Regional Focus

African fintechs make business pay

Published: Sep 2023

Structural weaknesses in the continent’s banking sector have enabled alternative payment service providers to steal a march across Africa.

Green plant growing through the cracks of concrete

Bank-led payments initiatives have had mixed success in Africa. One of the most ambitious schemes is the Pan-African Payment and Settlement System or PAPSS, designed to enable instant, cross-border payments in local currencies between African markets.

But while 41 commercial banks have signed up since the system was launched by African Export-Import Bank (Afreximbank) and the African Continental Free Trade Area at the beginning of last year, the system only covers nine of the continents’ 54 countries.

In August, South African interbank, low value real-time digital payments service, PayShap, revealed that more than 800,000 transactions had been recorded with a settlement value in excess of R660m since its launch in March.

More than 300,000 ShapIDs (linked to participating account holders’ banking profiles and removing the need to share bank account details for payment) had been registered by the end of July.

The majority of the joint ventures announced since the beginning of 2023 are between fintechs and non-bank financial service companies. For example, payment gateway MFS Africa partnered with Western Union in March to enable individuals and businesses across the continent to receive money from over 200 countries and territories to their mobile wallets.

The following month, Access Bank confirmed that it had expanded its AccessAfrica remittance corridors in conjunction with MFS Africa, extending its reach to potentially 400 million mobile wallets and more than 130 banks across over 35 African countries.

In July, WorldRemit introduced Naira currency remittances for Nigerian customers through bank transfer, airtime top-up and at cash pickup locations. More than US$20bn was remitted into Nigeria last year by the nearly 1.5 million Nigerian migrants around the world, making it the eighth largest remittance receiving country globally.

Telecommunications firm Airtel Africa and Mastercard announced in August that the former’s 100 million-plus mobile phone customers would be able to transfer and receive funds internationally within 14 African countries by accessing and connecting to wallets in over 145 markets around the world. The deal made sense given the high percentage of Mastercard customers who initiate international payments through mobile apps.

Entertainment company MultiChoice Group, payments platform Rapyd, and private equity firm General Catalyst announced a joint venture early this year aimed at developing an integrated payment platform for Africa.

Called Moment, the service (which has not yet gone live) claims it will be the first truly pan-African payments network, collecting and disbursing across more than 40 African countries and enabling real-time payments across more than 20 countries across the continent.

For many businesses in Africa, accounts payable and accounts receivable processes are still managed manually, observes Yele Oyekola, Co-founder and CEO of B2B payments start-up Duplo.

“Reducing the time for collecting payments, reconciling payment data and managing vendors/suppliers is where we are seeing innovation,” he says. “AP and AR automation is revolutionising the business payments landscape in Africa by improving efficiency, transparency and accuracy in financial operations.”

MDS Logistics, a leading provider of integrated supply chain solutions in Nigeria started working with Duplo to address issues created by inefficient expense management. The company struggled to disburse funds for expenses to fleet workers in the field without mixing up their personal accounts with provisional accounts and when reviewing statements at the end of the month it was difficult to tell which expense was correct and which wasn’t.

MDS Logistics now has visibility into the expense operations of its stations across the country, improving internal control and accelerating the pace of payments. “We have improved internal control and a simple process for handling bulk payments,” explains the company’s Finance Director, Jaouad Rahou.

Many African businesses’ back office operations remain manual. A report on the payments markets of Ghana, Kenya, Nigeria and South Africa published by Duplo in July revealed that only half of the businesses surveyed were using semi-automated payment systems.

Nigeria ranks sixth among the countries with the most significant volumes of instant payments worldwide, with US$3.7bn in transactions in 2021 according to ACI Worldwide.

Wiza Jalakasi, Africa Market Development Director, EBANX

M-PESA is a good example of applying lessons learned in the consumer payments space to the business market.

The M-PESA Super App enables more than 800,000 businesses and organisations to provide an embedded app where customers can access their products and services complete with payment integration and the company is also rolling out a business version of the app.

“The number of businesses and organisations that accept payments through our dedicated business payment solution has grown to more than 900,000 from 350,000 just two years ago,” says Sitoyo Lopokoiyit, Managing Director M-PESA Africa. “Remittances continue to be a key growth area, especially remittances within the African continent.”

The popularity of different payment methods varies across the continent. Wiza Jalakasi, EBANX Africa Market Development Director observes that in Kenya, mobile money dominates with 76% of the population owning a mobile money account according to data from the Communications Authority of Kenya.

“In Nigeria, bank transfers are the preferred digital payment method,” he says. “Nigeria ranks sixth among the countries with the most significant volumes of instant payments worldwide, with US$3.7bn in transactions in 2021 according to ACI Worldwide.”

Jalakasi describes South Africa as an interesting market where changes in consumer behaviour have driven a shift in payment adoption, especially for online transactions.

