Mobile wallets accelerate financial inclusion across Africa

El Hadji Malik Seck, Ria Money Transfer’s Managing Director Africa

 

Without a doubt, technology in general has made many of our lives easier and more comfortable. The global proliferation of financial technology is helping foster greater financial inclusion among previously unbanked populations, and this is especially true for millions of people across Africa. Access to electronic instant payment platforms, digital banking, and mobile wallets has offered people easier inroads to the financial system and afforded them greater financial independence.

 

Traditional access to finance

Traditional financial institutions have struggled to make financial services, such as bank accounts, accessible to many people around the world, including many Africans. Across the continent, account ownership figures vary greatly; in 2021, 91% of adults in Mauritius and 85% in South Africa had their own bank accounts, while the same was true of just 27% in Egypt and 29% in Sierra Leone – according to the International Association of Money Transfer Networks (IAMNTN).

Malik Seck

Beyond account ownership, adults in these regions may also face barriers to conducting simple financial tasks, such as withdrawing cash for everyday transactions. On average, there are 35 ATMs per 100,000 people in the Middle East and North Africa and seven per 100,000 people in Sub-Saharan Africa, compared with 63 in the European Union and 210 in North America. This is a gap that puts Sub-Saharan Africans at a disadvantage when it comes to accessing financial services.

Cross-border money transfer companies maintain extensive physical networks so they can serve people everywhere, whether they have a bank account or not. The shift towards digital alternatives is also helping more people enter the financial system for the first time and increasing the delivery methods money transfer operators can offer.

 

The mobile wallet revolution

The pandemic made it especially difficult for people to send and receive money via traditional ‘brick and mortar’ facilities such as local bank branches and money transfer stores. As a result, mobile wallets became a safer and more convenient means of making international financial transactions, accelerating the adoption of digital payments.

The introduction of mobile wallets in markets that have traditionally been underserved by the financial sector has revolutionised access to finance for millions of individuals, granting them the financial independence to engage with their communities and acting as a catalyst for financial inclusion. Today, consumers have grown accustomed to the ease of access that mobile wallets provide, as well as the ability to receive and send funds instantly.

One example of this can be seen in Kenya, where mobile phone-based money transfer services are now used by more than half of the country’s population. These services are used by small businesses, shops, and restaurants across the country. This represents a wider trend across Africa and the Middle East, where mobile wallet adherence has reached nearly 323 million total users in 2020 and is expected to reach 798 million by 2025.

 

Mobile wallets drive remittances

Africa serves as a significant corridor for international remittances, and mobile wallets have become a staple for sending and receiving money from abroad. Egypt, the top receiver of remittances in Africa and fifth overall in the world, saw its total number of remittances increase in 2020 and 2021 when compared to previous years despite Covid-19. In 2021, total remittances to Egypt reached $32 billion, amounting to 7.8% of the country’s GDP.

It must be noted that most remittances received in African countries do not come from overseas, but rather, from other countries within Africa. About 40% of African migrants are still living in Africa. South Africa, for example, hosts many migrants from Mozambique, Zimbabwé and Zambia, while east African migrants flock to Kenya to work, and west African migrants to Cameroun, Congo DRC and Equatorial Guinea. The exception is northern African migrants, many of whom migrate to Europe, America or the Gulf countries. Last year, remittances sent by migrant workers to and within Africa totalled $85 billion and benefitted over 200 million people.

The increase in remittance payments reflects a global trend that started in the third quarter of 2020. In 2021, global remittances to low and middle-income countries reached $605 billion, a year-on-year growth of 8.6%.

Remittances continued to be a significant economic force in regions such as Latin America, Africa, and the Middle East, both during and after the economic shock of the pandemic. Latin America and the Caribbean saw the highest year-on-year increase in remittance payments (25%) following initial Covid-related economic downturn. For the Middle East and North Africa, remittances increased by 7.6% in 2021 and 6% in 2022, while Sub-Saharan Africa saw an uptick of 14.1% in 2021 and 7.1% in 2022.

It is estimated that 75% of remittances to and within Africa are used for essential needs such as food, education, and healthcare.

 

The future of payments

The rise in global remittances to, from, and within Africa, along with mobile wallet adoption facilitating local and international transactions, do not indicate a move toward a totally cashless society. Cash still plays an important role in societies all over the world due to traditional value and trust meaning mobile wallet users themselves still demand cash-in and cash-out options. In fact, despite the success of M-Pesa’s mobile wallet, the company also maintains more than 40,000 pay-out locations in Kenya alone, making its success due as much to the physical network it maintains as to the technology it provides customers.

The future of remittances in Africa will mean mobile wallets and electronic payment platforms walking hand-in-hand with cash across Africa, with players such as Ria, M-Pesa, South Africa’s Flash, and Leaf Global Fintech demonstrating how traditional finance and fintech innovation can coexist now and collaborate in future.

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