Africa must take lead in fintech disruption

Recently while visiting a local restaurant, after we had finished our meeting and drinks, my host decided to pay the bill by cash. The waiter candidly told him, “we don’t accept cash”. They preferred a digital payment due to Covid-19. This made to reflect on how the digital payment landscape is rapidly changing.

Barely a decade ago, the use of hard cash was the in-thing. But with the introduction of mobile payment, especially in Kenya, many people are using digital payments. Even my older folk who does not know how to read and write always knows when the money gets into her phone.

The introduction of the Pan-African Payment and Settlement System by the African Union to facilitate the African Continental Free Trade Agreement is just like a virus ravaging the continent.

In its destructive path, it will enhance cross-border trade in a borderless Africa, which has more than 1.3 billion people and a gross domestic product (GDP) of $3.5 trillion.

In 2021, according to World Economic Forum, 84 percent of Internet users in Kenya and 60 percent in Nigeria made payments with mobile phones regularly. Several other African governments are also encouraging their citizens to use mobile payments instead of cash to limit the spread of Covid-19.

In general, information and communications technology (ICT) data has its usefulness. It has been used to rebase the GDPs of Kenya and Nigeria.

In the absence of bank accounts for many Africans, mobile money is today becoming the critical enabler of financial inclusivity and a facilitator of informal cross-border trade, especially in countries with no forex. In addition, digital payments data from micro and small enterprises is enabling governments to fill the gap in national statistics for a better assessment of the economy.

But despite the inclusivity role it brings, there are significant challenges to its widespread usage in Africa. These include poor ICT infrastructure, a lack of enabling regulatory and legal frameworks, modest financial and digital literacy, irregular internet shutdowns by some governments, slow government digitisation and a lack of trust.

On the other hand, countries with mature digital payments are also discouraging intensified use of digital payments through punitive taxes. In Kenya for example, the introduction of a one percent turnover tax forced many informal enterprises to revert to cash transactions.

In addition, the cost of digital services is heavily taxed making them prohibitive to use. As a result, undermines financial inclusion in the continent.

Yet as the World Bank reports in its March 2022 overview, financial inclusion is a powerful and key enabler of almost nine of the 17 Sustainable Development Goals as well as general economic growth. However, access to financial services and high-speed Internet remains a problem, particularly in Africa.

Key fundamentals to resolving the problems include digitisation of government services, digital and financial literacy for all citizens, access and affordability of the Internet, incentives to use digital payments and adoption of e-governance for service delivery.

As a pioneering country in digital payments, the Kenyan government took the initiative to incentivise the citizens to use mobile payments as a strategy to curb the spread of Covid-19. As a result, the Central Bank of Kenya reported a 32 percent increase in digital transactions in 2021 to reach Sh6.8 trillion. In addition, digital money has proven to be convenient.

The removal of the use of currency is empowering the micro-enterprises that have been able to embrace new revenue and business models and tracking of transaction records. Further, digital payments have improved financial security and lowered the inherent dangers associated with handling currency, such as theft, loss and fraud.

These benefits have sparked the development of financial technology solutions. The continent’s financial infrastructure is about to change significantly with a possibility of a paperless Africa.

The pace of innovation is not going without notice. It has made many countries across the world come and study the adoption of digital payments as the entire world begins to embrace Central Bank Digital Currency.

The inevitability of digital currencies should inform Africa as to why the continent must take the leadership in the emerging financial sector disruptions. Although banking will continue to exist, banks may not. Consumers will discover new convenient ways of accessing finance. Telecommunication companies however, could continue to play a major role in the financial sector.

The role of digital payments will continue to expand breaking into new territories such as payments to vulnerable groups in remote places at the lowest cost. More innovative applications of digital payments will emerge leading to greater productivity and inclusivity and environmentally sound.

The writer is a professor of entrepreneurship in University of Nairobi’s Faculty of Business and Operations Management

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.