A new study by the Mastercard Economics Institute says the COVID-19 pandemic has presented Africa with massive growth opportunities for fintech companies, predicting the sector will, this year, play a catalytic role in boosting financial inclusion on the continent.
The study, Economy 2021, says with concerns over contracting COVID-19 from visiting bank branches and using hard currency, the need to bring the population into the digital economy through fintech solutions has become paramount.
Economy 2021 – a global outlook report providing detailed analysis of the economic impact of COVID-19, including permanent changes in digital consumer spending habits – says the pandemic is the biggest opportunity yet for fintech firms to provide banking solutions that solve financial inclusion challenges on the continent.
Another aspect of advancing financial inclusion highlighted by Economy 2021 is leveraging cutting-edge technologies to connect consumers to small businesses and micro-merchants.
“We recognise the overwhelming pressure that small business owners are currently facing and are committed to supporting them through COVID-19 and beyond as they adapt to a new way of operating and evolved customer needs. This is why we have collaborated with Standard Bank, and Google to help small business owners move their operations online, accept digital payments and attract more customers,” says Suzanne Morel, country manager of Mastercard SA.
In addition, the study notes that as digital innovation improves and Internet access increases, digital payment solutions such as contactless, virtual card numbers and quick response codes offer more possibilities than ever before.
Among the key trends analysed by Mastercard in the study is the sharp shift to digital platform use, driven by changed consumer behaviour, mobility restrictions and the necessity to generate business revenues beyond brick-and-mortar locations.
Within the scope of accelerated digital transformation, the report also notes that continued digitalisation in the Middle East and Africa (MEA) is key to advancing financial inclusion.
According to the study, this is especially relevant in regions such as East Africa, where International Monetary Fund research found that even where financial inclusion through traditional banking services was declining, expanded access to digital tools and services increased financial inclusion.
“This trend is set to continue in 2021, especially in the more digitally-advanced economies such as Ghana, Kenya and Uganda,” says Mastercard.
Turning to e-commerce, the Economy 2021 report estimates a permanent stickiness factor of 20% to 30% in overall retail spending, a key consideration as businesses contemplate scaling up their digital transformation efforts.
This shift was also highlighted in a recent Mastercard e-commerce study, which revealed that 68% of South African consumers are shopping more online since the onset of the COVID-19 pandemic.
This trend, according to the study, appears to be here to stay, as 71% of respondents said they will continue to shop online post-COVID-19.
According to Economy 2021, as e-commerce rapidly becomes a way to pandemic-proof a business, adoption by older generations and added convenience and lower costs for consumers will contribute to the continued growth of digital demand in 2021.
“This growth of the digital economy represents a ‘coming of age’ for e-commerce, a turning point in bridging the digital divide. We are heading for a multi-speed global recovery that favours low-touch over high-touch,” says David Mann, chief economist for Asia and MEA at Mastercard.
“Small businesses and micro merchants are especially crucial to the region’s economies, and by enabling them to accept digital payments, we can connect more people and communities to financial freedom and eventual prosperity.”
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