Mckinsey survey predicts e-payments surge across Africa in next 3 years

September 28, 2022 in Financial Services, Technology & Telecoms by Editor

Although cash is still king in Africa, a recently published McKinsey survey suggests that its supremacy is likely to be challenged in the coming years as e-payments gain momentum.

In 2020, Africa’s e-payments industry, across domestic and cross-border payments, generated approxi­mately $24 billion in revenues, of which about $15 billion was domestic electronic payments. The domestic electronic-payments revenue of $15 billion was generated from 47 billion individual trans­actions totaling just over $800 billion of transaction value.

Although cash is still king in Africa, a recently published McKinsey survey suggests that its supremacy is likely to be challenged in the coming years as e-payments gain momentum. McKinsey & Company is a global management consulting firm that offers professional services to corporations, governments and other organizations.

The survey findings show Africa has kept pace with—and in some cases even led—this innovation, and an influx of new investments and regulatory shifts continues to shape the e-payments landscape on the continent.

With banks and nonbank players alike innovating to reduce friction in domestic and cross-border payments and deliver much-needed new solutions to consumers and businesses, Africa’s domestic e-payments market is expected to see revenues grow by approx­imately 20 percent per year, reaching around $40 billion by 2025, compared with about $200 billion in Latin America. By comparison, global payments revenue is projected to grow at 7 percent annually over the same period.

This means e-payments are a major growth opportunity on the continent, especially as the convenience and scalability of payment methods improve and supporting infrastructure develops. E-payments in Africa have been gaining momentum since 2000 and, as in the rest of the world, have taken a leap forward during the Covid-19 pandemic.

Around 80 pc of respondents to McKinsey’s survey of payments experts across Africa believe that the shift to e-payments not only will endure but will accelerate, with 84 pc expecting e-payments to grow by at least 30 pc per year through 2025. A third of respondents expect a 50 pc annual increase. Overall, McKinsey anticipates that between 2020 and 2025, the e-payments market will grow by around 150 pc to reach almost $40 billion in revenues from domestic payments alone, with about 188 billion in transaction volumes.

However, this growth is likely to be uneven across the continent and will depend on infrastructure readiness, e-commerce penetration, mobile-money penetration and regulation, among other factors, in each market.  Some countries—notably Egypt, Ghana, Kenya, Nigeria, and South Africa—have managed the transition to digital faster than others and either have or are rapidly developing the appropriate infrastructure and relevant policy frameworks to deliver a sophisticated electronic-payments system.

According to the Mckinsey survey, it is likely that around half of future electronic-payments revenue will come from these five countries, with the fastest growth in Nigeria, at 35 pc per year. Other countries that will see strong growth above 20 pc per year include Ghana, Ivory Coast Kenya, Senegal, and Uganda. As other markets expand, South Africa is likely to represent a smaller share overall while remaining the biggest e-payments market in Africa in 2025, with $5 billion in annual revenues.

Four forces will shape the future e-payment landscape across Africa, namely favorable demographics and economic growth, technology innovation, and advances in payments infrastructure. However an additional force—the impact of newer disruptions such as digital currencies and open banking—is harder to predict.

Telecom companies are likely to continue fueling growth in consumer electronic payments, but fintechs will become increasingly relevant. Mobile money has been revolutionary for consumer payments in Africa. Over the past decade, telecom companies have been a major catalyst for payments growth in Africa through mobile money, as a result of introducing innovative payment solutions and other value-added services to their large customer bases.

E-wallets will see growth, enabled by their ability to integrate several payment methods into one—including mobile money, a solid value proposition in the deeply fragmented landscape of payment methods in Africa.

Looking ahead, most experts surveyed think e-wallets, which will also integrate mobile money, will experience the fastest revenue growth in domestic payments. The survey states: ‘Today, consumers have already moved from basic mobile money primarily offering peer-to-peer (P2P) transfers and cash in, cash out (Wallets 1.0) to wallets offering more complete financial services, including bill payments, savings, loans, and insurance (Wallets 2.0). We are already seeing improvements in Wallets 2.0, leading to feature-rich wallets that extend beyond the core financial services to include in-app shopping, access to services, and integration with online merchants, marketplaces, and platforms as a checkout option (Wallets 3.0)’.