Frank Molla, Managing Director and Head of Sub-Saharan Africa at BPC Banking Technologies, explores digital transformation in Africa, and how the continent is going digital at an ever-increasing rate.
AFRICA’S NEXT DIGITAL TRANSFORMATION CHAPTER
Digital transformation is often referred to as a game-changer, and this is especially true for the African continent.
As digital technology catalyses innovation, economic growth and job creation while enabling the deeper interconnection of national markets with one another and the broader world, it is clear that this is a new chapter in how the region operates.
This profound digital transformation has only been gathering steam thanks to the advent of AfCFTA, the pan-African free trade agreement, which introduced new business standards for 41 countries and 1.2 billion people at the start of this year. AfCFTA brought updated trading rules, made commerce more affordable, lowered import-export taxes, and increased transaction volume.
Alongside technological advancement throughout the continent, AfCFTA geared up African banks’ pan-African service, which streamlined payment ease. Recently, the Vista Bank Group teamed up with paytech spinoff Radar Payments to drive digital payment adoption across the region. This centralised payment operation at Vista’s tech hub in Senegal, oversaw activities in Burkina Faso, Sierra Leone, Guinea, and the Gambia, preceding a broader planned expansion to the Ivory Coast, Senegal, Togo and Mali. Tanzania has also recently joined – helping to confirm that digital is truly the way to go and partnerships and collaborations are at the heart of it.
60 percent of Africans are predicted to have access to banking by 2025, with over 90 percent using mobile wallets for online transactions and remittances. The lightning-quick ascent of neobanks reflects this: South Africa’s digital bank TymeBank reached 3.5 million users in only a few years and continues to bring on 100,000 new customers every month. Its hybrid ‘high-tech, high-touch approach means that about 85 percent of customers are onboarded in person through thousands of supermarket kiosks.
This has proven to be a remarkably prescient move as only supermarkets remained open under social restrictions during the pandemic. Over half of TymeBank’s customers are women. In February 2021, Tyme Bank won $109 million in funding from British and Philippine investors, including Apis Partners and Gokongwei. This is just the beginning, as there will likely be more third-party providers arriving to address the continent’s digital payment needs.
Stripe has also been eyeing up the payment space and acquired Nigerian Fintech startup Paystack for over $200 million. Stripe has shared the enormous potential they see for the African internet economy, reporting that online commerce in the region is currently increasing 21 percent year-over-year – which is 75 percent faster than the global average.
In this modern payments environment, marketplaces are flourishing and serving more specialised niches. Nigerian eCommerce platform Jumia, an online marketplace for electronics, fashion, and beyond, was the sixth most-visited local website in Nigeria with 6.8 million active customers in the last quarter of 2020. It has also spun off Jumia Pay, an in-house payments solution, as a standalone product, which is already available in seven countries on the continent.
The beneficial effects of eCommerce are trickling into the agricultural sector, which makes up over 60 percent of Africa’s population and produces 80 percent of its food. Digital agricultural marketplaces such as Twiga Foods in Kenya and iProcure are finding new ways to connect farmers, merchants and customers with one another and with the latest technology that can modernise and optimise their physical operations.
When it comes to physical movement across towns and cities, many have called the digital transformation of Africa’s transport sector ‘inevitable’, especially as it was one of the most affected sectors by the COVID-19 pandemic. While there has been an increased uptake in digitisation for rail and air travel, the road is where 60 percent of commuters operate and remains the primary means of transport for many.
O-CITY helped bring contactless bus payments to Kenya, helping the Matatu buses go digital with direct payment from MPESA to the Matatu buses. 70 percent of people in Kenya use Matatu buses, and customers have historically paid in cash. However, O-CITY’s automated fare collection platform connects with the M-Pesa mobile wallet (which 90 percent of the population in Kenya use).
Under this new system, passengers put in a code on their mobile and a debit is created on their wallet, which drivers can instantly see so that they can let passengers ride. The platform is a safer, quicker, more seamless way for public transport systems to operate. A crucial part of the pilot has been the education into onboarding bus owners and drivers, with on-the-ground teams at drop-off points promoting the service and getting buses and drivers to sign up in only 10 minutes.
Although these developments have been exciting and transformative, there are still challenges ahead, and they largely stem from infrastructure obstacles. For instance, almost 300 million Africans reside more than 50 kilometres from a fibre or cable broadband connection, meaning limited availability of high-speed internet. The continent’s internet penetration averaged 39.6 percent last year, which is low compared to the international average of 62.7 percent.
This remains a significant hurdle for the full effects of digital transformation to take place. However, a clearly stated objective of Africa’s Digital Transformation Strategy is to tackle this digital infrastructure gap so that more people across the continent can afford and access secure broadband.
Looking ahead, the digital economy of some African countries already make up over five percent of their GDP, and this could at least double to between 12 percent and 20 percent for those countries. Overall, the future looks exciting for Africa, as digital acceleration and subsequent economic growth are set to explode even further.