September 2023

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A Revolution in your Pocket: How Money Transfer Apps Are Reshaping Africa’s Financial Landscape

Have you ever imagined how transformational a small device in your pocket could be? With the rise of technology, specifically money transfer apps, Africa’s financial landscape is getting a substantial facelift.

According to Euro Monitor, as of 2022, mobile money users in Sub-Saharan Africa surpassed 600 million, with transactions valued at over USD600 billion! There is no doubt that we’re seeing a significant shift in how transactions are carried out.

How Money Transfer Apps are Penetrating the African Market

It’s no secret that the traditional banking system in Africa has struggled to reach the wider population. Limited access to banking facilities, particularly in remote areas, and high transaction costs have been significant barriers. However, money transfer apps are beginning to bridge this gap, offering a lifeline to millions who would otherwise be excluded from the formal banking system.
A new wave of international money transfer apps has emerged, making it possible to send money across borders with just a few taps on a smartphone. This is a huge leap forward, especially for the millions of Africans living in the diaspora, who regularly send money back home to support their families.
Consider the example of a money transfer app such as Mukuru. With its straightforward interface and secure transaction process, it has revolutionized the way people send and receive money across borders. Mukuru isn’t just a money transfer service; it’s a lifeline, helping millions to support their families from afar.

The Mukuru Advantage in the Evolving African Financial Services Ecosystem

Diving deeper into the realm of money transfer apps, Mukuru stands out for several compelling reasons, especially in the African context. While the primary goal of such apps is to facilitate money transfers, Mukuru goes beyond this basic functionality.
One of its major advantages is its vast network of payout points across the continent, making it incredibly convenient for recipients to collect money, even in more remote locations. This widespread accessibility ensures that users aren’t just limited to urban centres but can reach deep into rural areas where traditional banking has often fallen short.
Furthermore, Mukuru places a significant emphasis on customer education and support, which is crucial in regions where digital literacy is still budding. This hands-on approach doesn’t just make transactions easier; it empowers users to take control of their finances with confidence. In essence, while Mukuru streamlines international money transfers, its broader commitment to accessibility, education, and support sets it apart in Africa’s dynamic financial services landscape.

What Came Before?

Before the digital revolution swept across Africa, traditional methods of money transfer held sway. One such system was the hawala, an ancient money transfer system that relied heavily on trust. Originating from Southeast Asia, the hawala system allowed for the transfer of funds without the physical movement of money. In this system, ‘hawaladars’ or money lenders played a pivotal role, accepting cash, charging a modest commission, and then contacting a fellow hawaladar in the destination location to arrange for the funds to be received. For many without access to formal banking, this was their lifeline.

In addition to hawala, other non-digital methods included postal money orders, a service provided by the post office to transfer funds across regions. The sender would pay the amount at one post office, which would issue a receipt. The recipient could then collect the funds at their local post office using this receipt.

Finally, there was the method of physical cash delivery, which was common in local contexts. Here, trusted intermediaries would transport cash from one location to another. Despite the risk of theft or loss, this rudimentary method was often the only choice for many, particularly those in remote areas.

Each of these systems had its own strengths but also faced significant challenges. With the advent of mobile money transfer apps, a new era of secure, affordable, and accessible financial transactions has dawned in Africa.

The Social Impact of Money Transfer Apps

The advent of money transfer apps has been a game changer for small business owners and farmers in Africa. Traditionally, these individuals often found themselves at the mercy of unfavorable loan terms, or even completely excluded from the formal banking sector due to a lack of collateral or well-documented credit history.

Now, thanks to money transfer apps, they can access funds directly and conveniently, right from their mobile phones. This ease of access to finance means they can invest in their businesses, purchase necessary equipment, or acquire additional resources without having to navigate through cumbersome banking procedures.

For farmers, this is particularly transformative. Many farming activities are season-dependent, requiring timely access to funds for purchasing seeds, fertilizers, and other inputs. The ability to transact swiftly and securely through these apps ensures they can procure what they need exactly when needed, improving productivity and income potential.

Furthermore, these apps often come with additional services, such as saving money, paying bills, or even accessing micro-loans. This ease of financial management has led to a more inclusive financial ecosystem, where small business owners and farmers are no longer sidelined but are active participants in Africa’s economic growth story.

Additionally, access to money transfer apps is affecting women in Africa, where these apps have opened up unprecedented opportunities for financial autonomy. In a traditionally patriarchal society, women often face numerous barriers to accessing financial services.

According to the Poverty Action Lab, the rise of mobile money in Sub-Saharan Africa has increased women’s financial inclusion by 22%. By controlling their finances, women are now more empowered to start their own businesses, save for their future, and contribute to their family’s income. This increases the economic stability of households and promotes gender equality and societal change.

