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. Although cash is still king in Africa, a McKinsey survey suggests that its supremacy is likely to be challenged in the coming years as e-payments gain momentum.
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 article presents insights from African experts along with our analysis of what is driving the growth of e-payments on the continent. It highlights the challenges and possibilities for organizations looking to find their niche in this rapidly evolving and increasingly competitive landscape.
Globally, electronic payments are a booming industry, having attracted more investment than any other financial-services sector and delivered the highest returns and growth in the sector over the past decade.
Africa has been no exception. 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 values.
However, on average, only 5 to 7 percent of all payment transactions in Africa were made via electronic or digital channels, compared with 50 percent or more in Turkey, for instance. 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. Many African countries have seen record growth in e-payments over the past two years: mobile-money transaction volumes in Nigeria doubled to around 800 million in 2020, according to the Central Bank of Nigeria, while data from South Africa show that online commerce grew by around 40 percent during lockdowns in 2020 and 2021.
Around 80 percent 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 percent expecting e-payments to grow by at least 30 percent per year through 2025. A third of respondents expect a 50 percent annual increase. Overall, McKinsey anticipates that between 2020 and 2025, the e-payments market will grow by around 150 percent 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. 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 percent per year.
Other countries that will see strong growth above 20 percent 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.
Favorable demographics and economic growth, technology innovation, and advances in payments infrastructure are working together to shape the future of payments in Africa. An additional force - the impact of newer disruptions such as digital currencies and open banking - is harder to predict.
A Guest Editorial