McKinsey is back with another fantastic report on Africa this time covering payments. A follow-up to their report last week on African Fintech:(https://bit.ly/3x5zdZz )
“Africa’s domestic e-payments market is expected to see revenues grow by approximately 20% per year, reaching around $40 billion by 2025. This compares with global payment revenue growth of 7%.”
Percentage growth paints a rosy picture. The grim reality is that Africa desperately needs e-payments for greater financial inclusion. Currently, only 5 to 7% of all payment transactions in Africa were made via digital! Put another way, “cash is king.”
Now what I think is the most interesting is the interplay between telecoms, fintech and banks for market share, but we’ll get into this in a second.
First, read the four forces driving the demand for e-payments are:
1️⃣ Young city dwellers and strong economic fundamentals:
Young, urbanized consumers combined with Africa having the fastest population growth rate in the world, averaging 2.7 percent per year.
2️⃣ Proliferation of alternative payment methods:
Consumers continue to benefit from alternative payment methods offered by local and international fintech players and telecom companies.
3️⃣ Payments infrastructure is reducing friction and boosting integration
Africa is experiencing an increase in real-time payments infrastructure enabling instant account-to-account transactions.
4️⃣ Disruptive innovations: [🔥CBDC!🔥]
Currently, more than ten African countries are in the process of launching CBDCs!
Here’s why Africa is going to be fascinating to watch. First credit cards are going to become also-rans, a position that the card companies dread. McKinsey agrees: “the expectation is that revenue intensity for cards will gradually decline."
This leaves a battle between banks, telecoms, and fintech in a new CBDC world. What advantage will fintech have over the established bank and telecom networks when CBDCs level payments fees?
Fintechs are going to work hard to come up with unique services, or platforms, to battle telecoms with extensive physical networks.
McKinsey’s survey supports this with 42% of respondents saying telecom e-wallets will win the payments battle. I think that with the launch of a CBDC this will be even more likely.
This leaves banks, who can't possibly catch up! They have limited physical locations and as most people are unbanked have no preexisting relationships.
CBDCs will depower banks and fintechs swinging the balance of power strongly to the telecoms' advantage.
Time will tell, but CBDCs are a game changer.
Thoughts?
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