The Ripple Effect: Benefits of Money Transfer Apps

The benefits of money transfer apps are far-reaching. They cut out the need for physical travel, saving time and money. They’ve also opened up new opportunities for peer-to-peer lending and microfinance, which are instrumental in driving entrepreneurship and job creation.

By offering lower transaction fees than traditional banks, these apps have made financial services more affordable for the masses. This is particularly beneficial in a continent where every penny counts, and the high cost of financial services has long been a barrier to economic growth.

Where to From Here: The Future of Money Transfer Apps in Africa

As with any innovation, there are challenges to be faced. Regulatory hurdles, cybersecurity concerns, and digital literacy issues are some of the roadblocks. However, the potential benefits outweigh these challenges. With continued investment in technology and digital education, the future looks promising for these apps.

As Africa continues to embrace digital technology, the apps for international money transfer will only become more ingrained in society. We’re on the cusp of a new era, where financial inclusion is not just a distant dream but a tangible reality, thanks to money transfer apps.

The Dawn of a New Financial Era

Money transfer apps are reshaping Africa’s financial landscape from the heart of bustling cities to the remotest corners of the continent. They’re not just changing the way transactions are done; they’re creating opportunities, driving financial inclusion, and fostering economic growth.

It’s safe to say that the age of money transfer apps is upon us, and Africa is at the forefront of this revolution.

The story of these apps is one of hope and resilience, a testament to the power of technology in bridging gaps and making financial services accessible to all.

The small device in your pocket is not just a phone; it’s a powerful tool that’s transforming lives one tap at a time. The future of Africa’s financial landscape is literally at our fingertips, and it’s incredibly exciting to see where it will lead us.

Customers use their phones to scan to pay.

Payment Systems In Zambia

Author: Mark Chirwa – Assistant Research & Publications Officer – PAYZ

The Vital Role Payment Systems Play

Payment systems play a vital role in the smooth-running of an economy, especially that every economic transaction involves a payment of some sort to be made. From purchasing a sweet in a shop, buying electricity units, water, school fees, purchasing of fuel, commuting from home to work/school, government dismantling of arrears, social cash transfer disbursement to mention but a few. In short, part of our daily lives is supported by payment, hence, safe, and efficient payment systems become important for financial stability.

According to Bank of Zambia annual payments report 2022[i], Zambia’s national payment system (NPS) is made up of two systems -the Systemically Important Payment Systems (SIPS) and Non- Systemically Important Payment Systems (NSIPS). A SIPS is defined as a payment system which has the potential to trigger or transmit systemic disruptions. This includes systems that are the sole payment system in a jurisdiction or the principal system in terms of the aggregate value of payments, and systems that mainly handle time-critical, high-value payments or settle payments used to effect settlement in other FMIs. SIPS in Zambia include the BoZ operated Zambia Interbank Payment and Settlement System (ZIPSS) commonly referred to as the Real Time Gross Settlement System (RTGS), the Central Securities Depository (CSD) for Government securities, the CSD for bonds and shares at the Lusaka Securities Exchange (LuSE) and the systems operated by the Zambia Electronic Clearing House Limited (ZECHL), which include the Direct Debit and Credit Clearing (DDACC) and the Cheque Image Clearing System (CICS).

On the other hand, NSIPS are retail payment systems that do not have the potential to cause significant disruptions in the payments ecosystem. NSIPS include the National Financial Switch (NFS), systems for mobile money payments, remittances, Automated Teller Machines (ATMs) payments and Point of Sale (PoS) payments.

[i] Bank of Zambia Payments Annual Report 2022

Who Then Are The Players In The Payments Ecosystem

1-Customers/End user: You and I who access or use these platforms to complete a transaction. Mostly with an anticipation that the payment platform is safe and convenient.
2-Merchants/Retailer: These are the people selling the goods the people want to buy. For example, the leading retail stores such as Game, Shoprite etc
3-Payment Service Providers: These are companies that provide payment services. Such as MNO’s and Fintechs.
4-Banks and Non-Bank Financial institutions: These issue products such as debit cards for customers’ use.
5-Government: Government also plays a role in the ecosystem, for example Government makes payments to civil servants, to suppliers, to social welfare beneficiaries, these sorts of payments are usually described as high value payments also known as Government to persons (G2P). Citizens also make payments to government as well which is referred to as persons to Government payments (P2G).
6-Back-end service providers: These are not seen as they operate in the background. These provide services such as payments switching services and aggregation. For example, ZECHL who operate the NFS by providing switching for ATM’s and Mobile Payments.
7-Regulators: These are institutions with the mandate of regulating the ecosystem such as the Bank of Zambia, Securities Exchange Commission, ZICTA and Pensions Insurance Authority.

What Types Of Electronic Payments Are Available?

