Open Banking and Account-to-Account (A2A) payments are revolutionizing online transactions. These technologies offer a direct, secure, and cost-effective way for customers to pay for goods and services online. They will soon be coming to the African market.
What are the benefits for eCommerce merchants?
Lower costs: A2A payments typically have lower transaction fees than card networks.
Faster settlements: Merchants often receive funds almost instantly, improving cash flow.
Enhanced security: Direct bank authentication reduces fraud risk.
Improved conversion rates: A streamlined payment process reduces abandoned transactions.
Wider customer reach: A2A payments can accommodate customers who don’t have credit cards.
How does Open Banking contribute?
Direct bank payments: Open banking enables customers to pay directly from their bank accounts, cutting out intermediaries.
Data control: Consumers retain control over their data, granting explicit consent for data sharing and being able to revoke access at any time.
By embracing Open Banking and A2A payments, eCommerce companies can create a more efficient, secure, and inclusive payment ecosystem. Are you ready to leverage these technologies for growth in the African market?
Artificial Intelligence (AI) is set to revolutionize payments, bringing benefits to both merchants and customers. AI can enhance payment orchestration, offering a more seamless, secure, and personalized experience for eCommerce businesses operating in Africa.
How can AI transform payments?
Personalised experiences: AI can analyse customer data to determine preferred payment methods and offer tailored recommendations.
Optimised checkout: AI can streamline the checkout process, implementing features like one-click payments and stored payment details.
Fraud prevention: AI can detect and prevent fraudulent transactions by identifying suspicious patterns.
Maximized approval rates: AI can help increase approval rates by routing transactions to the most suitable payment methods.
Minimized merchant losses: AI can help reduce losses by detecting and mitigating risk.
Intelligent Routing: AI can analyse, recommend and route transactions to the most suitable payment methods and maintain the most effective and cost effective ingested and output fx balances.
Why is AI important for the African market?
Building Trust: AI-driven security measures are vital to building trust in digital payments in emerging markets.
Overcoming infrastructure gaps: AI can optimise payment processes, making them more efficient and reliable even in areas with limited infrastructure.
Financial inclusion: AI can facilitate personalised payment solutions, reaching a wider customer base.
By leveraging AI, eCommerce merchants in Africa can create a more secure, efficient, and customer-centric payment ecosystem, while also mitigating risk. Is your business leveraging AI’s potential?
Stablecoins are rapidly transforming the African payments landscape. These digital currencies, pegged to stable assets like the US dollar, offer a compelling alternative to traditional payment methods, especially in regions with volatile local currencies.
Why are Stablecoins gaining traction?
Stability: In countries facing currency devaluation, stablecoins provide a reliable store of value.
Global access: Stablecoins facilitate international trade and access to global markets, even for those outside of traditional banking systems.
Low transaction costs: Stablecoin transactions are typically cheaper than traditional bank transfers.
Faster settlements: Settlement times with stablecoins are usually faster, improving cash flow for businesses.
Cross-border simplicity: Stablecoins streamline cross-border transactions, making it easier for businesses to operate across African markets.
Benefits for eCommerce Merchants:
Reduced currency risk: Merchants can minimize exposure to currency fluctuations, making pricing and financial planning more predictable.
Wider customer reach: Stablecoins can help businesses reach customers who may not have access to traditional banking services.
Simplified payments: Accepting stablecoins can simplify cross-border payments, helping merchants operate more effectively in multiple African markets.
Contact us if you want to move money more effectively via stablecoins
The African eCommerce landscape is booming, but for merchants, managing payments can feel like navigating a maze. Multiple payment gateways, processors, and methods across various countries create complexity that can impact your bottom line. This is where payment orchestration comes in. Payment orchestration offers a streamlined solution.
What is Payment Orchestration?
Instead of juggling multiple systems, a payment orchestration platform (POP) consolidates all your payment operations into a single hub. This means:
Simplified Payment Processes: A POP simplifies payment processes.
Reduced Costs: POPs can help lower transaction fees.
Increased Revenue: By optimising payment flows and reducing failed transactions, POPs can boost revenue.
Boosted Resilience: A POP enhances the resilience of payment systems.
Why is this crucial for African eCommerce?
Diverse Payment Preferences: Africa has a diverse range of payment preferences, from mobile money to cards and bank transfers. A POP enables you to cater to these varied needs.
Cross-border complexity: Operating across multiple African countries introduces cross-border transaction challenges, with various currencies, regulations, and payment methods. Payment orchestration helps manage this.
Evolving landscape: The payments landscape is constantly evolving. POPs provide the flexibility to adapt to new payment methods and trends.
