Entrepreneur's Corner

49 Billion Transactions Were Processed Across The African Continent – SIIPS Report 2024

BY Steve Biko · November 21, 2024 10:11 pm

KEY POINTS

. The SIIPS 2024 Report reveals that 2023 was a landmark year, with 49 billion transactions processed across the continent—the highest volume recorded to date.

This staggering number underscores a broader trend: the shift towards digital, fast, and efficient payments is becoming a cornerstone of Africa's economic growth.

In the ever-evolving landscape of financial transactions, Africa is witnessing a significant surge in the use of Instant Payment Systems (IPS). The SIIPS 2024 Report reveals that 2023 was a landmark year, with 49 billion transactions processed across the continent—the highest volume recorded to date.

This staggering number underscores a broader trend: the shift towards digital, fast, and efficient payments is becoming a cornerstone of Africa’s economic growth. More importantly, the total value transacted surged at a remarkable average annual growth rate of 39% from 2019 to 2023, reaching over $1 trillion last year. Such figures highlight Africa’s increasing reliance on digital financial systems and indicate a seismic shift in how money moves.

In countries like Kenya and Uganda, IPS processed transaction values surpassing 100% of their Gross National Income (GNI), underscoring the critical role these systems play in national economies. Not-on-us transactions, a key metric indicating interoperability, also saw significant increases, with five countries reporting transaction values equivalent to 10% or more of their GNI. These numbers emphasize the growing integration and efficiency of cross-border and domestic transactions in Africa, facilitated by the proliferation of IPS.

Mobile technology remains a dominant force, driving these changes. Since 2023, mobile-based channels have become the most popular means for IPS, with mobile apps surpassing USSD as the leading channel. At least 30 IPS now support mobile apps, indicating a shift towards smartphone-based transactions. This trend aligns with the increasing penetration of smartphones across Africa, providing a personalized user experience and allowing third-party technology providers, including fintechs, to develop innovative solutions. However, this shift raises concerns about digital inclusion, as reliance on smartphones could widen the gap between urban and rural users who may still depend on simpler, feature phones.

USSD technology, though overtaken, remains relevant, supported by 23 IPS due to its accessibility on feature phones. It allows individuals without smartphones to engage in digital transactions, which is crucial for reaching the unbanked and underbanked populations. Despite security challenges related to encryption, USSD’s continued use illustrates its importance in bridging the digital divide, especially in countries with lower levels of digital literacy.

Human-assisted channels, such as mobile money agents and bank branches, still play a crucial role in the ecosystem. These channels are available in 21 and 20 IPS, respectively. While more expensive to maintain, they are indispensable in markets where financial literacy is low, offering a human touch that reassures users unfamiliar with digital platforms. These agents act as vital conduits, facilitating the digital payment landscape’s expansion into areas that might otherwise remain inaccessible.

Meanwhile, the development of QR codes, Point of Sale (POS) systems, and Near-Field Communication (NFC) technology is gaining traction. Although they are currently the least supported channels, with only 17 IPS supporting QR codes and seven supporting NFC, the potential for these technologies is vast. NFC, in particular, has seen a boost due to advancements in tap-on-phone technology, enabling easier and faster payments, which could reshape the retail and service sectors in the coming years.

The SIIPS 2024 Report also underscores the dominance of e-money instruments, supported by 20 IPS, over traditional credit and debit electronic funds transfers (EFTs), which are available in 18 systems. The preference for e-money highlights a broader shift towards mobile wallets and digital payment systems, reflecting the continent’s ongoing digital revolution. However, traditional banking services are not disappearing; instead, they are evolving, with many banks embracing digital platforms to remain competitive.

Peer-to-Peer (P2P) payments are universal across the 31 IPS surveyed, showcasing the strong demand for fast, person-to-person transactions. Person-to-Business (P2B) and Person-to-Government (P2G) transactions are also on the rise, supported by 24 and 19 systems, respectively. The P2B use case, crucial for small businesses and informal merchants, is becoming a cornerstone for IPS as it supports greater financial inclusion. However, for digital payments to truly replace cash, the user experience must be seamless, quick, and reliable—especially in economies with limited digital payment infrastructures.

