Africa is an incredibly diverse continent in terms of economies, religions, politics, infrastructure, demographics and geographies, and to assume that a payment channel that works for one country will work across the board would be a very large mistake. MPesa is a fantastic example of this; while an unprecedented success in Kenya, similar efforts in other countries have fallen flat in comparison.
It is the differences in these political, socio-economic and infrastructural factors that really separate the region at a country level in terms of the availability and adoption of different payment methods. Although overall card use is growing, Africa as a whole is still very much a cash-led region. Mobile money transfers and other e-money initiatives continue to grab the headlines; however, these developments are heavily clustered towards specific countries, and all the while, banknote volumes continue to rise.
When it comes to prepaid cards, the differences in requirements at a country level are just as apparent: whilst South Africa operates the largest consumer gifting market in the continent with prepaid corporate incentives/benefits also cited as a key area of application, other countries, such as Ghana, are much more likely to use prepaid for fuel cards and gifting is very low on the priority list.
How can prepaid really make a difference across this contrasting payment landscape? One argument could be that it already is. Whilst adoption rate and application might vary from country to country, there is no doubt that the prepaid card, whilst still seen as emerging, is emerging never-the-less.
There are two inclusive issues that affect the continent as a whole that prepaid could really assist with. These issues go hand-in-hand and are something that governments are keen to address on a national scale: the continued popularity of cash and the lack accessible financial services.
According to KPMG’s Payment Developments in Africa 2015 report, 94 per cent of retail transactions in both urban and rural Africa are conducted in cash, which means that only 6 percent of transactions are made with bank cards or e-payment systems. These overarching statistics can largely be put down to financial inclusion. The recent African Development Bank report (2016) that found that, with the exception of South Africa, Namibia and Botswana, less than 40 per cent of the adult population in Africa has access to formal financial institutions.
The prepaid card is universally recognised as a tool for financial inclusion. With the main impediments to financial inclusion spanning the high cost of opening and maintaining formal bank account, a lack of money, the extreme distances to the nearest branch, the need for verifiable identification, such as birth certificates (something many Africans don’t have) and of course, trust in handing your hard-earned cash to someone else, it is easy to see how the prepaid framework could bridge the gap between formal financial services and the unbanked. This is especially significant for the card issuers as well, as prepaid switches the risk from the supply side to the demand side, extending the services available to consumer segments deemed high-risk and expanding their potential customer base.
A fantastic case study of using the prepaid card to drive payments away from cash whilst encourage financial inclusion is the identity card in Nigeria. This award winning, government initiative in partnership with Mastercard has involved rolling out a national identity card that doubles as a prepaid payment card and also enables citizens to receive funds electronically including government subsidies, social grants, salaries and other disbursements. This has also paved the way for general prepaid card adoption, with the card making up 31 per cent of the market, beating credit cards in popularity.
Looking at the snapshot case studies across the continent, it is clear that Africa finds its own way of doing things. In more developed regions such as Europe or North America, the natural inclination to pay for things online is unsurprising, the infrastructure is already in place, people have money in the bank and credit is more readily available. The journey towards electronic payments in this region however, is already very different; necessity is the mother of invention, which has and will lead to the development of payment solutions based on country requirements at an individual level.
Africa needs an efficient framework that simplifies access to the formal financial sector and allows the integration of flexible options for the consumer. If viewed as an enabler or a tool, rather than just another payment instrument, prepaid could easily be one such solution.