Africa, a continent poised for digital growth

Africa has a significant level of digital payment penetration, reaching about a third of the population across the continent and almost half in Sub-Saharan Africa. This is higher than in many major developing economies, including India, Mexico, and Indonesia, according to the latest numbers from the World Bank Global Findex. Much of this adoption is due to factors like Africa's pioneership in mobile money, growing internet access, high cell phone penetration, and a good dose of creativity and innovation — a traditional characteristic of rising markets.

Cash started to become digitized in Africa even before the internet, through technology on SIM cards that allowed people to transfer and receive money using basic phones — the genesis of mobile money. It was the first-ever account for many Africans, pushing financial inclusion in the continent in an affordable, accessible direction. These digital payments slowly expanded to P2P (person-to-person) transfers, remittances, and merchant payments, in a mobile-led revolution.

Meanwhile, access to more traditional financial services advanced, and bank transfers became widespread, instant, and mobile-friendly, especially in South Africa and Nigeria.

“You are able to leapfrog people from not having any financial services to using the phone to provide a lot of financial services,” said Ralph Mupita, CEO of Africa's largest mobile network operator, MTN, in a recent interview with Bloomberg.

Although payments are rather digitized, consumption isn't: only 11% of Africans are digital commerce users, per the World Bank. With mobile money and mobile internet more ubiquitous in the continent, it is not a lack of connectivity that explains why digital commerce in Africa has yet to ramp up. The issue consumers face is a lack of offerings — and, more so, a lack of payment connection.

Payments are critical to unleashing the potential of this continental market, connecting digital players to a market of 1 billion people. One of the first questions that comes to the consumer's mind when a digital product or service enters a new market is, "How can I pay for this?"

"For Spotify to fully penetrate the Kenyan market, they should definitely consider Lipa [a BNPL payment option] or M-PESA [mobile money service] for the premium version," said a consumer when Spotify arrived in Kenya back in 2021. The streaming player currently offers a pay-as-you-go option for M-PESA, with no auto-renewal option.

The same happened to Uber: in 2023, the company introduced mobile money payments in Kenya, following "years of frustration from customers." "Previously, riders who wished to pay for trips via M-PESA had to request the driver’s M-PESA number and send the cab fare directly to them. While this method worked for some, it did not involve Uber, leaving it up to the driver to remit their commission to Uber," reports Tech Cabal.

In online forums, African consumers share advice on how to pay for Disney+, since "all methods" they tried "failed," or how to use PayPal for services that won't accept local payment methods.

The frustration is justified: most payments in Africa are made in cash or with alternative payment methods since card penetration is as low as 3% region-wide, per the World Bank. In a continent of over 50 countries, preferences vary according to the region, in a hyper-fragmented market. Mobile money prevails in East Africa, while bank transfers have a higher share in Nigeria and South Africa. Digital wallets and cash-based platforms have some relevance in markets like Morocco and Egypt, but cash is still king in most parts of the continent.

"There is a high degree of fragmentation in the African payments space," comments Wiza Jalakasi, Director of Africa Market Development at EBANX. "This is why it's so hard for digital companies to get good coverage across the continent."

Among all 150+ mobile money services, 270+ wallets, and 500+ banks in Africa, few of them are actually integrated with digital commerce, providing local payment options for online purchases. "You can transfer money to another person, you can use mobile money as a bank account, but you can't use it to pay for a digital subscription or buy from most websites because the majority of merchants simply don't offer it yet," says Jalakasi.

For many years, this was a matter of market maturity. There needed to be more online consumers in Africa to justify the effort from fintechs, banks, and telcos to integrate with digital commerce players. At the time, the underlying challenge was giving every African access to a financial account and a payment method — which is yet far from being exhausted.

Now, with over half of the African population owning an account coupled with rising internet connectivity, these digital payment methods are reaching a significant level of adoption. Merchant integrations — like those made by Uber and Spotify in Kenya — are justified and needed.

"There is an entirely new set of customers in Africa that companies should consider right now," says Jalakasi. From his perspective, in the next 3 to 5 years, more and more international platforms will accept native payments in African countries. "There is a huge opportunity lying in front of these companies. It's going to be a really big trend."

This process is already taking form. Merchant payments are making up a growing share of mobile money volume, which started purely as a P2P and cash-in/cash-out instrument. Fintechs specializing in business payments are surging across the region, while regulators and central banks develop infrastructure to support real-time digital payments for consumers and companies.

Finally, online merchants are starting to integrate with local payment methods.

South Africa, Kenya, and Nigeria are the keystones of the digital economy in Sub-Saharan Africa. In a continent of over 50 countries, these "Big 3" nations are the leading economies of Southern, East, and West Africa respectively. With large populations and a significant GDP per capita, each nation is driving digital transformation in its own region, pushing smaller countries to adopt financial services and online commerce.

The Big 3 currently represent almost half of Africa's digital commerce. They have higher levels of digital finance, internet access, and online shopping than the rest of the continent. Their young, relatively well-educated, and tech-savvy populations are pushing digital products and services adoption, turning these nations into promising digital commerce markets.

"South Africa, Kenya, and Nigeria are already a huge digital market that global companies have often overlooked," says Wiza Jalakasi, Director of Africa Market Development at EBANX. "If you cover only these three countries, you have a huge addressable market, with good levels of online consumption and steady growth prospects."

But of course, each of these markets has its own cultural preferences, especially when it comes to payments.

The most populous country in Africa, Nigeria, is experiencing a surge in financial innovation, which is expected to push digital payments and online consumption across the region. 