Government-to-Person (G2P) payments, although less widespread, are slowly gaining traction, supported by six IPS. The limited adoption of G2P payments reflects broader challenges in digitalizing public services and reaching marginalized communities. However, where implemented, they can serve as a powerful tool for financial inclusion, particularly in the disbursement of social benefits and salaries.

The cross-border functionality of IPS is still a rarity, with only six systems supporting international transactions. This scarcity points to significant untapped potential in facilitating seamless cross-border payments, which could enhance trade and economic cooperation across the continent. The development of regional and pan-African IPS could address this gap, fostering greater economic integration.

Data collection challenges remain a persistent issue in the SIIPS 2024 Report. For instance, data from several prominent IPS like LeSwitch (Lesotho), MarocPay (Morocco), and eNaira (Nigeria) were unavailable, making it difficult to present a comprehensive picture of the continent’s digital payment landscape. This lack of data underscores the need for more robust and standardized reporting mechanisms across countries to ensure accurate insights into the growth and challenges of digital payments.

Despite these limitations, the report highlights a clear trend: IPS are becoming more inclusive, accommodating a broader array of payment channels, instruments, and use cases. This adaptability is crucial for meeting the diverse payment needs of African consumers and businesses. A case in point is the rising support for browser-based and app-based channels, which complement traditional methods and offer a hybrid digital experience catering to both tech-savvy users and those newer to digital platforms.

The rise of digital financial service provider technologies, such as QR codes and NFC, suggests a potential shift in how payments are made, particularly in urban centers and among younger demographics. As the technology matures, adoption rates are likely to increase, leading to more cashless transactions and greater convenience for end-users.

E-money’s dominance reflects a broader trend towards cashless economies, where digital wallets and mobile money platforms enable secure, quick, and cost-effective transactions. This trend aligns with global patterns, where digital wallets are increasingly preferred over traditional banking instruments for day-to-day transactions. However, the continued presence of EFTs and card-based payments indicates a diverse financial ecosystem that caters to various consumer preferences and needs.

Moreover, the report reveals a significant focus on security and trust, key pillars for the future of payments. As digital transactions grow, so does the need for robust security measures, particularly in a continent where trust in financial systems can vary significantly. The rise of app-based channels reflects an increased emphasis on user experience and security, leveraging encryption and biometric verification to safeguard transactions.

The SIIPS analysis indicates that Africa’s payment landscape is not only growing in volume but also in complexity and diversity. The data points to a future where multiple payment channels coexist, offering consumers a range of choices depending on their needs and technological capabilities. This pluralistic approach is essential for a continent as diverse as Africa, where economic conditions, infrastructure, and consumer behavior vary widely from one country to another.

The focus on inclusivity is evident in the report’s discussion of IPS performance across different demographic and economic contexts. Mobile money agents and human-assisted channels are highlighted as crucial touchpoints in rural and underserved areas, while app-based solutions cater to urban populations seeking speed and convenience. This dual approach ensures that digital payments are not restricted to a privileged few but accessible to a broad spectrum of society.

Despite the clear progress, challenges remain, particularly in ensuring that the benefits of digital payments are equitably distributed. Digital literacy and internet accessibility continue to pose significant barriers, particularly in remote areas. Efforts to provide affordable smartphones and data plans, as well as education on digital financial literacy, are crucial to closing this gap.

The future of payments in Africa will likely hinge on the successful integration of emerging technologies with traditional payment methods. Blockchain, Central Bank Digital Currencies (CBDCs), and regional payment networks like the Pan-African Payment and Settlement System (PAPSS) are poised to play pivotal roles in this evolution. As these technologies mature, they could offer new avenues for financial inclusion, enhance cross-border trade, and reduce transaction costs, particularly for small businesses.

For now, e-money remains the most prevalent form of digital payment, but the rise of fintech innovations suggests that the payment landscape will continue to evolve rapidly. The next few years will likely see increased competition among banks, fintech companies, and mobile money operators, each vying for a share of the digital payments market.

The SIIPS report underscores that the future of payments in Africa is bright, characterized by growth, innovation, and inclusion. With transaction volumes and values reaching unprecedented heights, the continent is on the cusp of a financial revolution. However, this growth must be accompanied by strategic investments in infrastructure, regulation, and consumer education to ensure that digital payments benefit all sectors of society.

