COVID-19 drives African states into cashless societies

The COVID-19 pandemic has spurred growth of Africa’s mobile money platforms, with some countries on the continent heading to become cashless societies.

So say industry players and market watchers, as new fintech solutions disrupt the traditional banking models across the continent.

According to a recent GSMA report, during 2019, mobile money services reached a milestone, surpassing one billion accounts globally.

It says Sub-Saharan Africa is the enduring epicentre of mobile money, adding over 50 million registered accounts in 2019.

Cash may have traditionally been king, but COVID-19 has contributed to a faster pace of digital payment adoption.

James Bayhack, Sub-Saharan Africa director at CM.com, points out it is estimated that Africa’s population will have exceeded the two billion mark within the next three decades, while population curves across the rest of the globe are expected to either flatten or begin to decline over the same period.

“This growth rate, coupled with the fact that virtually all unbanked adults live in developing economies, contributes to the perfect melting pot for a mobile money market on our continent,” says Bayhack.

He explains that M-Pesa, which was the first mobile money payment service in Africa, was recently acquired by South Africa’s Vodacom and its Kenyan subsidiary, Safaricom.

But beyond M-Pesa – which has 26 million registered users in Kenya, of which approximately 73% are active – there are several other service providers that have been highly successful in this category in Africa, Bayhack says.

These include MTN Mobile Money, with 41 million registered customers (approximately 38% of which are active) across 15 countries; Orange Money, with 16 million registered customers across 14 countries; and Tigo Money, with eight million registered customers across five African countries, he notes.

“There is little doubt that mobile money just makes sense – especially in Africa.

“This was proven in Kenya during the COVID-19 pandemic when mobile money usage soared, thanks mostly to the Kenyan government who waived sending charges of up to 1 000 shillings (about $9.3) in a bid to encourage cashless payments and curb the spread of the disease.

“As no one knows what the future holds, it is comforting to recognise that mobile money services can only improve lives in the most vulnerable homes, while giving users more control over their finances.”

He says that mobile money solutions enable users to cut out traditional financial institutions by conducting financial transactions on mobile devices without the need for a bank account.

“In this way, mobile money is vastly different to mobile banking. In addition, Africa is the second largest mobile phone market globally, with a current estimated mobile phone penetration rate of over 75% in Sub-Saharan Africa alone.

“With this in mind, it is no surprise that fintech solutions have transformed everyday life and disrupted traditional banking systems across Africa. As a result, the region has seen a 39% annual increase in mobile money deployments over the past decade, with both transaction volume and value seeing double-digit growth.”

For Arthur Goldstuck, MD of World Wide Worx, mobile money has been a boon to people who have difficulty accessing financial services of every kind, and has flourished in countries where it has filled a gap.

“M-Pesa was launched in Kenya at a time of massive displacement due to election violence in 2009. There was a desperate need for people to get money to each other, and M-Pesa met this need perfectly. This proved the catalyst for its take-off. In Zimbabwe, it has been near impossible to get access to cash in recent times, with most ATMs empty. Ecocash came into this void like manna from heaven.”

He points out that M-Pesa, Airtel Money, MTN Mobile Money and EcoCash are all major players, but it is very much a case of the right product for the right region.

“MTN dominates markets like Ghana and Nigeria, M-Pesa dominates East Africa, and EcoCash is the big player in Zimbabwe.”

However, he says this has not enabled any of them to succeed in South Africa.

Goldstuck observes that SA has a well-developed banking and financial services infrastructure, and a mature money transfer system via major retailers.

“That means the need for mobile money did not exist in the first place. For it to take off in South Africa, it has to be both more convenient and more cost-effective than other means, as well as being seamless to use.

“At present, it only offers convenience. Cost and lack of seamlessness are barriers that it has not been able to overcome in this country. At the very beginning of mobile money services in this country, we laid out a set of success factors for such services in South Africa, based on research across Africa. In every single engagement with mobile operators on these factors during the past decade or so, we were informed that they had the answers. They didn’t.”

According to Derrick Chikanga, IT services analyst at Africa Analysis, the mobile money platform has proved to be a success across most African countries due to the large prevalence of the unbanked population.

“While 75-80% of the adult population in SA have bank accounts, most people across the rest of the African continent do not have any bank accounts and this has created an opportunity for the development of the mobile money market in the region.”

He points out that although some of the major players in the mobile money market include MTN, Vodacom and Safaricom, other players such as Airtel and Globacom are also expected to increase their efforts in offering mobile money services to the African market.

“In markets where mobile money is already enjoying significant success, chances are high that this trend is going to continue in the foreseeable future,” Chikanga says.

“This is a result of both the regulatory restrictions and the large rural population across most African countries that has limited access to banking facilities such as ATMs. However, in more advanced markets such as South Africa, mobile money is unlikely to be disruptive, given that most banks offer competing solutions such as FNB’s eWallet facility and Standard Bank’s Instant Money solution.”