Africa as next great eCommerce frontier? The ingredients for a revolution in payments across the region, fueled by demographics and technology, seem to be there.
In an interview with PYMNTs’ Karen Webster, Saqib Nazir, managing director of Africa at Emergent Technology delved into the ways the payments landscape across Africa is ripe for digital and mobile conduits, and a “cash light” mentality that focuses on the needs and desires of a burgeoning and youthful population.
Vast Opportunity — And Tailwinds, Too
Nazir detailed the vast opportunity that lies before FinTech firms such as Emergent that are making headway into providing financial services in Africa: 54 countries, home to 1.3 billion people. A staggering 725 million of them wield mobile devices.
Amid a population boom (the annual population growth tops 2 percent, and as much as 50 percent of the population is under the age of 20), the executive noted that “there is a disposable income boom. People are earning money — and though it may not be what we are used seeing [in earnings power] in the West, there is money being made.”
There’s also a technology boom, which comes as the continent, in Nazir’s words, “leapfrogged over the landline and over the computer, and straight to the smartphone and, now, into mobile money over bank accounts. You can imagine how all of these factors will come together to drive eCommerce across the region.”
He pointed to the fact that three times as many people in Africa have mobile money accounts — roughly 280 million — than they do traditional bank accounts. Part of that disparity has to do with the bifurcation between formal and informal economies. As Nazir told Webster, “Many people do not realize how big the informal sector is in our part of the world. The formally employed population is tiny” and he estimated that only 20 percent of the economy is employed through formal means.
He also cautioned that those who participate in the informal economy may not necessarily be poor. Indeed, individuals may be architects, software developers or engineers — and they may be self-employed, where they earn money on a daily or weekly basis, rather than via fixed salary.
Those members of the informal economy, said Nazir, “are not comfortable going into a branch, and they do not have bank accounts. They're intimidated by the whole experience: walking into a bank which might be fancy and air-conditioned, and may have police officers standing outside.” These individuals may be more at ease talking at a kiosk in a corner shop with somebody they know and trust.
In the age of technology, of mobile devices, he said, these same individuals can find ease in terms of putting money into the account or taking money out, “even at 10:00 at night. It’s an experience that is a game changer, and what is driving that whole economy,” he told PYMNTS.
The fact remains, though, that with the opportunity outlined above, there lies an abundance of challenges. There exists a lack of infrastructure across roads, power sources or even telecom networks, he said. The FinTech that sets its sights on Africa must grapple with the vagaries of 54 markets, 54 central banks, disparate tax and legal policies, and changing foreign exchange (FX) rates. There also exists, in some cases, a lack of identity documentation and a general lack of financial services overall.
“It’s almost a crisis, and it is also an incredible opportunity,” Nazir said.
A Roadmap That Includes Cash
To embrace opportunity and tackle the outstanding challenges, he noted that Emergent has already had a presence in the market for years, and has seen that there is a huge — and growing — demand in Africa for all manner of digital services, from eCommerce to social media. Consider the fact that eCommerce generated $16.5 billion in revenue in 2017, and is forecast to hit $29 billion in 2022, even with a relatively low internet penetration of around 35 percent.
At the same time, local mobile phone-based money transfer services such as M-Pesa process billions of transactions annually, and counted more than 18 million users in Kenya alone as of 2017 data. Yet, said Nazir, it should be noted that even with the burgeoning uptake of money moved across mobile wallets, with a young and tech-savvy population desirous of conducting commerce over bits and bytes, Africa still remains cash-based.
Nazir explained that 94 percent of transactions in Africa are still done with hard currency, which underscores the need for hundreds of thousands of mobile money agents on the ground — as he noted 200,000 in Ghana alone, where there may only be a few thousand bank branches.
Part of M-Pesa’s success has been tied to its the agent network — cash in and out. This must be part of the eCommerce ecosystem, said Nazir, as buyers and sellers load the account with cash via the agent, yet conduct the transactions themselves through mobile means.
“We may be cash light” in the future, he said, “though we will never be cashless. That capability to walk out of your house at any time and load money, and then go back into your room and buy something online or continue working online is incredible,” adding that eCommerce is “going to grow even more. We are hungry for goods and services.”
For those firms seeking to cater to the mobile money mindset (from merchants to payment providers), he said it is important to be mindful that customers may have older technology in hand, such as older iPhones, and that stakeholders “have to create ‘light’ services.”
Last month, Emergent acquired Interpay, a Ghana-based payments processor. This deal allows Emergent to extend operations of its digital payments operation, Emergent Payments, into 70 emerging markets. The company has also set its sights (and no shortage of resources) on accelerating its presence in Africa.
The firm’s Interpay buy, Emergent said, kicks off Emergent’s 20-20-20 strategy, where the combined entity seeks to be in 20 African countries by next year.
Nazir said Emergent has been focused on “minimizing services,” where, say, a $200 insurance premium for a taxi driver can be broken up into daily payments of several pennies. That means, through services such as Visa Pay, individuals can embrace a “pay as you go” mentality.
In an age where infrastructure is evolving, said Nazir, “data is expensive and unreliable, [even though telecoms are investing in 4G and 5G initiatives]. No one wants to wait to download a heavy file before you can place an order online. There [needs] to be local payment options, too,” to make people comfortable transacting.
Moving forward, 2019 serves as a bridge year as Emergent embraces the 20-20-20 strategy — and where the company is eyeing digital and traditional transactions, along with investments in artificial intelligence (AI) and other initiatives. Nazir explained that as the informal economy continues to grow, as telecoms invest in their offerings and as the African market is flooded with cheap smartphones, the stage is set for firms like Emergent to provide back-end support for globally minded digital merchants and help with issues spanning, for example, taxes and compliance.
“We are working on those issues, and they will get addressed,” he said. “This is the time … to find your feet, to make a mistake, to learn your lesson and then be ready for the revolution when it comes through.”