As IPS become more integrated and interoperable, they will likely play a central role in shaping Africa’s financial future. The focus on P2B and P2G transactions suggests a concerted effort to bring more businesses and government services into the digital economy. This shift could reduce dependency on cash, enhance transparency, and streamline public sector payments.

The SIIPS report highlights the importance of collaboration between public and private sectors to drive the digital payment agenda forward. Governments, central banks, and financial institutions must work together to develop standards, regulations, and frameworks that encourage innovation while protecting consumers.

It is important to note that the SIIPS 2024 report paints a picture of a continent on the move. With transaction volumes and values soaring, Africa’s digital payment systems are reaching new heights. Yet, the road ahead is complex, requiring careful navigation to balance growth with inclusivity. The report emphasizes that Africa’s financial future lies in its ability to embrace digital transformation while ensuring that no …bridge this digital divide are critical. Governments, fintech companies, and international development partners are increasingly aware that expanding digital infrastructure and financial literacy programs is necessary for sustained growth. Without these interventions, the rapid shift towards digital payments risks excluding significant portions of the population, particularly those in rural or underserved regions who may lack the resources or skills to engage fully with digital platforms.

One promising development is the growing collaboration between traditional banks and fintechs, as outlined in the SIIPS 2024 Report. Banks are increasingly embracing partnerships with mobile network operators and fintech startups to leverage innovative solutions that enhance service delivery. This trend is seen in the rising use of APIs (Application Programming Interfaces) that allow third-party developers to create apps and services on top of traditional banking infrastructure, offering users a more integrated and seamless payment experience.

The rise of mobile money as a central pillar of Africa’s financial ecosystem cannot be overstated. In countries like Kenya, where mobile money platforms have achieved near-ubiquitous penetration, they serve not only as payment tools but as platforms for savings, credit, and insurance products. This multifaceted role positions mobile money systems at the heart of Africa’s digital economy, creating new opportunities for financial inclusion and economic empowerment.

Yet, mobile money alone is not a panacea. While it has revolutionized the payments landscape, the report indicates that diverse payment instruments are needed to serve varying user needs. E-money, EFTs, and even debit cards still hold relevance, particularly for businesses and individuals engaged in cross-border trade. The challenge for policymakers and payment system operators is to ensure that these instruments can coexist and interoperate smoothly, avoiding the creation of silos that could hamper economic activity.

Another area of focus in the report is the infrastructure underpinning IPS. The quality and reliability of telecommunications networks, the backbone of mobile payments, are crucial. Inconsistent network coverage and outages can disrupt transactions, eroding trust and slowing the transition from cash to digital payments. Investment in network resilience and bandwidth capacity is therefore a priority for ensuring that the digital economy can operate efficiently.

Moreover, cybersecurity emerges as a critical concern in the report. As digital payments become more prevalent, the threat landscape expands, necessitating advanced security protocols. The push towards stronger encryption, biometric verification, and multi-factor authentication is aimed at safeguarding user data and financial assets. Security concerns are not just technical; they are also about building trust in digital systems, particularly in regions where financial scams and fraud have previously undermined confidence in formal financial services.

The SIIPS 2024 Report also sheds light on regulatory trends that are shaping the payments landscape. Central banks across the continent are increasingly playing a proactive role, not only in overseeing payment systems but in setting standards for interoperability, security, and consumer protection. The creation of sandboxes for fintechs to test new products in a controlled environment is one strategy being employed to balance innovation with stability. This regulatory support is crucial for nurturing a competitive and dynamic digital payments ecosystem.

Furthermore, the discussion on interoperability is pivotal. For digital payments to achieve their full potential, systems must be able to communicate across borders and platforms. The report highlights that while interoperability within countries has improved, cross-border payment capabilities remain limited. Enhancing cross-border interoperability would not only facilitate trade but also streamline remittances—a critical income source for many African households.

Addressing the cross-border challenge requires collaboration at the continental level. Initiatives like the Pan-African Payment and Settlement System (PAPSS) are steps in the right direction, aiming to harmonize payment standards and reduce the reliance on foreign currencies for intra-African trade. Success in this area could lead to significant cost savings and economic integration, aligning with the African Continental Free Trade Area (AfCFTA) goals.

