11/03/2022
Sub Saharan Africa Banks & The Payments Ecosystem
According to the Boston Consulting Group (BCG), the estimated potential market for banks in sub-Saharan Africa is $500 billion, nearly all of it in the form of person-to-person (P2P) payments. The firm argues that, for many current banking customers, mobile payments could provide access to many new products and services, including energy as a service and health care as a service, high-quality education, and even ride-sharing-style transportation services.
There is merit to this view. The Covid-19 crisis has boosted digital transactions in some African countries. If the momentum of recovery from the pandemic establishes a higher interest in digital payments long-term, an increased number of retail institutions will implement digital payment systems.
According to BCG, two factors make it feasible for banks to take the lead in spite of their lack of expertise. On the supply side, the firm neatly describes FloCash's enabling role thanks to its Pan African footprint:
"We've seen the emergence of technologically enabled business ¬ecosystems—groups of enterprises linked through digitally-based platforms that make it easier for them to collaborate dynamically with other enterprises and remove much of the friction involved in joint ventures and other cross-boundary collaboration."
On the demand side, BCG argues that customers are not only more likely to own smartphones. They are eager for easier access to a variety of services, particularly those featuring efficient services that make life easier.
These two factors, tech-enabled business systems and customer appetite for better services, "create a mutually reinforcing virtuous cycle. The business ecosystems enable banks to offer new products and services at lower costs. This, in turn, attracts more customers, building scale, which makes the new products and services more accessible and profitable. It becomes easier for banks to start and scale new activities, to exchange data, to innovate collaboratively, and to pool resources, without having to renegotiate their working relationships each time".
Since many governments are mandating interoperability between players (banks and telcos), according to BCG, leading retail banks could capture 20% or more of the mobile wallet market in many jurisdictions if they make the right investments and design their offerings strategically. The firm outlines five potential strategies.
Larger Banks:
Ecosystem leader, dedicated to managing financial services eco¬systems, sharing an interoperable platform with other players and orchestrating a set of operations and services at large scale.
Customer relationship builder, centered around a go-to market under the bank's own brand, focusing on broad-¬reaching, customer-¬facing mobile payment solutions. This strategy might require significant business model changes.
Back-Office Champion, provider of the services and support that other firms' ecosystems require on the back end (including telco-led ecosystems). This type of bank uses the brands of other banks to gain the scale it needs to reach retail consumers.
Smaller Banks:
Ecosystem contributor, provider of technically proficient, API-ready services as part of a wider ecosystem, interacting closely with the offers of one or more front-end mobile money companies.
Niche Market Máster, focused on particular offerings such as wealth management, where the bank can innovate and take advantage of its customer insight better than other players.
The bit of hard data behind these strategies is this: Even before Covid-19, 400 million people in Sub-Saharan Africa were using mobile payment banking infrastructure to process $300 billion in mobile money transactions, resulting in $200 billion in user fees.
Looking into the future, the mobile payment market is expected to grow to 650 million to 750 million subscribers by 2025. Mobile payments income, which accounts for roughly 1.1 percent of total transaction volume, would jump from $3.5 billion to between $14 billion and $20 billion if this were to happen. The total number of clients in the African market might reach 850 million, generating $2.5 trillion to $3 trillion in transaction volume and $25 billion to $30 billion in annual revenue from financial services alone.
Is your bank trying to figure out how to best capture the payments opportunity in Sub-Saharan Africa? Get in touch at www.flocash.com.
