AFRICA’s financial sector has tremendous potential. The continent is home to 1-billion people, half under 20, and has six out of 10 of the world’s fastest-growing economies. Yet a study last year by the African Development Bank, German International Co-operation and the World Bank found less than 20% of households have a formal bank account, and only 23% of enterprises have loans or lines of credit.
Informal financial arrangements, savings clubs (stokvels) and other independent moneylenders seem to meet the continent’s needs and are often defended as an “African solution to African problem”. However, these are largely imperfect substitutes — unreliable, unsecure and rarely private. These arrangements limit individuals, and hamper the economy as entrepreneurs and businesses are unable to take advantage of opportunities such as e-commerce, which requires a complex ecosystem for making and processing online payments.
Not one African country got into the top 30 on the Global Retail Development Index determining the most lucrative retail opportunities in the world, the top five being China, Brazil, Russia, Chile and Mexico. (China’s vast online retail market secured the top position — the value is estimated at R194bn, second only to the US.)
Even South Africa, despite having the most internet users in Africa, is underperforming with its online retail value sitting at just R2.5bn last year. Surprisingly, telecoms infrastructure is not the only cause. The first step in an online transaction is a person with a valid credit or debit card. Credit card penetration in South Africa is 0.2%, compared to Brazil’s 110%.
Debit card ownership is only slightly higher, with less than one card per South African.
We need our issuing banks to speed up the rate at which they roll out cards to their customers. Debit cards are likely to dominate as most Africans have little experience of handling credit and credit cards carry big risks for banks. The continent will also need a cadre of acquiring banks prepared to accept online payments for their merchant customers.
It remains difficult as an acquiring bank that wants to enter the e-commerce field has to buy the appropriate licences from card associations (such as Visa and MasterCard), install card processing systems, hire skilled staff to manage those systems while still having a firm grasp of the risk of fraud. It’s easier to find a bank that will issue cards than one that will acquire transactions. This has all led to a big imbalance between supply and demand. This may lead to businesses seeking greener pastures overseas.
As an alternative, smaller businesses often turn to “super-merchants” who make their own merchant facilities available to others but the costs are high and the payment cycles are notoriously bad. It can take as long as 30 days to get your money out, damaging the cash flow of a business.
Payment gateways (payment service providers) link customers, merchants, banks and the card associations and can greatly facilitate the growth of this market by educating merchants, sourcing acquiring banks for them and managing their relationships with those banks. In this regard, businesses and the government will have to step up to the plate, pressuring banks to modernise and create opportunities. After all, 1-billion potential consumers is a market too large to ignore.
• Harvey is founder and MD of PayGate