Economic inclusion is another prominent theme in the report, with a strong emphasis on the potential of digital payments to bring marginalized communities into the formal financial system. Digital payments can reduce costs, increase convenience, and offer a gateway to other financial services, such as microloans and insurance. This transformative potential is most visible in countries where mobile money has enabled millions to access banking services for the first time, fostering economic stability and resilience.

The shift towards digital payments also has profound implications for taxation and governance. With more transactions moving to formal channels, governments have greater visibility over economic activities, potentially enhancing revenue collection. The report suggests that improved digital payment systems can reduce tax evasion, increase transparency, and enable more efficient public spending. However, this requires that governments themselves adopt digital solutions for tax collection, subsidies, and social welfare disbursements.

Innovation in digital payments is accelerating, with fintech startups at the forefront of this transformation. The report details how young, agile companies are disrupting traditional financial models with solutions tailored to local contexts. From blockchain-based remittance platforms to AI-driven credit scoring, these innovations are pushing the boundaries of what digital payments can achieve. However, scalability remains a challenge, as many fintech solutions require robust infrastructure and investment, which may not be uniformly available across the continent.

One significant area of innovation highlighted in the report is the use of alternative data for credit scoring. In regions where formal credit histories are scarce, fintechs are leveraging data from mobile phone usage, utility payments, and social media activity to assess creditworthiness. This data-driven approach has the potential to unlock credit for millions of small businesses and individuals who have been excluded from traditional banking due to lack of collateral or formal income.

The report also touches on the rise of Central Bank Digital Currencies (CBDCs), with Nigeria’s eNaira being a notable example. While the eNaira’s data was not available for this report, its existence marks a shift towards digital sovereign currencies, potentially altering the payments landscape significantly. If successful, CBDCs could offer a stable and secure alternative to privately issued digital currencies, ensuring greater control over the monetary system while promoting financial inclusion.

In this context, the private sector’s role is evolving. Banks, traditionally seen as incumbents, are now competing with and collaborating with fintech companies to innovate. The distinction between banks and non-bank financial service providers is blurring, as traditional banks adopt digital-first strategies and fintechs move towards offering more traditional banking services. This convergence is driving competition, leading to better products, lower fees, and greater choices for consumers.

The retail sector is a key beneficiary of the IPS boom. As digital payments become more accessible and affordable, small and medium-sized enterprises (SMEs) are increasingly embracing digital tools to facilitate transactions. This shift is not only making businesses more efficient but is also enabling them to tap into new markets, including the burgeoning e-commerce space. However, for digital payments to truly thrive in retail, the user experience must remain paramount, emphasizing speed, security, and ease of use.

As African economies continue to digitize, financial education is becoming more important than ever. The report emphasizes that financial literacy programs must go hand-in-hand with the deployment of digital payment solutions. Without adequate knowledge, even the best-designed systems may go underutilized, especially among populations unfamiliar with digital finance. Initiatives to teach users how to navigate apps, avoid scams, and understand fees are critical for building a truly inclusive digital economy.

The SIIPS 2024 Report paints a picture of a continent on the brink of a digital payments revolution. With the right mix of investment, innovation, and policy support, Africa could become a global leader in digital finance, showcasing unique models that blend traditional practices with cutting-edge technology. The rise in transaction volumes and values signals that digital payments are not just a trend—they are becoming the backbone of economic activity, driving growth and fostering economic resilience.

Looking forward, the future of payments in Africa is one of opportunity and challenge. The continent has the chance to leapfrog traditional financial systems, creating inclusive, secure, and efficient payment ecosystems that cater to the diverse needs of its population. Achieving this vision will require collaboration between governments, private sector actors, and international partners, ensuring that the benefits of digital payments reach every corner of the continent.

Ultimately, the success of Africa’s digital payments journey will depend on the ability to balance innovation with inclusion, security with convenience, and local needs with global standards. As the SIIPS 2024 Report illustrates, the future of payments is not just about technology—it’s about creating a financial ecosystem that empowers individuals, supports businesses, and drives sustainable development across the continent.