How Electronic Payment In Africa Affects Business W/ Moussa Dieng
I want to work with Nigerian freelancers & businesses but it is very difficult to pay them. If I wire money through my bank or through Western Union, I pay excessive fees. I can not send them money through Paypal either. How is the lack of electronic payment systems affecting African businesses based on the continent? — Question from Iveoma
Indeed, this fact is true. Sending money to the African continent is not easy.
Several factors explain this fact.
The difficulties are related to the lack of appropriate payment systems or the exorbitant costs associated with these transactions. Large electronic money issuers such as Paypal are not democratized across the continent and the largest companies of money transfer, such as Western Union, Moneygram and Ria charge very expensive fees. And an international money transfer takes longer and costs more. Finally, the limitations due to the fight against money laundering (AML which stands for Anti Money Laundering) are also a barrier.
The most important factor explaining this problem is the lack of global electronic payment system all around the continent.
Indeed the African continent is undoubtedly shaken by the digital revolution. The electronic payment wave crossed the Sahel from its birthplace in Kenya to reach the West African countries. The most well known electronic payment system (EPS) is MPesa from Safaricom (Vodaphone group) and the most well known in West Africa is Wari from Senegal.
These (EPS) positively changed the life of millions of Africans. Now people can send and receive money, pay their bills (water, electricity, tv …) using their mobile phones. These systems also helped the local government increase the financial inclusion rate. In 2015, Financial Inclusion in Kenya has been reported at over 80% thanks to EPS, but when you remove mobile money this drops to 23%.
Electronic payment systems are still facing difficulties which prevent them from growing across the continent.
As an example let’s take a look at the West African Economic and Monetary Union (UEMOA). In this area where more than 90 million of people live, all the electronic payment system granted by central bank before July 2013 have failed. The companies that are still alive are created by telcos, banks or microfinance. Those are:
- Orange: Orange Finance Mobiles (Senegal), Orange Money CI (Ivory Coast), Orange Money Mali,
- MTN: MTN CI (Ivory Coast),
- Atlantic Bank: Mobile Cash SA (Senegal), CellPaid (Ivory Coast),
- BIAO: Quash Services (Ivory Coast),
- ASMAB: ASMAB (Benin)
Here are the causes:
- Fragmented markets: For all the efforts to make Africa appear as one market, it is not. There are no viable pan-African switches which cover the entire continent. A company has to set up country-specific (sub region-specific) solutions because of barriers from cross-border payments, languages, cultural differences, and other factors. This affects economies of scale and impacts efficient allocation of capital with duplication of resources across the region.
- Cash heavy economies: For instance, 90% of transactions being cash based in Kenya. People are attached to cash allowing informal channels to continue to thrive.
- Poor literacy rates: Even if all the infrastructure and integration issues are fixed, illiterate citizens may be unable to participate directly in digital economy that most of the time requires reading and writing skills. Chad, Niger, and Burkina Faso, for example, have literary rates less than 30%. Without investing in the education of these citizens, the pool of potential customers for web entrepreneurs is greatly reduced.
- Lack of scale: Any startup with few millions of dollars in funding can jump in preeminence in the region because Africa has a poor pool of companies. There are 3,186 companies in the continent (in all sectors) with revenue of above $50 million. So when a firm raises $100 million, it can beat anyone for market share because there are so few companies — especially in the web sector — that can challenge it. But then the company is required to seed a sector in a place with low internet adoption and high illiteracy rates with most of the customers fragmented and out of reach. The result is a lack of scale that affects profitability.
This lack of electronic payment systems is affecting African businesses in a negative way.
Some consequences are:
- African companies have difficulty ensuring their independence through self-financing. They are characterized, as compared to Western companies, by slow financial and structural growth. This is an additional challenge and, at the same time, a major obstacle in their business. This situation causes significant failure rate in the first two years or even five years after creation.
- African companies face difficulties exporting their solutions, products, skills. This results in lost opportunities.
- Due to the budget fault, research and development or Fintechs are abandoned in favor of the only projects whose scope is defined by the specific customers need in a purely B2B relationship. Despite the frugal innovation, we are light years away from Silicon Valley.
Electronic payment systems in Africa could be very profitable; it will just take time and effort.
Leaders of the continent must understand that besides launching EPS, there are many elements entrepreneurs need in order to become successful financial.
These include more integration of the disparate African economies; investing in infrastructures like postal system, broadband, and transportation networks; setting up a pan-African system to prosecute fraud and improve business trust in African Internet; and most importantly, improving literacy rates. To make the web work for business, African leaders need to focus less on how to improve the number of total domains registered and instead fix the physical business ecosystem which they continue to neglect in order to unleash the wealth-creating powers of the web in Africa.
About Moussa Dieng
Moussa is a consultant in electronic payment systems. He graduated from ENSICAEN (Caen/France) and UGB (Saint Louis/Senegal) with degrees in electronic payment systems. He started his career working as an engineer in banking, postal and microfinance softwares. He is a change management guru and his experience has enabled him to manage large difficult projects on behalf of big financial and postal institutions in West and Central Africa (Senegal, Ivory Coast, Gabon, Cameroon, Mauritania, Niger, Central African Republic, DRC …).
Apart from his professional activities, he enjoys reading, playing football, listening music and traveling.
He is currently based in Paris, where he works as a consultant in electronic banking in the NCR business.