“Despite a high card penetration rate, South Africans are increasingly switching to electronic fund transfer to buy goods and services online due to high levels of card fraud,” he says. “We estimate that roughly 30% of ecommerce transactions are paid with instant electronic fund transfers, and when combined with mobile wallets and regular transfers that rises to 60%.”

Jacques Soussana is Secretary General of Nexo Standards, which standardises the exchange of payment acceptance data between merchants, acquirers, payment service providers and other payment stakeholders.

He observes that many projects in the payment space have attempted to replicate M-PESA over the last decade. “Instant credit transfer in an open loop system is the main driver for payments in Africa,” he says. “Any payment ecosystem player looking to provide solutions in Africa must be aware of this as the current preferred method of payment.”

A key trend identified by Soussana is that for interoperable systems managed by central banks in Africa to simplify account-to-account payments or money transfers, both C2C and C2B. The African Central Bank Association has established a project to connect all existing and future regional instant payment systems on the continent using ISO 20022.

According to Subramaniam Ramachandran, Director of the Payments Practice at Volante Technologies, the most innovative segment of the African payments market is the digitisation and automation of cross-border and real-time payments.

“These solutions often leverage advances in messaging standards such as ISO 20022 or smarter routing services to enhance transparency, reduce transaction costs and mitigate the complexities associated with these types of payments,” he says. “This is not only transforming how businesses conduct transactions but also contributing to the growth of regional and global trade by facilitating smoother interactions between suppliers, distributors and other business partners.”

Ramachandran adds that a number of African countries are investing in modernising their payment infrastructures to enable faster, more efficient and secure cross-border and domestic payments.

Kobus Volschenk is Group Treasurer at Motus, a South Africa-based automotive group that employs more than 19,250 people across Africa, Europe and Asia and won the Best in Class Treasury Solution in Africa category at the 2023 Adam Smith Awards.

“At this stage we are still very dependent on the banking platforms for payments,” he explains. “We don’t have a single ERP system, so we are not organised around one ERP that can push approved payments into a banking platform of our choice and make payments from there.”

Reducing the time for collecting payments, reconciling payment data and managing vendors/suppliers is where we are seeing innovation.

Yele Oyekola, Co-founder and CEO, Duplo

“We use different ERPs in the import business compared to some of the dealers. Because we represent so many of the OEMs, they each prescribe which dealer management system to use and while we try to be creative in terms of individual arrangements, generally it is still the case that we would approve something on the ERP, dealer management system or importer management system and then load a payment or payment batch on the banking platform.”

While he acknowledges that there are fintechs doing interesting things in this space who could add value, Volschenk says that as a banked funded organisation it is important to consider not only what is good for the company in each individual situation, but to take a broader view and consider what it is that these banks do for the business.

“Our interaction with banks is an everyday occurrence when we sell a vehicle – in South Africa, for example, more than 90% of vehicle sales are financed by a bank,” he says. “So we also need them to support our clients. We have a close relationship with our partner banks and they have been supportive when fintechs have approached us with offers of better pricing.”

However, Volschenk also sees the value in being able to bridge the gap between disparate ERP systems more effectively and acknowledges that fintechs will play a part in that process as well as improving flows from the accounting back office system into the banking system.

“There are also some operational efficiencies that could be extracted if the ERP systems talked directly to the bank via host-to-host, although some of the processing has been optimised in our business through the use of robotic process automation,” he says.

Given the growth of payment services across Africa it is not surprising that domestic banks have been keen to partner with payment service providers.

“Collaboration between African banks and fintechs in the merchant acquiring and payment infrastructure markets is on the rise,” says Omoniyi Kolade, CEO of online payment gateway SeerBit. “Banks possess the customer base and distribution networks that can help them thrive in the payments industry, but they entered the payments arena later and are often faced with challenges due to their size and speed of adaptation.”

This trend has been further driven by the rapid growth of mobile and digital technology adoption across the continent and the need to cater to the unbanked and underbanked populations.

“M-PESA has been partnering with banks for more than a decade,” says Lopokoiyit. “In 2013, we partnered with NCBA Group to launch M-Shwari and later with KCB Group on KCB M-PESA to enable any customer to create an M-PESA-linked bank account where they could borrow and save through their phones. More than 30 million phone-based bank accounts have been opened through these partnerships.”

Other partnerships between banks and payment providers include Flutterwave and Wema Bank in Nigeria, who have come together to provide Flutterwave merchants with virtual account numbers for individual payments to merchants.

“Another example is the development of federated open banking APIs in South Africa, led by Capitec Bank,” concludes Jalakasi. “Fintech Ozow pioneered the use of instant electronic fund transfer in South Africa using reverse engineering methods to orchestrate transactions on behalf of customers using the banks’ internet banking infrastructure. Banks in South Africa are now developing their own open banking APIs to support instant electronic fund transfers use cases in response to the demand generated by players such as Ozow, and adopting best practices by collaborating directly with them.”

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience. We are committed to protecting your privacy and ensuring your data is handled in compliance with the General Data Protection Regulation (GDPR).