Understanding the state of digital payments in sub-Saharan Africa.

The Seamless Southern Africa conference took place in Cape Town, South Africa, from 11 to 13 March 2019. The conference offered a platform for discussions on an array of topics, including the digitisation of payments, cryptocurrencies and financial innovation, and the potential for collaboration between fintechs and banks.

The conference provided a platform for us to discuss and engage with the industry on our ongoing work, with a key focus on private cryptocurrencies. Overall, we took away four key insights:

1. Remittances via cryptocurrencies are increasingly possible, but uptake is still low. Are cryptocurrencies for remittances more viable than traditional methods? Proponents from the private cryptocurrency space (such as Centbee) claim to already be enabling successful cross-border remittances using bitcoin and similar currencies. This is due to bitcoin being able to act like a global currency and facilitate near-instant, peer-to-peer, cross-border payments with the assistance of Centbee’s partnerships with international forex providers. The WorldRemit experts involved in domestic and cross-border payments, however, voiced their scepticism regarding the potential for cryptocurrency to act as a medium of exchange. This scepticism is due to the digital financial service ecosystem still being relatively underdeveloped in many parts of Africa. If consumers can’t spend their digital value and must cash out, cryptocurrencies can actually increase the hardship for remittance senders and recipients.

2. Lack of regulation is a barrier to cryptocurrency. Due to the lack of clear guidance for providers and issuers, many believe that regulation remains a barrier to the uptake of cryptocurrencies in the region. While the lack of regulatory clarity can enable fintechs that have a higher risk appetite to innovate within the grey area, it does create regulatory risk and may deter more players from entering the market. It also creates risks to the business case of start-ups if investors are deterred by the regulatory uncertainty. Angus Brown from Centbee advised that – in order for innovation such as cryptocurrency-based remittances to flourish – routine consultation and collaboration between the private sector and the regulator are important.

3. There has been increasing collaboration between banks, fintechs and mobile network operators. For a long time, banks saw fintechs as competitors in the financial services space. However, the conference showed that there has been significant development in the collaboration between fintechs and banks. Heimen Schuring (from Rabobank), Sudin Baraokar (Global IT innovation advisor and an industry expert) and Chris Kabagambe (from Top Finance Bank) presented examples of partnerships, e.g. between IDnow and Commerzbank, CurrencyCloud and FidorBank, and CurrencyCloud and Monese. Furthermore, there has been growth in mobile payments facilitated by mobile networks operators. In a fragmented industry such as cross-border payments, scale is key. Partnerships that promote interoperability and that ease the onboarding process for consumers can create much-needed scale in terms of value and volume. Providers will ultimately compete on product features, not on who owns the biggest network of payment infrastructure. Fintechs can bridge the gap between the digital and finance worlds and can have a positive impact in developing countries. However, for fintechs to flourish, regulatory and licensing constraints need to be addressed.

4. Innovation in financial services and financial inclusion can take place through improved customer insights. One of the discussions at the conference was how financial institutions could innovate through improved customer insights. Financial institutions should concentrate on effective customer engagement. As highlighted by Shavaye Govender, companies such as Uber and Google have been using a customer engagement strategy to address the needs of customers. This is critical to access reliable data and earn trust from customers. One way to understand consumer data better is to use a holistic framework, such as that of our recent work in measurement. The effective use of consumer insights is significant in unlocking the potential of financial inclusion, as evidenced in one of our previous studies available here.

The conference provided us with many aspects to ponder, and we look forward to seeing how the conversation develops over the coming years. We remain cautious around the benefits of private cryptocurrencies for remittances and financial inclusion. Large barriers to uptake remain on the continent when it comes to payments for all: gaps in basic infrastructure (e.g. lack of electricity and network uptime), lack of cash-in/cash-out points, lack of connectivity and underdeveloped national payment systems, regulatory barriers (e.g. cost of know-your-customer requirements and remittance taxes) and consumer barriers (e.g. lack of documentation). To promote the transition away from cash and towards an inclusive cashless society, we believe that a central-bank-issued digital fiat currency (DFC or CBDC) has more promise in achieving efficiency and inclusivity gains in convincing remitters to adopt cryptocurrencies. This transition is more feasible given their status as legal tender and the associated pressure to create a digital ecosystem along the entire value chain.

If you are interested, you can read more on our work around DFC here. However, a full transition to digital will not be happening soon, and several barriers need to be removed to ensure that consumers are not worse off than before. Engage with us if you would like more information or would like to join the discussion.

This work forms part of the Risk, Remittances and Integrity programme, a partnership between FSD Africa and Cenfri.