By embracing payment orchestration, eCommerce companies can streamline their operations, reduce costs, and provide a smoother checkout experience for their customers. Is your business ready for this shift?
While the African eCommerce market presents tremendous opportunities, several challenges need to be addressed to unlock its full potential:
Financial Inclusion: A significant portion of the African population remains unbanked, limiting their participation in eCommerce. Expanding access to financial services through solutions like mobile money is crucial.
Infrastructure Limitations: Internet connectivity and access to technology vary widely across Africa. Businesses need to build platforms that work seamlessly across different connectivity levels and devices.
Regulatory Landscape: The regulatory environment for online payments in Africa is evolving and can be complex. Navigating this landscape effectively is essential for building trust and ensuring sustainability.
By addressing these challenges, businesses can create a more inclusive and accessible eCommerce ecosystem in Africa, driving growth and innovation.
“When coming across headlines about African payments, leapfrogging is used as a description, which implies that Africa is catching up. In many ways, Africa is on its own path and some of what we’re doing is ahead of what is being done in Europe or the US. Our path is also not to replicate what is being done in Europe or the US. Payments have been instant across Sub-Saharan Africa since 2010.” – Dare Okoudjou, founder and CEO of MFS Africa.
Africa is Informal
The vast majority of spending in Africa takes place in informal markets that remain overlooked by traditional measures. The modern retail channel only accounts for 10% of the total retailing value in the region, to the extent that it is more accurate to refer to these informal markets as the Main Market sector.
Africa is Mobile
Africans are early adopters of mobile money – more than half of global mobile-money service operators are located in Sub-Saharan Africa. The continent has the highest unbanked population in the world, the fastest growing population, and the highest proportion of microbusinesses. Mobile phones are the main source of access to the Internet for young consumers in Africa and in 2020, transactions on mobile money platforms reached $490 billion, a trend that the covid pandemic has hastened.
Mobile payments are also accelerating in the ecommerce environment, and is predicted to be the driving force behind digital transformation in payments globally over the next five years. The digital payments market has matured faster in Africa than it has in Europe: The number of electronic payment transactions in Nigeria grew from 66 million in 2008 to over two billion in 2018. By way of example, the number of electronic payments in France has grown in the past decade, from 33 million in 2009 to only 61.5 million in 2018.
However, mobile payments are not able to transact cross-jurisdictionally and so limits growth of African commerce into global markets.
Africa is Crypto
At the same time, the Sub-Saharan region has the largest volume of retail transactions in crypto (defined as less than USD10,000) and remittances from abroad, and despite a recent ban on crypto in Nigeria, transaction volumes were unchanged.
The bottom line:
Looking at these three trends, we predict that as an electronic, peer-to-peer, universally accessible currency, crypto holds particular promise to catapult Africans into a truly globally competitive and accessible e-commerce era.
Graph: Registered mobile money accounts in world regions, 2013-18 (GSMA, 2020).
About the authors
Bernobin is BERNelle and rOBIN’s adventures in online payments, crypto and the metaverse.
This thought piece was written as part of Robin Philip’s Masters research in Digital Currency, to update his 20 years experience in online payments. As co-founder of African Payment Solutions, a pan-African eCommerce payments company for multinational eCommerce merchants, he is considering how to best serve clients in the rapidly evolving future of ecommerce.
Bernelle Verster is trained as a bioprocess engineer, and recently changed gear to explore 3D geospatial and data visualisation, with great excitement for the metaverse. Her interest is in interfaces, the spaces between: How we transition responsibly to a decentralised … more democratic?, more digital way of doing things? How does that link back to the physical world? How do we empower people who have thus far been excluded from the dominant economic forces?
60% of Africa’s population (17% of the world’s unbanked) do not participate in the formal banking system.
Only 35% of Africans (456 million adults of a total population estimated at 1.3 billion) were expected to have a bank account by 2022.
40 million Europeans are unbanked, and we can only guess how many are venturing into having a digital identity completely independent of the formal network.
Conventional thinking surmises that the unbanked are being left behind, are too poor, or do not have the knowledge or other resources to participate in the formal banking sector.
Or, is it perhaps because it is simply not worth the hassle?
Traditional banking runs on dated banking models of branch networks, expensive technology, inadequate systems and a limited talent pool. In the aftermath of a global financial crisis and the covid pandemic, the promise that “formal financial services can help people to protect their earnings, and participate in economic activities” is losing its appeal.
Could it be that poor people knew this all along, and the rest of us are only now catching up?
