Why Africa’s digital payment landscape is still highly fragmented

Going cashless
Going cashless
Image: Reuters/Thomas Mukoya
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The prospect of Africa going cashless has led to a rush to revolutionize the continent’s digital payment landscape. But despite huge investments into the industry over the years and the presence of big players working to shape its infrastructure, the longstanding narrative is that the space is still heavily fragmented.

Many payment types in different countries—banks, mobile money wallets, cards—and the difficulty of handling online transactions in different local currencies complicate the processing of digital payments in the continent.

“It’s not a problem that’s very easy to solve,” Akshay Grover, the CEO of Cellulant, one of the oldest and largest digital payment companies in Africa, tells Quartz. “For businesses there’s a lot of pain. And that’s exactly the reason we exist,” he says.

He says companies like Cellulant have to integrate with the different payment methods individually to enable businesses to connect with them.

Digital payment is evolving fast, and Africa’s digital payment landscape is expected to become more dynamic with evolution of different payment methods and digital currencies.

Launched in 2003, Cellulant provides an API platform to enable businesses to collect payments online and offline and anyone to pay from their mobile money, local and international cards or directly from their bank. The Nairobi-based company operates in 35 African countries.

Grover has more than 20 years of experience in the technology, media, and telecom sector in emerging markets.

Quartz spoke with him on fragmentation, the regulatory environment, emerging opportunities, the future of digital payments, and challenges ahead. The conversation has been edited for clarity and brevity.

A man with folded hands smiles while looking at the camera.
Akshay Grover.
Image: Cellulant

Africa’s fragmented digital payment landscape

Quartz: Why is Africa’s digital payment landscape still highly fragmented despite the existence of many companies trying to solve this problem?

The main reason for this is that at the end of the day in Africa,  and when I think about other geographies—Asia, or more developed markets, Europe and Americas—one of the key differentiators in digital payments is the credit card and debit card penetration. In Africa, this is quite low.

But at the same time, you have a very high or reasonably high mobile money penetration across markets. And nowadays, you can also pay via a bank directly, whether from your mobile application or USSD, on the local banking platforms. And so in that sense, the methods of digital payments are quite high in Africa compared to the rest of the world.

But what it has inherently done is created a lot of fragmentation. And so in Ghana,  you can you can go to a store, and you might have the option to pay with MTN, you might have the option to pay with AirtelTigo [Money], you might have the option to pay with Vodafone [Cash] and then, of course, all the different bank accounts. So if you’re a merchant, the challenge that you have is that you need to be able to connect to each of these service providers in order to access payments from these methods.

Today, Cellulant connects to 257 such payment methods, out of which almost 60 are mobile money wallets across Africa. The rest would be about 200-odd bank accounts, which we are directly connected to or we are connected to via a switch if there is a switch (A tool, run by a central financial body, that facilitates communication between different payment service providers.) in a market.

The reason it’s not a problem that’s very easy to solve is every integration is a unique integration. Every connection is a unique connection. It is not like there is an absolutely uniform standard that one can follow to connect to all of these individual service providers. And therefore the process of connecting to them is long and tends to be a little arduous.

If somebody else needs to replicate this platform, they will spend a lot of time to connect to these 257 network connections that I’m talking about.

What is the cost of this fragmentation for businesses?

For businesses there’s a lot of pain. And that’s exactly the reason we exist. We’re trying to solve this pain. But what is the definition of that pain?

One area of pain is that I need to maintain connectivity with multiple service providers. And for a merchant who’s not that technology savvy—and in every merchant, you cannot expect we’ll have a 13-member technology team to solve this problem; it’s got to be simple. So, one problem is access to resources, and ability to have that kind of people in house to keep on addressing the different needs from time to time.

The second is that the dashboards, the periods of credit are very different. For example, one operator says for whatever transaction that happened till 12 noon today, I will give you credit tomorrow morning. Another one says, for whatever credits have happened till midnight today, I will give you credit the day after tomorrow. And the other one says something else.

Now imagine if you are a businessman, how do you reconcile what got collected today? It’s very difficult to achieve that. Reconciling which payment was made by whom, for what amount, is a very challenging thing for businesses today.

The third challenge is that there is no reporting tool—analytics software—where the merchant would log in and see a single view across different payments. Maybe, you might get a view from a mobile operator, but it is not giving you a view of all transactions—it is only giving you of Airtel Money transactions, as an example. Or somebody is giving you a view only of M-Pesa transactions.

So it becomes very difficult to then aggregate views and have some analytics on what was sold, what was the inventory, what was the receipts for that day, and things like that, and any other any other analytics that you want to apply to that data is very different.

These are the problems that Cellulant is trying to solve.

How do the different markets you’re in differ?

Today, we operate in 35 markets, out of which in18, we have a legal entity licensed to operate with people on the ground.

The landscape in every market varies substantially.

Let’s look at east and west, which is probably the easiest. If you look at Kenya, Kenya is a very advanced digital market. And mobile money penetration is extremely high.

On the other side, if you look west, in Nigeria, there is a higher credit card and debit card penetration, but almost zero mobile money wallet penetration. And so there, the primary mode of digital payments outside of credit card debit card is actually background score.

The second is—if you think about even within mobile money market, what are the differences? Kenya and Zimbabwe—EcoCash and M-Pesa—are dominant mobile money markets, which means everyone uses M-Pesa. Or everyone uses [EcoCash], so the market share is very concentrated.

But if you go to Ghana, you will find that there are three mobile money wallets with almost equal market share. MTN, Vodafone, Airtel, all have good market share.

