November 5, 2019Blog Posts

The Next Big Thing in Payments: Africa

By Mark Waring, Senior Associate at TSG

Where will the next great leap in mobile payments and commerce appear? I believe that Africa will surpass Asia as the next hotbed of fintech and payments innovation. This article identifies five things western companies need to do to succeed in this market.

Recently, much of the payments world has been focused on the innovation and growth of companies in Asia, including of course AliPay in China, India’s Flipkart, and Ovo in Indonesia. This attention is well deserved, as these companies have succeeded in challenging markets. In fact, one could argue that their success was because of, not in spite of, the payments ecosystems in which they launched.  In places where there were no mature payment rails or card associations, and where banking institutions had limited reach, they learned how to deliver financial solutions to mass populations that needed them.  Financial inclusion was not merely a lofty goal, but a sustainable business model.

In my opinion, much of the African potential has been overlooked and misunderstood by western companies, particularly here in Silicon Valley. In much of sub-Saharan Africa, there is a large population that uses mobile devices as part of their daily life. In fact, in East Africa alone more than 60% of the population is under age 24, so they are growing up interacting with the world using their devices as part of their normal routine for shopping, transportation and sending money to friends and family.

Here are five things that western companies must do to be a part of Africa’s mobile financial future.

  • Remember they want a global partner, not necessarily an American or European partner.  Don’t make the mistake of assuming that solutions created in the west, no matter how innovative, will give you the entré into the markets you are looking for. African companies have been buying western technology for years, they are familiar with the technology, and they have been selective about who they will partner with.  They have to know you are serious and that you are committed to the region for the long haul. So that means;
  • You better be prepared to listen and learn. My experience in Africa, like other emerging markets, shows that an ability to learn about the local markets and incumbent practices and solutions is an absolute requirement for success. Yet, too many companies give this requirement too little attention.  A first look at these markets will reveal the early (but not insurmountable) lead gained by mobile network operators (MNOs). It is easy to see how they have gained that advantage. They positioned themselves for near frictionless account set up with easy access to cash-in/cash-out agents. They made major investments, and since it aligned with their strategies to sell mobile services and internet data, it made sense. Yet, you must understand that mobile commerce opportunities are everywhere.
  • Current mobile commerce opportunities extend far beyond MNOs. There are many startups and new entrants in the mobile payments and mobile commerce space in Kenya and Tanzania, and the same is true all over sub-Saharan Africa. The market is growing, and there are opportunities in digitizing buy-sell chains, merchant acceptance, analytics and the application of AI. Even African banks are getting into the mobile space, something many western banks waited too long to do. So, if you have the right mindset to listen, learn and find ecosystem partners, remember that;
  • You will need partners, and those partnership deals will be done on African terms.  Again, the African ecosystem has many players who are knowledgeable of the technology and how it needs to be adapted to the needs of consumers and businesses in their countries. Their knowledge will be a big asset in determining how non-African companies can be successful and avoid making mistakes. Their insistence on deal points, organization structures and commercial terms are not just fair, but it will allow for the most likely realization of sustainable business. Finally, as I always preach;
  • Aim to solve real problems and not force innovation. By that I mean, don’t force solutions that are inappropriate for the market just because it may be different. Understand customer needs, their lives and how they do business. Some of the best meetings I had in Africa involved going into marketplaces and meeting real merchants who need real problems addressed. If you’re not actively engaged trying to solve those problems, you’re going to be wasting your time.

Get involved in the market now. You don’t want to miss out.

About the author: Mark Waring, Senior Associate at TSG, is a proven global payments leader with extensive experience in North America, Asia, Europe, Australia, South America and most recently in Africa. He has developed innovative solutions on all continents.

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