With such trends, it’s no surprise that McKinsey estimates a possible 152 percent expansion in Africa’s electronic payments market from 2020 to 2025. But what does this mean for cross-border transactions? Let’s find out.
Cross-border payments in Africa
Africa’s cross-border payments system has traditionally been complex, involving various channels and intermediaries. Individuals, micro, small, and medium enterprises (MSMEs), and small traders are the main initiators of these payments. They use them for e-commerce, remittances, supply chain, and day-to-day transactions.
The most common types of cross-border payments in Africa include person-to-person (P2P), business-to-person (B2P), and business-to-business (B2B) transactions. Despite the many payment methods available, including bank transfers, mobile money, and digital wallets, the system is often characterized by inefficiencies, high costs, and delays.
But the narrative is changing. In recent years, the e-payments industry in Africa has grown significantly.
As McKinsey reports, Africa’s e-payments industry, including domestic and cross-border payments, generated approximately $24 billion in revenues. Despite this growth, the penetration of electronic payments remains relatively low—only 5 to 7 percent of all payment transactions in Africa via electronic channels. This gap represents an enormous opportunity for growth as the continent’s digital infrastructure improves and the adoption of mobile and internet services rises.
The demand for efficient cross-border payments has also grown in recent years because of:
- Increased remittances
- Fintech innovation
The young, tech-savvy African consumer is also driving this change. As the young population grows and moves into cities, they integrate more into the digital economy.
Shift to alternative payment methods for cross-border transactions
Fintech companies and mobile network operators are stepping in, offering solutions that serve the dynamic cross-border transactions of the African population.
Preference for local payment methods
One of the most significant trends in cross-border payments is the preference for local payment methods. For instance, in Kenya, M-Pesa, a mobile money service, has changed how people send and receive money. M-Pesa allows users to pay bills, save, and even borrow money through mobile phones. Initially launched as a domestic service, M-Pesa has expanded its reach to enable cross-border payments, making it easier for individuals and businesses to transact across borders without relying on traditional banks.
What the payment evolution means for businesses
As digital wallets and mobile money services become more integrated with global payment systems, businesses can offer more payment options to their customers. The rise of alternative payment presents an opportunity to penetrate new markets and reach previously underserved populations.
Mobile money and digital wallets may offer affordable alternatives for global enterprises. Traditional payment channels usually have high fees and unfavorable exchange rates, making them unappealing for businesses and consumers. In contrast, alternative payment methods offer more competitive rates, lower rates, and all-in-one financial services, an appealing offer for numerous companies.
Furthermore, the growing interoperability between different payment platforms is simplifying cross-border transactions. For example, introducing integrated QR codes in countries like Ghana(GHQR) and Nigeria(NQR) reduces the complexity of making payments across different systems. This interoperability allows businesses to accept payments from various sources—bank accounts, mobile money, and cards—through a single platform, simplifying transaction management.
The success of M-Pesa and similar services shows Fintech companies need to offer payment solutions that resonate with local consumers. It means adopting local payment methods and understanding the cultural and economic factors influencing payment behaviors.
With Africa’s growing digital economy, the demand for efficient and affordable cross-border payment solutions will only increase. Businesses that can adapt to this change and embrace new payment technologies will be well-positioned to succeed in the region.