So what that does is, that these differences also cause very different dynamics in each of the markets—in terms of competition, in terms of cooperation, in terms of how the fintechs have worked with the banks, and so on and so forth.

Then the third dynamic: “How universally used is the bank switch system?” India has a banking switch. Nigeria has a banking switch. Ghana has a banking switch, but it doesn’t always work very well. And so we have direct connections to the banks.

These kind of dynamics require any business or any fintech like Cellulant to adopt different strategies and approaches for each of the markets. And that is what we do on a day-to-day basis.

Africa’s regulatory environment for payments

What are some of the regulatory enablers or constraints that you’re seeing in digital payment in Africa?

I would say across the markets, probably Kenya and Nigeria have one of the most advanced regulators—they’ve been around, they’ve formulated policy, they’re looking forward, they’re thinking about things that are evolving in each of the markets.

In many others, the policy framework has already been defined. Ghana is an example, we’ve got a license there as well. Uganda, there is a licensing process in place.

Each market is at a different stage of evolution. Someone is at a stage of evolution of forming regulation. Someone has formed regulation, but they still have some distance to go in terms of their evolution. And some, of course, are already operating at a high stage of evolution.

Having said that, in general, what we’ve seen is that regulators have been quite cooperative. They’ve always been a listening ear, to listen to the problem statement, to evaluate the problem statement which can be unique, and to provide guidance on what kind of solutions might work.

Cellulant has been in existence for 19 years. What are some of the new opportunities that you’re seeing in the digital payment space? And some of the challenges that lie ahead?

“How do we make life simpler for the merchants to collect and make payments across Africa?” That’s the phase we are in today. And as I see it, there’s a long distance to go across each of the markets.

Firstly, there is digitization of cash. Even today, while there is digitization, mobile, or digital collections of cash, cash is still a significant share of the economy. And that’s something that we collectively—not just Cellulant, but all of us in this ecosystem—have a responsibility to change because digital payments enable faster transactions, more efficiency, transparency, ability for people to borrow for their businesses, and so on and so forth. Better tax collections for the governments.

So there are so many advantages of having more digital transactions.

Imperative number two is access to capital. It is very, very hard for a consumer or for a business—a legitimate business—to borrow in Africa, for the growth of their business. And, we want to be at the center of solving that problem.

And the third problem is how does an African business become a global business? And a global business doesn’t mean that one has to sell to somebody in Europe or US or Asia or China. But a global business means how can you can a Kenyan business service a Nigerian customer?

How can a Nigerian business service a customer in Ghana, in Cote d’Ivoire, in Senegal? And how do you make it easy for them to do business? How is it able to collect money in different currencies and get credit? How is it able to pay partners or vendors or from people who may import goods in China? How do you make this entire ecosystem efficient, so that businesses can grow at a faster rate?

And finally, all of these things, and a better frontier mechanism, will lead to more and more financial inclusion for people, because it will enable them to access resources, which are not available to them. It will enable them to access customers, which are not available to them today. It will enable them to borrow money, which they need for the growth and expansion of their business.

And what will all of this enable? It will enable them to hire more people, to create employment, to possibly create higher levels of education, higher levels of poverty alleviation.

So all of that financial inclusion that we keep talking about is only going to get enhanced when you are able to solve these problems for the average businessman, or the average business or merchant in Africa.

Digital currencies and cryptocurrencies in Africa

The digital payment landscape is expected to become more dynamic, with evolution of different payment methods and digital currencies. What effect will this have? Will it open up more opportunities for digital payment companies?

Absolutely. This move, whether one thinks about it from the point of view of digital currencies, whether it’s all forms of cryptocurrency, whether its formal digital payments, et cetera, everything, And the more digital we are becoming, the more consumers are getting used to pressing things at their fingertips, and getting access to something which is more complicated, the more easier it is becoming for people to do business. And if that happens, my view is that this is going to be only beneficial for companies that are focused on fintech [and] for companies that want to drive and capture this market.

What is it like to be the Group CEO of a digital payment company today?

Well, the one word I can think of is it’s very exciting. And the reason is that every day, there’s new innovation, there’s change, there are new players, there’s competition. There’s things which are changing on the landscape to which you have to adapt. So it’s a very dynamic, exciting environment.

What gets you motivated to go to work every morning?

I wake up motivated, because there is lots to do in this space.

The motivation is that we can make a difference. There’s an opportunity to make a difference. And that opportunity is something that would benefit millions and millions of businesses, [and] millions and millions of customers.

What are you reading for inspiration?

There are two interesting books that I’ve recently read. There’s a book called Trillion Dollar Coach by a gentleman called Eric Schmidt. And it’s about it’s about leadership. It’s a book that talks about somebody who has coached several of the large Silicon Valley [companies]. It’s about the importance of how coaching is at the center and helping people become better managers and leaders. And to contribute not just to the business, but to society.

And the second book is actually a book about a specific country. It just happens to be something I’m reading right now. And I haven’t finished it. But it’s a book called Rwanda, Inc. It’s about how the entire country of Rwanda has been transformed by the president, Paul Kagame. And some of the transformational stuff that he has done in the last 18, 20 years after what Rwanda went through to change that entire country. And by the way, one of the biggest tenets of that has actually been digitization. Not just to payments, but everything in the economy.

What keeps you up at night?

We’re growing bigger and bigger. There are increasing demands, not just from Cellulant. We’re hiring, almost 100 people this year. And a lot of large growing tech companies are in that space today in Africa. And the one thing that bothers me is “Do we have enough relevant, accessible talent? Do we have enough investment into the right education infrastructure? To give us the hundreds and thousands of people that we as an industry are going to need, to build these businesses in Africa in the next couple of years?”

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