The sharp economic slowdown brings new difficulties ahead for Africa – including high international food and fuel prices, financial shocks from the tightening of monetary policy in advanced economies, and increased food insecurity in various parts of the region. All of this follows the economic and social effects of the pandemic.
2023 is going to be a tough year, with austerity being a key focus. As the payments world continues to adapt and evolve throughout such challenges, here are the trends we believe will capture the most attention in 2023:
A move towards consolidation
As funding becomes more restricted and major cost-cutting sweeps across the tech industry, there will be a shift towards prioritising the products and solutions that already generate profit. We will see less innovation for the sake of innovation and instead, there will be a consolidation of the best existing solutions among players in the market.
The digital economy will only be boosted by payments as a bridge, with again, a strengthening focus on the tools that already work and are necessary. Those with weaker, less-bulletproof propositions will see themselves taken out or acquired during these tough times.
QR code payments are on the rise
The pandemic accelerated the uptake of QR codes, and now, higher adoption is taking place with dynamic QR codes generated by global users reaching 6.8 million scans (a 433 per cent increase over the previous year’s figures). This is only set to increase further as cashless payments via QR codes are rising across Africa – exemplified by the Nedbank app, a QR code-based system operating in Zimbabwe, Kenya, Angola, and Lesotho. Nedbank helps users to carry out everyday banking through their smartphones.
Another example of the rise is taking place in Nigeria, as QR code-based payment systems are also becoming a preferred choice for businesses and an alternative to point-of-sale solutions. Fintech players Paystack and Flutterwave are providing merchants the option to receive payments by generating and sending QR codes to their customers, sometimes via social media channels.
Embedded Finance is transforming regions
“The developed world has seen a gradual evolution of financial services from bank tellers to ATMs to online banking and now, embedded finance,” says Emmanuel Obinne, Head of Growth and Partnerships – West Africa at BPC. “However, in Africa, a largely unbanked population means that more smartphone penetration and digital adoption have made embedded finance the next leapfrog opportunity in Africa.”
An example of embedded finance transforming the region is TradeDepot, a Nigerian B2B marketplace connecting micro-retailers with distributors and manufacturers of fast-moving consumer goods (FMCGs). After building a proprietary risk-scoring engine that takes retailers’ purchase history, repayment performance, and other data to predict their creditworthiness, this innovative financing model has prompted a steep increase in volumes for retail store owners. Due to its embedded finance functionality, merchants have been able to double or triple what they typically buy.
Ecosystems and marketplace are redefining mobile usage
Digital services and super apps are continuing to grow throughout Africa. With low-end smartphones making up 85 per cent of all smartphones shipped into Africa at the start of 2021, super apps have been crucial for streamlining African online lives, giving a much-needed option for saving storage and broadband. I predict the year to come will see further growth in this area.
In Kenya, its largest telecommunication company Safaricom launched its M-Pesa super-app last year and now plans to bring on additional services such as ticket booking. Currently, users can shop on its e-commerce platform, Masoko, access games, learning materials, job opportunities, and daily e-newspapers.
The use of AI in fraud as a necessity
Africa is home to five of the top 10 countries most affected by fraud, according to PwC’s Global Economic Crime and Fraud Survey. As fraud becomes an increasingly prevalent risk, using AI to combat fraud has helped businesses with improving security internally and streamlining operations. AI is now crucial in mitigating financial crimes as it enables an efficiency that is impossible for humans to do alone – it can be used to check massive numbers of transactions at once and consequently uncover fraud as it occurs.
This means that AI can be used to flag or decline transactions, and also gauge the likelihood of fraud, enabling investigators to put their efforts towards the riskiest cases. AI can also create codes for suspicious transactions, directing investigators and speeding up the process. As more companies start embedding AI into their fraud processes, this will build the AI model’s knowledge and only make it harder for criminals to strike in the future.
Payment Orchestration is ripe for disruption
In the absence of a significant legacy payment infrastructure, a plethora of payment platforms and solutions for the varying needs of businesses and consumers on the continent has emerged. Without a dominant infrastructure, Africa’s most popular payment methods are diverse. Those looking to operate in the region have to work with various payment partners to accept the different payment methods used.
Since Africa’s payments market is highly fragmented, with different countries leaning towards their own payment methods, the opportunities for payment orchestration are enormous, and new fintechs are emerging to tackle the issue. An example to keep an eye on in the new year is MoneyHash, which is creating a super-API for payment orchestration and revenue operations for Africa, and is rolling out in Nigeria, Kenya and South Africa and integrating providers like Yoco, Paystack and Flutterwave.
More central banks exploring CBDC and blockchain
After Nigeria’s recent introduction of e-Naira, sub-Saharan African central banks are exploring or piloting a digital currency. Ilyas Berrajaa, Chief Growth Officer at BPC, predicts more central banks throughout the continent will pioneer CBDCs. These are digital versions of cash, with higher security and less volaility than crypto assets, having been issued and regulated by central banks.
The e-Cedi is a general purpose or retail CBDC being piloted by the Bank of Ghana, which can be used through a digital wallet app or contactless smart card that works offline too. While different nations have different motivations when pursuing CBDCs, overall they tend to promote financial inclusion, particularly if they can work offline in remote areas. CBDCs can be distribute targeted welfare payments, which can be critical during unforeseen crises.
The year ahead is set to be a fairly turbulent one, with plenty of challenges and questions still to be addressed. However, the companies who take into account the direction in which things are heading, are those who will be the best prepared for the journey.