Fintechs and the payments of tomorrow

Covid-19 continues to accelerate use of digital payment technology around the globe. Visa’s Jack Forestell sees security as the major challenge going forward. Mohamed Dabo reports

Visa’s investment makes Interswitch the most valuable African fintech with a valuation of $1bn. Visa joins investors, Helios Investment Partners, TA Associates and IFC, as shareholders in the payments processor.

Jack Forestell

This is not just another strategic investment by Visa: this is a serious deal. In summary it creates an instant acceptance network across Africa. There will also be multiple winners, in particular consumers and merchants.

Sub-Saharan Africa is the fastest growing payments market in the world. Growth is driven by a young and dynamic population. The UN estimates that around 65% of the population is aged under 35.

Then there is the boost of the rapidly evolving consumer behaviour. In addition, there is an increasing desire for payment solutions that can be accepted across the continent and abroad.

In 2018, electronic payments in Africa accounted for 12% of transactions by volume, compared to 54% in Europe and 79% in North America. However, this volume is expected to grow at a CAGR of 35% in Sub-Saharan Africa from 2018 to 2023.

In addition, POS card transactions in Nigeria are set to rise at a CAGR of 63% between the same time period.

Mobile penetration is already fairly high in most African markets but the unbanked segment remains a major issue.

The World Bank estimates that around 66% of sub-Saharan Africa’s population is unbanked.

In Nigeria, the unbanked segment of the population is about 60%. In real money that means there are about 123 million unbanked Nigerians.

It is even higher in Egypt, at about 68% and works out at about 68 million people. Card penetration rates remain a work in progress and depressingly low. For example, card penetration rates in Egypt and Nigeria are 4% and 10% respectively.

On the other hand, cards issued in Nigeria increased five-fold between 2012 and 2016. Over the same period, electronic transactions increased four-fold.

Smartphone penetration rates are also moving in the right direction. Mobile industry body GSMA forecasts that smartphone penetration across Sub-Saharan Africa will hit 66% by 2025 from a current 39%. Smartphone penetration in Nigeria starts from an even lower rate, currently estimated at about 27%.

Fintech and the future of payments