Though cash remains the most prevalent form of payment in Africa, some companies are setting the wheels in motion for a much-anticipated e-commerce revolution.
Throughout Africa, the cash factor is a “problem waiting to be solved,” says Sharoda Rapeti, a director in Deloitte’s South African practice.
Roughly 94 percent of retail transactions in both urban and rural Africa are conducted in cash, according to a 2015 report by KPMG Africa. Yet, there are active efforts to change this, particularly as mobile phone usage becomes more prevalent throughout the continent. At the end of 2015, 46 percent of the African population—more than half a billion people—subscribed to mobile services, according to The GSMA, a trade group for mobile operators worldwide.
As parts of Africa become more mobile-friendly, central banks are doing more to actively promote electronic payment channels. Simultaneously, some U.S. payments companies are also starting to set up shop in select locations throughout the continent, hoping to get in on the ground floor of a profit opportunity.
A number of these payments companies have targeted South Africa, where the number of banked consumers is on the rise and payment card ownership is predicted to climb steadily over the next several years. Nigeria, too, is a focal point. It’s the most populous country in Africa, has a growing economy and the cash problem there is particularly acute.
“In Nigeria, it is not unusual for people to carry bags of cash just to do a simple transaction such as pay for groceries or to pay a restaurant bill,” says Deloitte’s Rapeti.
San Francisco-based Hyperwallet is focusing its efforts on both of these countries. The company has established relationships with local banks and financial technology providers and offers an online platform for freelancers, vendors and independent workers who earn money on U.S. or European e-commerce platforms. Hyperwallet allows payees to receive funds in one to two business days at a very competitive FX rate. Tomas Likar, vice president of strategy and business development, predicts that within the next two to three years Hyperwallet will start to solicit local e-commerce and content distribution platforms directly as customers.
PayU, a global online payment service provider that already has a presence in South Africa, recently began operating in the Nigerian market as well to provide secure online payment solutions to merchants and consumers. Emergent Payments, based in Palo Alto, California, also recently opened an office in Nigeria, noting that the country is a “key gateway for expansion” into the African market. The company’s merchant platform supports popular local payments—Verve bank card and Quickteller for instant P-to-P transfers to all Nigerian banks—as well as remittance in major currencies.
Payments companies have also set their sights on additional African countries but throughout the continent there are significant hurdles beyond just those of emerging markets elsewhere in the world. For starters, a financial infrastructure is virtually non-existent in rural parts of Africa. Second, the African population is not homogeneous; certain countries and regions are much farther along than others in their shift toward urbanization. Also, there are huge cultural differences compared with Western society, making it nearly impossible for an outside company to be successful without forming local partnerships.
“Identifying the right opportunity, partner and point of entry is not a straightforward exercise, and companies aiming to enter this market should invest in understanding their target geographies from the ground,” says Francesco Burelli, a managing director and global payments strategy lead at Accenture.