Africa has enjoyed an enviable streak of strong economic growth. For the past 16 years, the region has maintained an average GDP growth rate of 5%, which has outperformed the global average by about two percentage points per annum. But recent disruptions in global commodity prices and greater competition for global trade have made the outlook for future economic growth more uncertain.
Electronic payments offer a highway to that future growth. A Visa-commissioned Moody’s Analytics study looked at the impact electronic payments have on economies around the world. The research found that in emerging markets between 2011 and 2015 a 1% increase in card usage produced a $29 billion increase in consumption.
For Africa the potential is tremendous: according to the World Bank, roughly two-thirds of the adults on the continent remain unbanked and card penetration is low. By improving access to electronic payments and financial services in general, we will be able to play a part in helping more people contribute actively to robust, sustained economic growth, and improve their lives. It is an ambitious vision of the future. To fulfill it, we will need public-private partnerships, an open playing field and the ability to scale our investments.
A team solution
Public-private partnerships can help societies move away from inefficient cash economies that also lack transparency. Not only that, they are fundamental in creating investor confidence. They demonstrate that governments are willing to invest as much as we are to make it successful and support the concept of shared value for sustainable growth.
Benefits of openness
To take advantage of one of Africa’s great strengths — a young, tech-savvy, increasingly educated population (the Economist Intelligence Unit estimates that between 2010 and 2030 the continent will add 122 million people to its labour force) - we are encouraging technology development on open platforms.
Yet it can be difficult to scale innovation in a continent of 54 countries and nearly 2,000 languages. Local governments, which willingly champion electronic payments because they see the benefit to their economies, also need to allow for a level playing field in which we can all operate equally. If Africa wishes to draw the eye of global investors away from other emerging markets, where returns might be more immediate, it must offer those investors stability and prudent governance. This means setting up non-discriminatory regulatory frameworks and making mobile data services affordable for more people.
Scaling from a keypad
The importance of the phone to financial inclusion cannot be overstated. Mobile, app-based banking has made more inroads in this area in the past 10 years than the 50 years of bank branches and plastic cards that preceded it. African consumers are now outgrowing the first generation of mobile-based, money transfer technology, and mVisa — a mobile app which allows consumers to scan, pay, and go — is there to meet these expanding needs.
Using electronic retail payments allows money to cross borders and add scale. But electronic payments have an additional advantage: they generate data. Cash is data-less, which means that cash payments for, say, water, don’t establish a history for someone who reliably pays for water. But the good credit history that would show in a user’s electronic payments would enable a bank to make better lending decisions, decisions that multiply the effect of its investments. Simply put, a consumer paying her bill electronically builds up a credit history and, because she has a credit history, she is now able to secure a loan, which enables investment and economic growth.
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Of course, we face the challenge of increasing the acceptance of digital payments. Developing meaningful levels of acceptance among merchants is tough in an economy of small businesses. In developing countries, 180 million small merchants, many in rural areas, produce 4.5 billion daily interactions. Yet more than half of those merchants do not have a bank account and do not use digital payments. At Visa we have seen that traditional approaches have not worked well, especially for SMEs, and even more so for those operating in rural communities.
This gap comes down to the issue of reliable infrastructure, awareness and education. In Rwanda, we embarked on a multi-year programme to help the country build a payment infrastructure from scratch, including connecting ATMs to the Visa network, building capacity in banks, offering mobile phone banking, and increasing merchant acceptance. A report by the non-profit Initiative for Global Development (IGD) found that the programme strengthened the local capacity for financial services and enhanced Rwanda’s appeal as an investment destination.
But our work doesn’t need to be on such a large scale to make an impact. When we ensure that people can pay electronically in the South African Post Office, it helps. When we open up electronic acceptance at the gas pump in Mozambique or in fuel stations in South Africa, that helps. We will continue to think about more ways to help. After our successful recent launch of mVisa in Kenya, we plan to launch it in Nigeria and other markets. Every little bit of infrastructure goes towards building more inclusive economies.
Africa’s global leadership in digitizing cash illustrates the region’s potential in the 21st century knowledge economy. Building public-private partnerships, supporting an open playing field and scaling in an economy consisting of dozens of countries are not small tasks, nor are they easy. But the rewards of revving up a regional economy with massive potential for growth, and creating efficiency that could better the lives of many, make tackling the challenges worth it — indeed, it is incumbent upon us.