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The Digital Payments Gold Rush in Africa

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Executive Summary

Africa's digital payments ecosystem is in the midst of a profound and explosive growth phase, representing one of the most significant long-term investment opportunities on the continent. Driven by a confluence of demographic, technological, and economic tailwinds, the market is rapidly transitioning from a cash-dominant informal economy to a vibrant digital marketplace. This report analyzes the scale of this "untapped" opportunity, which conservative estimates place at over $500 billion in annual transaction volumes, with revenue pools projected to multiply in the coming years.

Our analysis identifies a multi-layered opportunity for investors, moving far beyond simple person-to-person (P2P) transfers.

Key findings include:

  • A Massive, Untapped Market: With cash still accounting for over 90% of transaction volume in many markets, the runway for digitizing payments is immense. The continent's domestic e-payments market is forecast to grow by approximately 20% per year, representing a revenue pool that could reach $40 billion by 2025.
  • The Primacy of Mobile Money: The foundational rails of this ecosystem are not traditional bank accounts but mobile money. Platforms like M-Pesa in East Africa and the bank-led mobile systems in West Africa have provided the essential infrastructure for digital payments at scale, reaching hundreds of millions of previously unbanked citizens.
  • Key Growth Verticals: The most significant opportunities lie in specific, high-volume payment flows:
    • Merchant Payments: The digitization of payments for small and medium-sized enterprises (SMEs) is the largest single opportunity, driven by the rollout of QR codes, mobile point-of-sale (POS) devices, and online payment gateways.
    • Bill Payments & Subscriptions: Moving utility, school fee, and government service payments from cash to digital offers a recurring, high-volume revenue stream.
    • Cross-Border Remittances: Africa has the highest remittance costs in the world. Digital-first remittance platforms are drastically undercutting traditional players, capturing a significant share of this multi-billion dollar market.
  • The B2B Infrastructure Play: While consumer-facing apps are highly visible, a more durable investment opportunity lies in the "picks and shovels"—the B2B infrastructure providers that enable digital payments. This includes payment gateways (like Paystack and Flutterwave), switching companies, and API-first platforms that allow any business to embed payment functionality.

The path to digitizing Africa's payments is not without challenges, including regulatory fragmentation and last-mile connectivity. However, the structural shift away from cash is irreversible. For investors, the digital payments ecosystem is not just a sub-sector of fintech; it is the foundational layer upon which the entire 21st-century African digital economy will be built.

I. Sizing the Prize: The Scale of the Digital Payments Market

The opportunity in African digital payments is defined by its massive, untapped scale. In most African countries, cash remains king, used for the vast majority of daily transactions. This creates a huge "white space" for digitization.

  • Transaction Volume: While precise figures for the informal economy are hard to capture, various analyses point to a colossal market. The total value of electronic payments is surging. A 2022 report by McKinsey projected that Africa's e-payments market would see revenues grow by around 20% per year, to reach $40 billion by 2025. This is driven by a combination of booming P2P transfers and the rapid growth of electronic merchant payments.
  • Revenue Pools: The revenue from these payments is generated through various fees, including transaction fees on transfers and merchant discount rates on card or mobile payments. As transaction volumes move from cash (which generates no formal revenue) to digital, this creates entirely new, high-growth revenue pools.
  • A Multi-Billion Dollar Opportunity: Looking at specific flows gives a sense of the scale. For example, Africa's informal cross-border trade alone is estimated to be worth tens of billions of dollars annually, almost all of which is currently conducted in cash. Digitizing just a fraction of this flow represents a multi-billion dollar opportunity for payment providers.

This is not a niche market; it is the digitization of the continent's entire commercial fabric.

II. The Core Drivers of the Revolution

The rapid growth of digital payments is not a temporary trend. It is underpinned by several powerful, long-term structural drivers.

