Imagining the Future of Payment Systems in Africa

Achieving financial inclusion has always been a challenging objective, yet it is increasingly within reach.

This challenge is being addressed through a range of innovations originating from both traditional banks and non-banking entities, including fintech companies.

The drive towards digital financial inclusion is supported by robust economic principles—reducing transaction costs can significantly boost economic growth, as highlighted in a World Bank report.

Africa has often been at the forefront of innovations in payment technology, exemplified by the launch of Mpesa in 2007 by Vodafone and Safaricom in Kenya, which enables users to send and receive money. Mpesa now boasts over 60 million users and processes more than $1 billion (over R18 billion) daily.

“Africa’s payments industry is experiencing tremendous growth,” states a report from Swift (Society for Worldwide Interbank Financial Telecommunications).

“Electronic and instant payment systems are transforming everyday transactions on a continent where cash remains dominant, propelled by a youthful population that is driving rapid digitisation.

“Currently, Africa represents 70% of the global mobile money market valued at $1 trillion,” claims Swift.

Rufaida Hamilton, head of payments for Standard Bank in South Africa, notes that a significant turning point for Africa was the realization that simply providing access to bank accounts was inadequate for achieving financial inclusion.

“In South Africa, the available market for bank accounts has largely been tapped, but the need for instant, easy money transfers remains unfulfilled by conventional payment services.

“The next phase in achieving financial inclusion involves widespread payment accessibility.

“I do not anticipate the elimination of cash anytime soon,” she continues. “However, we believe that reducing the dependency on cash offers significant advantages.”

“The future of payments will feature a variety of competing and interacting payment options.”

South Africa’s financial services market is more developed than most in Africa, mainly due to the extensive use of card payments.

This advancement has been bolstered by card payments facilitated by the government for 28 million social welfare recipients, ensuring deep card penetration even among the poorest demographics.

Innovation in digitised payments and mobile money in Africa is emanating from diverse sources: banks, fintechs, retailers, and mobile network operators, with the essential goal being effective communication between these entities.

There are currently 28 instant payment systems across Africa, spanning nearly as many countries (some nations operate multiple systems), and while the technological capability for interaction is nearly within reach, regulatory frameworks still require improvement.

“The current challenge lies in regulators establishing an ecosystem that supports seamless transactions across these technological platforms among all participants,” says Hamilton.

“In South Africa, regulators are set to adopt a framework that anticipates an influx of non-bank players entering these systems. This represents a significant shift. Banks have excelled in traditional banking services, but with fintech and non-bank companies entering the market, they are now delivering payment services to those in need. Regulators must stay ahead of this trend.”

The G20 working group on Accessible Instant Cross-Border Payments will be led by South Africa in 2025, focusing on accelerating cross-border payments, improving accessibility, minimizing friction introduced by regulatory bodies, standardising data storage protocols, and reconciling differing standards for market supervision.

The question of which technology will emerge as the frontrunner in this evolving landscape remains unanswered; however, Hamilton predicts that electronic instant payments will prevail over alternatives like cards and cash.

While card-based payments have their advantages—such as supporting loyalty benefits—many Africans do not benefit from these options. Physical cash carries inherent risks of loss or theft and involves hidden costs resulting from the necessity to travel to bank branches or ATMs for deposits and withdrawals.

With smartphone penetration in South Africa exceeding 50%, the era of widespread and immediate electronic payments is within tantalizing reach. An increase in usage will correspondingly stimulate economic growth.

The capabilities offered by digital mobile devices promise an easy, quick, and comprehensive uplift for the country.

While cash circulation poses risks and expenses, a World Bank report indicates that digital money fosters greater economic growth.

Another key focus in the realm of instant payments is the area of cross-border transactions. Approximately 80% of cross-border payments within Africa are processed through the Swift-enabled correspondent banking model. Hamilton states that Africa needs to establish linking networks akin to Project Nexus in Asia, initiated by the Bank for International Settlements, to facilitate connection and instantaneous transactions across multiple payment systems on the continent.

“We have transitioned beyond merely having instant payment technologies; the next step is to dismantle regulatory barriers to diminish friction among countries,” asserts Hamilton.

“A critical step towards achieving financial inclusion involves the distribution of digital IDs to every African citizen. This will enable regulators to acknowledge reliable digital IDs, facilitating lower transaction costs through bilateral agreements with South Africa. While 78% of some form of formal identification exists in Africa, the focus must shift to digitisation and establishing mutual reliance on this identification.”

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