Building a robust payments infrastructure: Challenges and opportunities in West & Central Africa

June 17, 2023 |
By - Mamadou Wilane
4 minutes read
4 minutes read
By - Mamadou Wilane

It’s common knowledge that both opportunities and challenges are two sides of the same coin. The countries in the WCA region exemplify the concept of opportunities and challenges being two sides of the same coin. On the one hand, there are significant opportunities, such as rising economic expansion and an improving entrepreneurial landscape. On the other hand, there are also major challenges, such as inadequate infrastructure, including the payments industry.

Digital solutions are providing a ray of hope in meeting the aspirations of individuals and institutions in the WCA region. Innovative digital payment solutions are offering options to tap the region’s inherent economic potential, despite the challenges. These solutions are particularly important for the large sections of unbanked communities in the region.


The Current Scenario

One of the prime challenges in West & Central Africa is the low degree of financial inclusion. As a major proportion of the population in these regions are unbanked/underbanked, they have minimal access to modern financial services. Therefore, establishing a robust payments infrastructure is vital for BFSI players to provide access to banking and financial services, particularly in the region.

Even today, cash continues to rule in West Africa. It’s no surprise that most parts of these regions provide limited access to conventional financial services. As a result, barely 37% of females and 48% of males possess a bank account in sub-Saharan Africa, as per the World Bank.[1] In WAEMU (West African Economic and Monetary Union) countries comprising Burkina Faso, Benin, Côte D’Ivoire, Mali, Niger, Guinea-Bissau, Senegal and Togo, this number drops to under 20%.

Given this scenario, alternative financial products are finding favour with most cohorts who are excluded from the formal financial system. Mobile money is emerging as one of the top means among unbanked segments such as the youth, women and the rural poor, facilitating their access to services such as loans, savings and payments.

However, despite the steady rise of alternative payment avenues, challenges remain in driving greater financial inclusion among the masses. The core challenges constitute regulatory hurdles, subpar infrastructure and lack of interoperability. For consumers, without interoperability, varied payment options such as mobile money accounts, e-wallets and bank accounts are not as beneficial. To make matters worse, besides an overdependence on the American dollar, different countries have diverse financial regulations with little connection to other domestic or international payment systems.

The challenges are far more pronounced in rural regions. These include slow to non-existent connectivity and lack of USSD (Unstructured Supplementary Service Data) usage in WCA, unlike East Africa. Another hurdle concerns cultural adaptation. Although more people are now adopting digital wallets, digital payments as a regular medium are still not well-established in the public mindset.


Understanding the Barriers

A closer look at four big barriers will help in comprehending the constraints:

1) Complex regulations: The complexity of payment mechanisms leads to higher costs and slower speeds in transferring money across international borders. The lack of transparency among most legacy payment providers only compounds the situation for consumers.

2) No interoperability: Both enterprises and consumers have vibrant payment choices such as mobile money platforms and e-wallets, among others. But since the current payment ecosystems are complex and fragmented even as there is no harmony among different nations’ financial regulations, it ends in slow, expensive and unreliable means of transferring money across borders. Due to the lack of interoperability, seamless cross-border transactions across different channels become increasingly complex.

3) Inefficient and expensive cross-border transactions: When it comes to transferring money across borders, sub-Saharan Africa is the costliest region. Due to this, sending an amount as small as $200 cost an average of 8.2% in the last quarter of 2020. Moreover, cross-border payments within sub-Saharan Africa must traverse different time zones, payment corridors and banks, leading to slow speeds and extremely high transaction charges.

4) Uneven development: As a vast and diverse continent, substantial variations in technology adoption exist across different regions in West & Central Africa. For example, people in the Ivory Coast prefer Visa-branded cards but 40% of Tanzanians opt to use MNOs (mobile network operators).


Upcoming Opportunities

Notwithstanding these barriers and the fact that cash is still the predominant, a McKinsey survey indicates that e-payment usage is bound to gather momentum in the upcoming years. As banks and non-banking entities innovate to minimise hurdles in cross-border payments by delivering the requisite solutions for users, the domestic e-payments landscape in Africa is anticipated to record revenue growth of around 20% per annum, touching approximately $40 billion by 2025.[2] In comparison, over the same period, global payments revenue is slated to rise annually by 7%.

Fortunately, these challenges can be resolved, particularly because Africa’s rapidly rising population (poised to reach 1.7 billion by 2030) is bound to trigger greater economic growth. The increasing population numbers make this region more attractive for PSPs (payment service providers) and other enterprises, especially because Africa leads globally in mobile penetration speed. While barely 44% of Africa’s people owned mobile phones in 2018, this statistic touched 65% in 2020. If this pace of growth is sustained, the overall unique mobile subscribers could touch 634 million by 2025.[3]

Comprehending the size of this relatively untapped opportunity, more big payment service providers are planning to enter the region. Considering its major cross-border presence, TerraPay can make a huge difference with its products and services such as Real-Time Payments (RTP).

Meanwhile, the regulatory authorities in different regions and countries should also work together to drive greater synergy among themselves. Financial institutions and PSPs should also join hands with the regulators to work out innovative means to promote greater interoperability. PSPs and businesses entering WCA markets must also undertake thorough research to understand the regional pros and cons and then ensure flexibility in adapting to local payment mechanisms.

Once these challenges are addressed through the adoption of digital technology and other solutions that help build a strong payments infrastructure in the days ahead, there is no doubt that the future of mobile payments will be driven by WCA countries.