The adoption of cryptocurrency infrastructure is driven by perceived failings of traditional financial systems and distrust in governments. Mistrust and governance issues aside, microbusiness and informal markets don’t want to be hamstrung by bureaucracy. South Africa, Kenya and Nigeria are in the top 10 countries of highest grassroots crypto adoption in the world.
The sluggish, inefficient and not customer-minded banking sector may be a tolerable inconvenience for higher earners, but it is simply not good enough for the micro-enterprises making up the bulk of Sub-Saharan Africa’s economic activity.
Supported by design
Innovation in banking services is not necessarily choosing between the traditional banking system or the emerging and currently poorly regulated crypto scene. Can formal banking improve, be more accommodating to their clients’ needs? Improved service targeting the lower income brackets include updating their technology and infrastructure systems, and updating their KYC requirements to be less burdensome. This may mean introducing smart contracts, digital assets and the efficiencies of technologies currently associated with crypto. If they don’t, more and more people will take the risk on crypto.
At the same time, regulators need to be more open minded and embracing of the efficiencies and economic benefits of DeFi’s fast, pseudonomous, borderless payments starting with lower amounts or lower risk areas.
Over the past year, a record number of new accounts have been opened worldwide by firms providing mobile money, fintech and online banking services. Following the pandemic, more people are leaving the formal economy. Crypto makes it possible and more efficient. Two aspects are catalysts to this migration: Peer to peer (P2P) platforms and layer two technologies.
P2P platforms are essential to service adoption in developing countries and are particularly suited to unbanked individuals. P2P platforms don’t custody any of the digital assets or fiat traded on their platforms, negating the need to connect to the banking system and comply with strenuous regulatory hurdles. This allows them to onboard residents of developing countries more easily, many of whom are excluded from the traditional financial ecosystem.
Layer two technologies are ‘off-chain’ protocols that do not record every single transaction on the bitcoin blockchain. These protocols, like the Lightning network, are effectively independent of the value of Bitcoin thus avoiding the risk of the crypto volatility. In short, layer two technologies enable very cheap, very fast transactions.
It would be prudent for African banks and governments to catch up with this runaway train of a more efficient mechanism of decentralised, borderless money as a store of value and medium of exchange. Embracing these new monetary technologies can give Africa and Africans a global competitive advantage. The genie is out of the bottle.
Further reading:
www.gfmag.com
www.paymentscardsandmobile.com
www.elixirr.com
www.wsbi-esbg.org
repository.uel.ac.uk
link.springer.com
go.chainalysis.com
About the authors
This thought piece, the second in the series, was written as part of Robin Philip’s Masters research in Digital Currency, to update his 20 years experience in online payments. As co-founder of African Payment Solutions, a pan-African eCommerce payments company for multinational eCommerce merchants, he is considering how to best serve clients in the rapidly evolving future of ecommerce.
Bernelle Verster is trained as a bioprocess engineer, and recently changed gear to explore 3D geospatial and data visualisation, with great excitement for the metaverse. Her interest is in interfaces, the spaces between: How do we transition responsibly to a decentralised … more democratic?, more digital way of doing things? How does that link back to the physical world? How do we empower people who have thus far been excluded from the dominant economic forces?
Notes for video: Kalon Venture Partners . . introduced to me to the term COVID-beneficiaries.
Platforms and marketplaces, particularly related to core growth opportunities, like historically tourism and travel, and into the future SME’s moving their services online, and the consequent demand for transport and logistics systems
Opportunity – Incoming platforms moving from mature markets to underserved markets across Africa is a sweet spot. They need all the help they can get and they have better margins and investment capability to tackle the market en masse to gain market share right now with smooth payment services taken care of. This is particularly relevant when it comes to COVID-beneficiary businesses who are significantly benefitting from the new way of being.
These verticals will be on a growth curve into the future: Retail and particularly essential services; tourism and travel will come back on stream but it will take some time – and Africa is most likely down the list when it comes to international tourism and travel operators looking for places to book and pay.
Home entertainment like Netflix, Amazon Prime, PayTV, betting, gambling and gaming are high growth markets. To facilitate eCommerce deliveries and to bridge the gap between people, logistics and delivery companies are thriving.
Think about your business and who it is serving and which of those or potentially new ones are onto a good growth curve.
eCommerce was on a strong growth curve before, and COVID has been rocketfuel for existing and effectively all businesses who are woke enough to move their services online.
If we follow the premise that a largely informal, mobile world is well suited to the digital finance revolution, and that people choose to be unbanked, then the next step is to explore how best to support the need to interface between fiat and crypto.
This need is created by two challenges: low discretionary spending power and high transaction fees.
