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Banks in Africa must provide mobile payments and other digital services to remain competitive as well as to unlock new business opportunities across sectors such as energy, health care, education and transportation. This is according to a report titled The Five Strategies for Mobile-Payment Banking in Africa released by the Boston Consulting Group (BCG) in August.

Although many African banks have little direct experience with mobile payments, it represents a must-win opportunity for these institutions on the continent because technology companies outside of Africa will capture the market if African banks fail to provide these services.

“The estimated market in facilitating payments alone is $500 billion. By using digital platforms it offers the potential to develop more holistic solutions that solve deep-rooted customer friction points for African consumers. Such mobile ecosystem solutions have been extremely successful in China and South East Asia. We believe Africa is the next foreground for exponential growth,” says Tijsbert Creemers, MD and Partner at Boston Consulting Group, Johannesburg, and co-author of the report.

Market size and share

“The other key factor is customer awareness: Africans are increasingly likely to have mobile phones and are eager for services that contribute to a higher quality of life. Already, 400 million consumers in sub-Saharan Africa use mobile payment banking systems. By 2025, the mobile payment market could reach 650 to 750 million customers.

BCG estimates that the total value of global mobile financial services transactions is from $15 trillion to $20 trillion per year. China has the highest utilization rate: 125% of its GDP is transacted via mobile payments each year, the report says.

This figure is higher than 100% because it includes person-to-person transactions, such as money transfers among friends and within families, which are not included in GDP.

Although their smartphone penetration rates are lower, Kenya and Ghana have the next-highest mobile payment rates after China. In Kenya, transactions via mobile wallets and phones represent 87% of the country’s GDP; in Ghana, they account for 82% of GDP.

In sub-Saharan Africa, already 400 million consumers use mobile payment banking systems to handle $300 billion worth of mobile money transactions, generating $200 billion in mobile banking fee charges to customers. (These figures do not reflect the impact of COVID-19.)

If the mobile payment market could reach 650 million to 750 million customers, mobile payments revenue, which tend to average about 1.1% of overall transaction volume, would rise from $3.5 billion today to between $14 billion and $20 billion. The ultimate size of the market across Africa could be as high as 850 million customers, supporting about $2.5 trillion to $3 trillion in transaction volume and $25 billion to $30 billion in yearly revenue from the financial transactions alone.

The report notes that although figures for mobile transactions are strong in Africa overall, they are not consistent across the continent. Kenya and Ghana, with their relatively mature mobile payments sectors, account for much of the business in Africa.

In most other countries in the region, less than 50% of financial transactions occur through mobile payments. The underlying conditions for growth—including the potential market for mobile payments, and opportunities to reduce friction in transactions and data sharing among companies—are therefore more favorable in these countries.

A path to success

Creemer notes that as African economies continue to evolve and with the COVID-19 crisis rapidly raising peoples’ interest and need for contactless transactions, the mobile device will become the payment vehicle of first resort – and banks need to embrace this reality to forge a path to success.

There are five potential strategies that banks in Africa may adopt to harness the possibilities that mobile payments present – depending on the bank’s size, capabilities, technological experience, and the role that it might play in its local or regional business ecosystem, he says.

“By picking the most appropriate strategy, banks can build a viable, sustainable growth business and open significant new revenue streams. These opportunities arrive at a pivotal time, as several African countries welcome deeper investment in mobile services, and mobile emerges as a way to drive recovery from the COVID-19 crisis by making social distancing easier and cutting day-to-day expenses at a time of financial stress,” says Creemers.

“Banks must move as quickly as they can to position themselves in this space and to acquire the necessary capabilities to recover from this year’s difficulties and shape their destinies in the long run.”

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