1-Real Time Gross Settlement System (RTGS) – This is operated by the Bank of Zambia and characterized as a high value (Amount transacted) payment platform.
2-Electronic Fund Transfer (EFT)
3-Automated Teller Machines (ATM)
4-Point of sale (POS)
5-Mobile Money – Characterized as the highest in terms of volumes (Number of transactions).
6-Money transfer (remittances) – These ranks second in volume of transactions.
7-Quick Response (QR) codes
8-Near Field Connection (NFC)
9-Internet Banking
10-Virtual Cards

As of December 2022, the RTGS Platform has continued to be the number one payment platform for high value (Amount) transactions processed, seconded by the Electronic Fund Transfer (EFT) this has made the Systemically Important Payment Systems (SIPS) to be the number one system of choice for high value transactions.

With regards to volumes of transactions processed, Mobile money transactions are currently dominating followed by Money transfers transactions (remittances) and POS. This is largely attributed to the increased number of active mobile money wallets, currently above 11 million users (Boz 2022). In terms of volumes of transactions, this makes the Non- Systemically Important Payment Systems (NSIPS) number one system in volumes transacted. This is largely attributed to the increased use and adoption of Digital Financial Services (DFS) by the population.

Cellulant Bullish On Zambia’s Payments Ecosystem, According To GM

Source: techcabal

Author: Ephraim Modise

Having entered the Zambian market in 2011, Cellulant is bullish on the country’s payments ecosystem, a sector the company pivoted to after dabbling in banking.

TechCabal talked to Gilbert Lungu, general manager of Cellulant Zambia, to find out more about the fintech startup’s motivation for pivoting, the overall state of payments in the country, challenges they have come across in their operation, and more.

Please give us a brief overview of Cellulant’s operations since it entered the Zambia market.

Gilbert Lungu: Cellulant has been in Zambia since 2011. Primarily, at the time, the business was in a phase where the focus was on banking and providing mobile banking platforms, and then also doing what we call merchant aggregation, which is essentially just layering the mobile banking platforms with the actual merchants to enable payments to happen. In terms of that phase of the business, I think it went fairly well. We acquired 15 out of 18 banks, providing services in one form or the other for them.

Around 2017 and 2018, there was a view that there were other opportunities in the market that spoke to payment collections and there were hypotheses around it. The main one was that there was no dominant mobile network operator in the market. The second one was that the primary product that the mobile network operators were pushing was peer-to-peer payments. Number three was that there was a clear cut case in terms of being able to do merchant acquisition, and provide digital payments for them based on the ecosystem that existed, either with the mobile network operators, as well as the banks. The fourth one was the view that there was general fragmentation in the market as a result of hypothesis number two. So the market was fragmented, because there was no one operator that was ahead of the other, and we realised that the fragmentation provided an opportunity to get into payment collections.

After considering all those hypotheses, we then decided to pivot to payments. The banking business kind of took a back seat and we pushed the payments business more. Since that pivot, Zambia continues to be quite exciting as a market and we continue to experience growth month on month.

Where do you think the payments landscape in the country is headed in the next 2-3 years?

GL: The way I see it, Zambia is definitely poised to be a significant tech hub. There’s a lot of innovations that are going on with respect to young startups in ecommerce which I think will be big in the coming years. I think with the additional interest in terms of potential prospective investors looking for all sorts of opportunities, including in tech, when some of that money starts landing in terms of fundraising, we are going to see significant growth of the ecosystem. For a lot of these startups, I think what will then happen is that scale will begin to show.

From a macro environment point of view, stability will see the economy start to take shape in terms of the growth plans that the government has put in place. I see that also being an accelerant to many sectors, including tech. There is significant consultation between the government and the ecosystem which is well needed. We are having quarterly engagements with the minister and presenting ideas and papers to him about how we can accelerate digitization in our country. In short, we are putting across ideas and he’s driving it from a policy point of view, to ensure that some of those ideas become a reality.

For instance, there is an idea from a payments point of view that if the government takes a decision to start compelling some of the government departments to do payments via digital platforms and then puts the relevant policy framework to guide that, it will guide customer behaviour towards using digital means for transactions.

I think over the next two to three years, opportunity size is also going to grow in terms of what else the tech startups can actually do. From a product point of view, I think payments is the thing right now. I see payouts, disbursements being the next big thing, as well as remittances, inward remittances, and then the relevant rails to be able to receive those remittances, and make sure that they’re flowing in the economy. So I see a positive picture overall.

Which challenges would you say have been prominent in the Zambian tech ecosystem?

GL: I think for Zambian startups, capital is still pretty much a challenge. I mean I’ve seen that there is activity now with angel investors trying to invest in these young tech startups but there is still some way to go because raising money is very difficult because of the nature of the places from which you can obtain that money. If you go into the banking sector, the cost of money is extremely high especially for startups.