People in the $5-$10 consumption/day income band hold the highest concentration of discretionary spending power on the African continent. Their transaction values are typically also small, classified as retail transactions (defined as less than USD10,000). Hence, a first step to facilitate financial innovation is to focus on low risk, small amounts, similar to what effectively could be cross-border mobile money. Remittances are of particular relevance here, but the ability to get paid for services from anywhere in the world promises particular service driven economic growth. In other words, providing a geography-independent means to supplement income.
Remittances below $200 between two Sub-Saharan African countries cost an average of 9% in fees, compared to the global average of 6.8%. For some country pairs that see large remittance flows, such as South African to Nigeria or South Africa to Malawi, the fees can be as high as 15%. Sub-Saharan Africa remains the most expensive region to send money to, recorded at 7.83 percent total average cost in Q4 2021.
Banks remain the most expensive type of service provider, with an average cost of 10.44 percent.
It then comes as no surprise that the Sub-Saharan region has the largest volume of retail transactions using cryptocurrency. But the challenge of on-chain Bitcoin for poor people is the volatility of the currency and higher fees of on-chain activity. The utility of crypto is its geographic independence. The lightning network, however, takes a slightly different approach.
The Lightning Network
At this point it is important to make the distinction between bitcoin, the asset class, and the global interoperable bitcoin monetary network. The Lightning Network is built off the latter, and enables people to seamlessly go between bitcoin and a fiat-backed stablecoin. And they can send those globally, instantly and with extremely low fees. Think of it as a hybrid of the SWIFT financial messaging system (the communication layer) and correspondent banking (routing component).
People are quietly taking notice. Bitcoin Trade Namibia, a non-custodial Bitcoin ‘on/off-ramp’ service based in Namibia, is now processing 80% of its volume over the Lightning Network as of April 2021. Emerging markets are increasingly showing huge adoptions due to instant low bitcoin transactions.
r/Bitcoin – Bitcoin Lightning Network used in South Africa 3,649 votes and 302 comments so far on Reddit www.reddit.comThere’s a new way to quickly send U.S. dollars around the world with bitcoin Lightning Labs announced it’s launching the Taro protocol that will route stablecoins and other digital assets through the bitcoin monetary network. www.cnbc.com80% of Bitcoin Trade Namibia On/Off-Ramp Volumes Are Now via The Lightning Network as of April 2021 – BitcoinKE The Bitcoin Lightning network has seen explosive growth in 2021 as the number of channels, channel values, and nodes, increased exponentially in Q1, 2021. According to the latest reports, Bitcoin Trade Namibia, a non-custodial Bitcoin ‘on/off-ramp’ service based in Namibia, is now processing 80% of… bitcoinke.ioLightning Labs raises funding to enable stablecoin transfers through Bitcoin network – TechCrunch Lightning Labs raises funds from Robinhood CEO, others to enable stablecoin transactions through Bitcoin network techcrunch.com
About the authors
This thought piece, the third in the series, was written as part of Robin Philip’s Masters research in Digital Currency, to update his 20 years experience in online payments. As co-founder of African Payment Solutions, a pan-African eCommerce payments company for multinational eCommerce merchants, he is considering how to best serve clients in the rapidly evolving future of ecommerce.
Bernelle Verster is trained as a bioprocess engineer, and recently changed gear to explore 3D geospatial and data visualisation, with great excitement for the metaverse – or the immersive internet. Her interest is in interfaces, the spaces between: How do we transition responsibly to a decentralised … more democratic?, more digital way of doing things? How does that link back to the physical world? How do we empower people who have thus far been excluded from the dominant economic forces?
Vertical potentials & opportunities across Sub-Saharan Africa for Multinational eCommerce Companies
Vertical potentials and opportunities?
Retail – giant size eCommerce (for eg Takealot, Jumia, Safaricom’s Masoko) are mostly well advanced when it comes to their own payments systems. The silver lining is that this is paving the way for international eCommerce companies to leverage the improved consumer education, logistics and payment systems
Tourism and Travel – Tourism and travel are a key contributor to GDP in many SSA countries and booking engines through aggregation provide good payment opportunities
Betting and Gambling – digital and accessible, not affected by lack of infrastructure, and popular for entertainment
Deliveries and Ridesharing – transport is a base layer for all economies across SSA and the relatively underdeveloped transport infrastructures provide ample opportunities for private service provision off aggregator platforms
PayTV – the growth in PayTV has been significant, with Multichoice paving the way for other providers and runner up Netflix
DHL – their coverage of SSA is a key component in catalysing eCommerce
Insurance – insurance is finding new markets across Africa and cushioning Africans against shocks that come with the territory. This could need online payment and particularly digital and smart contract based insurance platforms