An African giant with over 210 million people, Nigeria still needs to catch up to regional averages for digital adoption: 30% of adults made a digital payment in the last year, and 48% bought online, per the World Bank and PCMI.

But since the 2010s, several regulatory policies have been introduced in the country to promote financial innovation and enable digital payments, with relative success. Open banking framework, instant payment rails, and new licenses to non-bank institutions have brought more players to Nigeria's financial landscape, reaching underserved consumers.

Today, Nigeria is home to over 164 innovation hubs, per a Mastercard report, and four of Africa's seven unicorns (a startup with a value of over 1 billion). With a strong focus on mobile technology, which has a 65% penetration among the population, the country gradually increased account ownership and improved financial access. Mobile money ownership has grown from 16% to 22% in 2022 alone, according to GSMA.

Now, the spread of smartphones, which account for 44% of all mobile phones in Nigeria, is expected to accelerate the development of new financial innovations, turning Nigeria into an "awakening giant," as stated by GSMA's report.

"The truth is that any innovation with a real-life impact in Nigeria has a huge effect, given the country's sizeable population," says Jalakasi. "With all these recent changes, the Nigerian digital economy will grow exponentially over the next few years."

This movement should also positively affect West Africa as a whole, prompting the region to adopt digital payments and, ultimately, online shopping.

Of course, there are bottlenecks to be tackled: internet connectivity is limited, at 47% penetration, and speed is among the slowest in the world. Nigeria's Naira floating against the US dollar has also been challenging, with a shortage of dollars and a substantial currency depreciation. "It is ultimately a good thing for international businesses. Eventually, it will find a new stable zone," said Wiza Jalakasi, from EBANX.

The country's large and growing population of young, tech-savvy consumers inclined to buy from international brands makes Nigeria a go-to market for digital companies. It is no coincidence that Nigeria is home to Jumia, the African e-commerce behemoth, which operates in 11 countries and owns a 2.2% market share in the continent, according to Euromonitor.

Streaming is also a solid digital vertical in Nigeria, accounting for 31% of Africa's market and growing at double-digit rates through 2027. Looking for growth, Amazon and Netflix are battling for consumers outside the saturation of the US and European markets, while locals like Showmax and MyGOtv fight to maintain their 30% share.

"The video streaming market in Nigeria is still relatively young, but it is growing rapidly. The country has a large and growing population of young people who are increasingly interested in streaming content. This is a major opportunity for streaming services," reads a recent article from BusinessDay Nigeria.

There is a growing demand for cashless transactions in Nigeria, both for physical and digital purchases. This is not only thanks to the scarcity of paper money and incentives from the government but also due to a behavioral change in consumers, who are becoming more mobile-driven and digitally savvy.

As a result, electronic payments hit a five-year record in Nigeria in 2022, according to NIBSS (Nigeria Inter-Bank Settlement System), driven by alternative payments such as bank transfers and, to a lesser extent, mobile money.

Bank transfers work on a 24/7 basis in Nigeria, connecting banks and mobile money operators with full interoperability and in real-time. Nigerians can transact through a cell phone, a POS (point of sale) machine, a mobile banking platform, an ATM, or the internet at any time of the day or year. Bank transfers are so popular that they are used for everything from bill payments to a restaurant check, from a P2P transfer to an online purchase.

This is reflected in digital commerce: about a quarter of online purchases are made via bank transfers, per PCMI, which makes them a must-have for digital companies wanting to sell in Nigeria.

In fact, due to the ubiquity of bank transfers and the growing penetration of smartphones, even cash on delivery has become an electronic payment in Nigeria: once the shipment has arrived, the consumer pays with an electronic transfer through their cell phone. Cash payments are becoming as scarce as paper bills.

In parallel, fintechs such as Paga and OPay have been developing new forms of alternative payments in Nigeria, primarily through mobile. These new payment methods have many of the features of bank transfers, providing consumers with an account number, full interoperability, and instant confirmation. Their share in digital commerce is still negligible compared to cards or transfers, but this should change in the coming years.

"This is happening faster than I thought, and it's ultimately a good thing because it gives options to consumers and promotes access to financial services," says Jalakasi.

More recently, mobile money has been steadily growing in Nigeria, although its volume still represents a minor part of the country's GDP: around 9%, per IMF data, compared to 57% in Kenya. In 2022, West Africa was the region with the highest number of new mobile money accounts worldwide, according to GSMA, with most of this growth coming from Nigeria.

Finally, the significant share of card spending in Nigeria's digital commerce is another sign of the market's untapped potential, given that only 1.6% of Nigerians own a credit card, per the World Bank. 

There is a lot of excitement beyond the big economies in Africa. Across the continent, countries are in a quest to diversify their economy away from dependence on oil or agriculture. Digital and financial services have been key drivers of this transformation, and digital commerce is expected to flourish in several countries in the next couple of years. 

Countries like Tanzania, Ghana, Uganda, and Zambia have a significant smartphone penetration, low cost of data, and a push for digital services. They should become the next African frontiers for digital commerce companies.

"These are the sleeping giants of Africa," says Wiza Jalakasi, Director of Africa Market Development at EBANX. "People spend a lot of time connected, and there is a great potential for digital and physical goods sold online." 

Africa's new digital powerhouses follow a similar strategy: a lot of intention from the government, a push for competition between telcos and fintechs, a move to digitize money in traditional value chains such as agriculture and tourism, and increased access to mobile internet and digital infrastructure.