Bridging the gap in Africa's online payment ecosystem beyond virtual cards

Africa's rapidly growing electronic payments landscape has undergone a remarkable transformation as a result of the efforts of innovative entrepreneurs and capital infusion. While cash remains dominant in many parts of Africa, the continent has embraced and even led the wave of digital payment innovations. With the influx of investments and regulatory changes, the E-payments market is rapidly evolving and is expected to reach a staggering $40 billion by 2025, growing at a 20% annual rate.

However, despite this progress, one aspect of the payments landscape that has received the most attention is virtual cards. In Africa, virtual cards have become the go-to solution for international payments. The idea is that fintech companies can provide virtual cards to enable seamless cross-border transactions where traditional methods fall short.

Omoniyi Kolade, our founder and CEO here at SeerBit, discussed the challenges and opportunities in Africa's fast-growing electronic payments landscape in a recent TV interview, as well as why virtual cards are only a temporary fix for Africa's payment challenges.

This blog post breaks down some of his insights from the interview and explores a more sustainable approach to address the continent's unique payment landscape. 

The complex payment landscape in Africa  

Africa consists of 54 countries, each with its own regulatory framework and payment preferences. Unlike regions like Europe or South America, where a standard payment method like cards prevails, Africa offers a variety of payment solutions tailored to local markets. Each country has its own unique regulatory framework and approach to payments, making it complex for businesses to navigate. For example, Nigeria embraces various payment options, including card payments, mobile money, and USSD banking. Similarly, East Africa sees a high penetration of mobile payments, while other regions have their own localised preferences.

The Role of virtual cards in addressing payment challenges  

The intricate payment landscape in Africa is where virtual cards come into play. Virtual cards although similar to physical cards, exist only in digital form, allowing African consumers to make online payments for cross-border transactions. 

Virtual cards provide a flexible and convenient alternative to legacy systems and allow businesses to adapt to the unique African market while bridging the gap between customer preferences and international e-commerce standards. They can enable customers to make online purchases, especially from global e-commerce giants.

However, while virtual cards can address certain challenges, they are not the answer to the diverse payment needs across the continent. 

Nigeria's Case and the Impact of Regulatory Policies Nigeria 

As Africa's largest economy, Nigeria faces unique challenges in its payment infrastructure. For instance, the introduction of $20 monthly caps on international online payments by the central bank due to the foreign exchange crisis, significantly limiting the purchasing power of individuals and businesses requiring larger transactions.

In this interview, Omoniyi emphasises the importance of exploring alternative local payment options that can provide more flexibility and accessibility for customers.

Addressing the processing costs associated with local transactions, he said that ensuring a balanced approach to market penetration can unlock growth opportunities for businesses while providing customers with more accessible and affordable payment methods.

Regulatory Landscape and Policy Implications  

According to Omoniyi, regulation and policy play a pivotal role in shaping the payments landscape, and businesses, especially small and medium enterprises, are acutely affected by these factors, as they often find themselves navigating a landscape that can rapidly shift due to regulatory decisions. Hence, a change in regulations or policies can significantly impact the viability of businesses, sometimes leading to their success or failure.

Omoniyi suggests that addressing regulatory challenges, such as the costs associated with processing transactions and exploring more affordable payment options, can promote an environment that is conducive to growth and innovation for business, in turn, allowing them to thrive. 

Assessing the Convenience and Accessibility of Virtual Cards  

The acceptance and accessibility of virtual cards vary across the continent. Different businesses and industries may find virtual cards more or less convenient depending on their specific requirements. Corporate usage, utility services, spending control, and fraud prevention are among the areas where virtual cards can provide value. Market reports project a significant increase in virtual card adoption in the coming years, indicating a growing demand for this payment solution. 

While virtual cards offer convenience and value for various applications, their acceptance and accessibility across Africa remains variable. The extent to which merchants and businesses embrace virtual cards depends on the specific market, industry, and use case.

Omoniyi mentions that organisations may find value in using virtual cards for corporate spending or utility services, while individuals can utilise them to enhance security and control over online transactions.

Market reports forecast a substantial increase in virtual card adoption in the coming years, highlighting the growing demand and opportunities within the African payments landscape.

To sum up, Omoniyi contends that even though virtual cards have benefits in some circumstances, they are not a fix-all for Africa's payment issues. The complexity of the local markets and regulatory structures in Africa's payment landscape calls for a nuanced strategy. The growth of electronic payments in Africa can be fuelled by prioritising local payment options, improving pricing models, and fostering stakeholder collaboration. Businesses can leverage the potential of e-payments and contribute to Africa's economic development by understanding these complexities.