Challenge number two is in terms of incubation. People have a lot of ideas. I meet all sorts of youngsters that walk in here or find me on LinkedIn, and they’re telling me about very, very nice ideas, that if they got the right level of attention and training, they would become really grand ideas. The incubation to move from ideation to a point where they implement the ideas into scalable businesses is still relatively lacking in my opinion. We don’t have a lot of incubation hubs where these youngsters can take the ideas to be stress-tested.

The third challenge, in my opinion, is the fact that tech businesses typically thrive and scale in the context of an ecosystem. They don’t work in isolation. Unfortunately, the ecosystem in Zambia has not developed to a point where there is sufficient trust between each of the ecosystem players in terms of who should play in what space. The bigger guys are always suspecting the smaller guys of trying to sabotage what they are doing and vice versa. For me, those are some of the most significant challenges in the ecosystem.

What are some solutions you reckon could address these challenges?

GL: For the capital challenge, I’m aware that in some developed markets, startups get access to things like government funds for working capital purposes, but at much cheaper rates compared to, say, banks. There is some effort there and I must really commend the government in availing monies that are now going into what we call the constituencies, and people who have fantastic ideas can then form cooperatives, and drive those ideas to fruition. I would like to see tech start taking up some of those funds. The other element around capital is that I know that on the international market capital is much cheaper so we need to position ourselves as an investment destination. Ultimately when that capital comes in, because it is much cheaper in relative terms, when these guys access it, then we’ll be able to create scale.

In terms of ecosystem development, banks are talking with mobile network operators, who are also talking to fintech startups, which is a welcome development. Ultimately, we should create some level of trust, create some level of collaboration, and create some kind of structure in terms of how all the ecosystem players fit into this equation. With the passage of time and more of those engagements via the structured arrangements that are there, either with the Bankers Association, or with the fintech Association and so on, I guess in the end, we’ll get the result that we are looking for. In terms of the conversations around hubs, collaboration between private sector players and government would help because the government by nature has got access to the resources, the infrastructure, and the means to be able to make some of these ideas sort of come to fruition. So let’s start with ideas around creating hubs that are driven by the private sector, but to some extent, funded by the government, because ultimately, it’s a development issue. If we’re going to develop ideas, and the government’s primary interest is development, we then need to have stronger private sector and government collaboration to ultimately deliver some of these results.

What traction would you say Cellulant has had in Zambia since launch?

GL: I think we’ve had fairly good traction in terms of growth. Over the past three or four years, if I take our blended growth rate, we’re sitting at anything between 30 and 40% year-on-year which for any business, is fairly significant. And then we look at what is it that drives that growth, and it’s essentially the new products that we create as well as some of the legacy products that we have. Some of the strategic partnerships have also greatly accelerated our growth.

We had our own challenges in the beginning especially with ecosystem incumbents who perhaps weren’t so trusting of us as a fintech but by not giving up and collaborating, we have done relatively well so it’s been a very interesting journey. But I guess the challenges are part of the excitement. Every morning, you wake up, and wonder what will happen on that particular day to overcome a hurdle. There has also been a lot of discussion and talking points with our regulator, the Bank of Zambia, and I think they’ve been extremely supportive in terms of driving innovation. For example, crypto has been a big discussion in our market, as it has been in many other markets. But through engagement, there’s been some developments in the recent past where there is a crypto operator that is currently in the regulatory sandbox of the Bank of Zambia, testing out the product and drawing out all that data.

How would you say the competitive landscape has changed between when you entered the Zambia market and now?

GL: If we look at 12 years ago when we entered the market, the landscape was very different in terms of our competitors, who then were mostly the mobile network operators. Strategically, what we did, and that sort of remains our strength, was to be extremely clear minded about where we wanted to play. The danger of being in a market like this is that there are so many opportunities that you might be tempted to chase the next shiny thing. But I think being very clear minded about where you are going as a business can be very vital.

As the years have passed, naturally, there’s been so many other players that have come in, both local and international. If you say that I’m going to do two or three things in which I’ll be very strong, and you invest your time, your energy or effort in growing and making sure that you become significant in those things in the end, it pays off and you stave off competition.

Over the past two to three years, with the pivoting that we’ve done, the investment we’ve made in terms of driving collections, if anybody is talking collections, everybody’s benchmarking against Tingg, our seamless payment gateway.. This has taken a lot of discipline and resilience.

In terms of the future, what’s next for Cellulant in Zambia?

GL: The big goal is to be number one amongst our peers as a payments provider. Number one in revenue, number one in terms of number of merchants, number one in terms of gross payment values we process, number one in terms of brand affinity and so on. So that is very clear. The second is that we want to be Zambia’s most loved payments brand. Anybody talking about payments should talk about us.

In summary, we are pinning our growth on both organic growth and also looking at opportunities to build on our current partnerships and explore new partnerships within the market. So that’s essentially how the next two to three years will look like. Continue driving innovation and solving for very real problems in the country.

Monthly Archives: September 2023