  1. Demographics & Urbanization: Africa has the youngest and fastest-growing population in the world. This new generation is mobile-native and digitally savvy, readily adopting new technologies and bypassing legacy financial systems. As they move to cities and enter the formal and informal workforce, their preference for digital solutions is driving mass adoption.
  2. Mobile & Internet Penetration: The foundation of the payments revolution is the mobile phone. With mobile penetration exceeding 90% in many countries, the phone has become the primary tool for communication, information, and now, commerce. The concurrent rollout of affordable mobile data and 4G networks is turning basic feature phones into smartphones and simple mobile money users into sophisticated digital consumers.
  3. The Financial Inclusion Gap: Traditional banks have failed to serve the majority of the African population due to the high cost of operating physical branches. This has left hundreds of millions of people unbanked but not financially excluded. Digital payment systems, particularly mobile money, have filled this vacuum, providing the first formal financial account for a huge segment of the population.
  4. Supportive Government Policies: Governments across the continent are actively promoting "cash-lite" policies to increase financial transparency, boost tax revenue, and improve economic efficiency. Central banks in countries like Nigeria and Ghana have championed instant payment systems and financial inclusion strategies that have created a favorable regulatory environment for digital payments to thrive.
  5. The COVID-19 Catalyst: The pandemic acted as a massive, involuntary accelerator for digital adoption. Lockdowns, social distancing, and health concerns about handling cash forced consumers and merchants to switch to digital payments, permanently changing transaction behavior.

III. The Anatomy of Opportunity: Key Payment Verticals

The digital payments opportunity can be broken down into several key, high-growth verticals.

1. Merchant Payments: The SME Gold Rush

This is the single largest frontier. The vast majority of Africa's SMEs—from market stalls and corner shops to small restaurants—operate entirely on a cash basis. Digitizing these merchant payments is a massive opportunity.

  • The Tools: The key enablers are low-cost acceptance devices. This includes:
    • Mobile Point-of-Sale (mPOS): Low-cost devices that allow small merchants to accept card payments.
    • QR Codes: An even cheaper solution that allows customers to scan a code with their mobile phone to pay directly from their mobile money or bank account.
    • Payment Gateways: For online businesses, API-driven gateways from companies like Paystack and Flutterwave make it easy to accept a wide range of local payment methods.
  • The Prize: For payment providers, merchant acquiring offers a recurring revenue stream based on a percentage of the merchant's sales. More importantly, it provides a rich source of data on the merchant's business, which can be used to underwrite credit and offer other financial services.

2. Peer-to-Peer (P2P) Transfers

This is the foundational use case that drove the initial success of mobile money. While often a low-margin business, P2P transfers are critical for building network effects—the more users a platform has, the more useful it becomes for everyone else.

3. Bill Payments and Government Services

Digitizing recurring payments represents a stable, high-volume opportunity.

  • Utilities: Moving electricity, water, and internet payments from cash to digital wallets.
  • Government-to-Person (G2P) & Person-to-Government (P2G): Digitizing the payment of taxes, license fees, and the disbursement of social welfare payments improves efficiency and reduces leakage.

4. Cross-Border Remittances

Africa has the highest remittance costs in the world, with the average cost of sending money to the continent hovering around 8-9%, more than double the global average.

  • The Disruption: Digital-first remittance companies are leveraging mobile money networks to bypass expensive correspondent banking systems, offering a service that is dramatically faster and cheaper. They can often reduce the cost to 2-3%.
  • The Market: With diaspora remittances to Sub-Saharan Africa totaling over $50 billion annually, capturing even a small share of this market by offering a better price is a multi-billion dollar opportunity.

IV. Conclusion: Building the Rails of the Digital Economy

The transition from cash to digital payments is one of the most powerful and inevitable economic trends on the African continent. While challenges related to regulation, infrastructure, and financial literacy remain, the fundamental drivers of this shift are too strong to be reversed.

For investors, the opportunity is multi-layered. While consumer-facing apps are highly visible, a more strategic and durable play lies in the B2B infrastructure that enables the entire ecosystem. Companies that provide the payment "rails," the security, and the interoperability for this new digital economy are positioning themselves as the indispensable toll-takers on Africa's 21st-century information superhighway. The untapped potential is not just a market; it is the creation of a new economic foundation for the continent.