How Africa Transacts: The Movement of Money On The Continent

Published: 22 February 2019

The African continent has for long been recognised as a cash based economy, with large volumes of currency and retail trade taking place in the informal sector on a daily basis.

This fact is made even more apparent by looking at data around the continents’ population who to this day remain unbanked, with large volumes of people having limited or no access to everyday products and services common the world over, like bank accounts and cheque cards. 

There are several reasons for this, chief among them include the requirement by banks to furnish extensive formal documentation and paperwork which many do not have, a high sensitivity to the cost of an account and continued levels of distrust toward the banking sector.

The result of the limited access people of the continent have to “digitised” banking products has lead to them being faced with many great challenges, which those in the developed world would struggle to even comprehend as a reality of daily living.

Apart from the security concerns of keeping and carrying cash, consider the scenes witnessed during the height of hyperinflation in Zimbabwe where citizens were forced to wheel around wheelbarrows of currency to carry out simple purchases like grocery shopping. Consider also the plight of diaspora who have moved to urban areas or crossed international borders to find opportunity, who are known to travel 100’s, sometimes 1000’s of kilometres to get physical cash back home to their’ families for supplies like food, medicine and tuition.

Needless to say, both of these scenarios have seen major changes over the last decade. With the proliferation of the mobile phone in Africa, complimented by increased access to connectivity, we have seen a convergence between telecoms and banking, with a series of businesses and solutions being borne at the intersection of these two points.

Mobile Money

A trend that has swept many countries on the continent has been that of mobile money. The concept behind this is that a mobile number can act as a pseudo bank account with the ability to send and receive money between parties, simply by knowing the mobile number of another user on the network.

The mobile money solution relies largely on another unique concept seen more prolifically in telecoms, but now migrating to the banking and financial services sector at a rapid rate, the “agent model”. In this model, customers are able to make use of a decentralised network of agents who operate on the banks behalf to cash users in and out at physical points in their local areas. This allows users to get access to physical cash when needed without needing to travel in to city centres to visit formal banks to carry out these transactions, while also dealing quite commonly with trusted members of their community. More importantly, it allows users to “digitise” their cash for ease of transport, incurring a small enough fee to make the process worthwhile.

In East Africa and moving Westerly, the front-runner in this domain is mPesa, a Vodafone launched service for Safaricom and Vodacom – with over 28.5 million users. In Zimbabwe who sees a staggeringly high volume of mobile transactions on a daily basis in comparison to other methods of transacting, it is EcoCash who dominate the market. To contextualise the size of the mobile money transaction volume, in 2017 digital transactions in Zimbabwe accounted for over 96% of all transactions, with the bulk (+-80%) of this being mobile money transactions. Several other players operate across the continent including MTN, Orange, Tigo (Millicom) and Airtel, but no single company owns the African market outright. Interestingly, mobile money solutions have not resonated as well as they have in the two areas mentioned above elsewhere in the continent, with what could be considered somewhat of a failed attempt by MTN at launching a similar offering called “MoMo” in the South African market in 2016. Reasons for its failure have been cited as the fact that South Africa has quite an advanced and well adopted formal banking environment which provided too much competition to the service, as well as the costs of managing a mobile money platform simply being untenable at the time. MTN have since announced plans to re-launch this service in the early stages of 2019.

Intra-Country & Cross-Border Money Transfer & Remittance

In the long distance and cross-border money transfer domain, there have always been two incumbents who have dominated the market, namely Western Union and MoneyGram.

Although they have certainly not been usurped from their position, this market has become heavily disrupted with companies like Zoona, operating in Zambia, who’s huts have become a hallmark on street corners across Lusaka. Zoona offer citizens of Zambia the ability to transfer money easily within the countries borders by using the agent model combined with a “cash-float” system which allows agents to receive, transfer and pay out cash transactions on the spot. Zoona also offer products for salary payment in bulk which are ideal in the more remote agriculture areas with large farming communities who rely on cash for most of their transacting.

In the cross-border money transfer domain, we have also seen a fair level of disruptions with providers like Mukuru, Mama Money and Hellopaisa beginning to show a marked effect on the industry. All of the aforementioned businesses approach this market with a slightly varied value proposition and rates between them may compete differently between two markets. However, by pure virtue of the increased competitiveness in the industry, the cost of money transfer has naturally begun to decrease, putting more money in the hands of the end-consumer.

The table below (click to zoom) shows examples of the rate differences between 10 competitors in the cross-border money transfer domain, listed from least expensive to most expensive in descending order. This was for a specific value transferred between South Africa and Zimbabwe in November 2018.

A comparison of money transfer costs between South Africa and Zimbabwe in November 2018.
Courtesy The World Bank (https://remittanceprices.worldbank.org/en/corridor/South-Africa/Zimbabwe)

Where to For The Future of Digital Transactions in Africa?

New solution providers are waiting in the wings in all areas of the FinTech spectrum. Already blockchain based solutions like Stellar who aim to further reduce costs of money transfer have come to the fore. In addition, serious consideration should be given to the payment abilities built in to Facebook’s messenger application, a platform who through its’ sheer scale has the ability to become the de facto payment service on the globe.

The result of the introduction of the mobile phone en mass, better network accessibility, more affordable fee structures and an increase in the number of role players in the FinTech domain have meant that people of the continent have begun to see great advances in the digital solutions provided in the financial services and management domain. Whether it is the ability for a stall vendor in Mozambique to accept payment for their goods in a remote location or a family member’s ability to easily send money home without needing to travel for extended periods, it is these small victories which cumulatively contribute to an uplifted continent.

Where to next is anyone’s guess, but as more Africans becoming truly connected to the digital economy, the increasing return in value seen from the implementation of smart digital solutions is likely to prove ever more advantageous for the continent as a whole.

About the Author

With a keen interest on all things commerce in Africa, Alex avidly keeps abreast of digital solutions providing answers where difficult to solve problems once existed. Alex has worked in this domain for the last decade advising clients on customer attraction and experience across a multitude of industries. It is with this knowledge and keen interest that he continues to advise the clients of Digital Advisory Africa, ensuring they too thrive in these exciting but disruptive times.

About the Author

With a keen interest on all things commerce in Africa, Alex avidly keeps abreast of digital solutions providing answers where difficult to solve problems once existed. Alex has worked in this domain for the last decade advising clients on customer attraction and experience across a multitude of industries. It is with this knowledge and keen interest that he continues to advise the clients of Digital Advisory Africa, ensuring they too thrive in these exciting but disruptive times.

Contact

Silo District
4 South Arm Road
V&A Waterfront
Western Cape
Cape Town
South Africa

Contact

Silo District
4 South Arm Road
V&A Waterfront
Western Cape
Cape Town
South Africa

DAA News & Insights

Contact

Silo District
4 South Arm Road
V&A Waterfront
Western Cape
Cape Town
South Africa

DAA News & Insights