role they play in economic integration. As Africa moves toward greater regional integration through the African Continental Free Trade Area (AfCFTA), cross-border digital payments will be crucial. Traditional banks and regional payment systems like Ecobank’s mobile app allow businesses to handle international payments and exchange currencies efficiently. Complementing this, fintech platforms like Chipper Cash facilitate instant transfers between countries, making it easier for individuals and SMEs to engage in cross-border trade. Another area of opportunity lies in collaboration across regulators to address the enduring challenges involved in intra-Africa cross-border payments. The Pan-African Payment and settlement system is a positive step in this direction. The AfricaNenda initiative, backed by the AfCFTA, is also working towards improving the infrastructure for interoperable payment systems. As these platforms increasingly collaborate, they unlock the full potential of Africa’s vast trade networks. This synergy accelerates regional trade and contributes to Africa’s goal of becoming a unified market.

Complementary Systems: The Key to Africa’s Digital Financial Revolution

The coexistence of multiple digital payment systems in Africa is not a sign of inefficiency but a testament to the continent’s diverse and evolving financial landscape. These systems complement each other, catering to a wide range of financial needs, fostering financial inclusion, and encouraging innovation. The ongoing expansion and collaboration between digital payment systems is quietly revolutionizing trade within and between Africa’s regional economic blocs. What were once cumbersome and slow financial transactions can now occur at the touch of a button, connecting economies from Cape Town to Cairo. These systems not only simplify trade but also promote financial inclusion, allowing SMEs to flourish and unlocking Africa’s vast economic potential.

These are the writer’s own opinions and do not necessarily reflect the viewpoints of Liberty Sparks. Do you want to publish in this space? Contact our editors at [email protected] for further clarification.