Are you planning to expand your online business to the African market? Spoiler: you might be surprised by the popularity of alternative payment methods. The African payments landscape has several traits that make it stand out. This region’s payments landscape can even be called unique. Obviously, this specificity leaves its mark on the cost of acquiring, billing, and the speed of processing.
The payment process is a vital link in the business chain. Knowledge of customers’ payment habits and preferences plays a considerable role in further developing any business. This article is a vademecum of the essentials you should know before getting down to business in this region.
African market outlook
Internet technologies are spreading rapidly across the African continent. E-commerce is becoming more dynamic. The region’s market has many free places for merchants seeking to expand their business in this direction.
Due to the lack of operating systems capable of supporting electronic payments, the online commerce sector faces many obstacles to its rapid growth. On the other hand, the region’s population strives to go beyond national boundaries and expand their companies' capabilities to the international level.
Payments landscape in African countries
There is a global tendency to switch to online shopping and non-cash payments. And this is not surprising given how quickly and in what volume and range Internet services are flourishing. Some countries give up cash painlessly and rapidly, while others are conservatively afraid and hesitant. This process’s swiftness and willingness usually depend on the experience and sophistication of the country’s technologies.
In addition to strict state control, the fact that the banking system is weak and underdeveloped also affects. There are few banks and huge queues at the branches. In order to perform any banking operation (for example, transferring money from one account to another), you must fill out many different forms and spend a lot of time. The African region’s specificity stems from low Internet penetration and consumers’ low computer literacy. The area has many languages and currencies in use. While some payment services work only with local currencies, others also use the dollar. Still, the majority of the transactions in Africa occur in cash.
Key aspects of the regions
- Nigeria is the leader in e-commerce. Almost 90% of internet users are potential buyers and one-third shop within the African continent. Several payment systems operate in the region. The most used are PayPal due to its high-level security of payment processes and Interswitch InternetPay. It is worth noting that many systems perform operations only with the appropriate e-mail and a particular bank account. Basically, customers value transaction reliability the most, for they fear becoming another victim of fraud.
- Kenya is the undisputed leader in terms of money transfer system development. Today, almost all adults in Kenya use M-Pesa by Safaricom to transfer money, pay for utilities, and pay in shops, cafes, restaurants, gas stations, etc. This payment method is convenient because the transfer is carried out instantly, is relatively inexpensive, and is available to everyone with a mobile phone. It has also become an excellent solution for small businesses — any company can open a business account and accept payments from its customers and counterparties. Withdrawing cash from the system is also easy — one can receive the money within a few minutes from any of the 150,000 agents throughout the country.
- Tanzania and Uganda followed Kenya’s path. Almost all adult populations there use mobile wallets. But in contrast to Kenya, where Safaricom controls about 70% of the market, the mobile money market here has been divided approximately equally among several companies. Four major services — Vodacom, Tigo, Airtel and Halotel — compete with each other in Tanzania.
- Zambia‘s telecommunications companies were late for the start of the mobile revolution due to their inertia or some other reason. They were replaced by Zoona company, which copied the Western Union business model. Every village in Zambia has a company agent who will help accept or issue a money order within minutes.
- Ethiopia is a large country with over 100 million inhabitants. Over the past 15 years, it has been the leader in terms of economic growth. Despite this, Ethiopia still lacks a modern financial infrastructure: ATMs appeared only a few years ago and mobile money in 2018. The largest market in Africa, Mercato, is situated in Ethiopia; its turnover is tens of millions of dollars per day, and it still operates primarily in cash.
Popular payment methods in African countries
Despite the global tendency, cash payments were still prevalent in some parts of the African region in 2020. According to the Statista report, Kenya, Egypt, and Morocco accounted for 40%, 55%, and 41% of the total share of online retail payments. Card payments are also quite popular, but due to the lack of banks and bank departments in African countries, alternative payment methods share the leading positions in the local payment culture. This is mainly triggered by the fact that a significant part of the population has internet access only via a mobile phone. Moreover, in several countries, mobile operators offer free traffic on Facebook. That means the chances are high that this mobile network might soon become the region’s leading online store.
One of the most popular alternative payment methods in Africa is mobile wallets. Kenya is the leading country in mobile payments — 2/3 of purchases are paid for with mobile wallets. They are also popular in Nigeria. For security reasons — in Somalia. M-Pesa from Vodafone and MFS Africa lead the pack. The main reasons for using alternative payment methods in some African countries are protection from robbers and distrust in the banking system. Mobile wallets are a safe way to spend, receive, and store money.
Here’s the list of the most popular payment methods in the African region:
- Bank transfers
Cash-on-delivery is also quite popular in Africa. Over half of buyers in Egypt, Nigeria, UAE, and Saudi Arabia choose this method. The exception is South Africa, where bank cards are more popular and Morocco, where their share is snowballing. South Africa mainly uses PayPal, Ukash (a voucher system for online payments without a bank account), M-Pesa and Zapper mobile wallets, FlickPay mobile solution, and the Cell Pay Point payment service. Several North African countries (Tunisia, Egypt, and Morocco) use the following payment systems: SagePay, MyGate, Ingenico, Skrill, and Wafacash.
How to choose a payment service provider
The first step before entering any market is to choose a reliable payment service provider suitable for your business and the geography of its audience. And it’s important to understand that PSP fees are far from the first criterion for choosing.
So, to begin with, try the following:
Step 1. Analyse the key indicators and plans of your company. Define which geographies you are about to expand to or enter.
Step 2. Decide about the legal structure — where it will be established. If you’re a startup, you most likely won’t be able to independently decide due to the lack of knowledge on the specifics of all countries' tax systems. Therefore, the chosen provider should offer the best options for your business.
This will significantly narrow down the list of payment services suitable for your company. It is worth starting negotiations with specific payment service providers only at the third stage.
Despite its explosive growth, the African digital payments market is still far from saturation. The need for a reliable and efficient money transferring system is much higher than the supply. Telecom companies currently compete successfully with traditional banks in this market. Mobile payments are an essential economic factor. They engage even low-income Africans in commercial activities. The service, which was initially considered additional, has now become the main advantage of the mobile phone.
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