Next Wave: Can contactless payments solve settlement for low-ticket items in Africa?

Contactless payments have a market opportunity and significant use case for solving microtransactions in Africa [Read the newsletter in your browser.](=.wjUFf_lICygFC7JvDKpBKEeMBvXqoDH908RREn0xEF8) [Cet article est aussi disponible en français](=.4Lg8NpB66eYW1CBG2it-0TXnKbBb4B2DhO-CFMPbTZ4) [Next Wave Logo] 08 September, 2024 Can contactless payments solve settlement for low-ticket items in Africa? [ContactlesPayments] Image | TechCabal --------------------------------------------------------------- While digital payments have gained traction in Africa, low-value, high-volume transactions, often prevalent in informal markets, still rely heavily on cash. Payment experts estimate e-payments to grow by at [least 30% per year](=.ej2CyzbG9KhyOBOUKO1C0Bo6ybcfk2X0e_8g8sDueZA) through 2025, with Nigeria leading the pack. This presents a few challenges for consumers and businesses. Contactless payments offer a potential solution to these issues with speed, convenience, and security, and are emerging as frontrunners in this evolution. In Africa, where cash remains king, contactless payments can improve the payments ecosystem and boost economic growth. Contactless payments require customers to tap NFC-enabled cards (the most prominent contactless payment mode) on the reader or a wearable device to complete transactions. It takes [15 seconds](=.Gp9CmfyN1bQEXd_kHkNz6p-VK8OMYalB7f2DfNiTakE) to complete a transaction and has the potential to reduce the time spent at checkout and minimise the risk of fraud. Businesses can improve operational efficiency and attract a wider customer base. Additionally, it can contribute to financial inclusion by providing access to formal financial services for underserved populations. Startups in sub-saharan Africa, where [financial inclusion is 64%](=.sBFslUyBd7B1jqpFPwLvqBU1PobBsQs43i9jdC3tU1M) can use this opportunity to accelerate inclusion. Overcoming Obstacles Despite their benefits, the widespread adoption of contactless payments in Africa faces several hurdles. One major challenge is the cost of issuing and managing cards. Innovative solutions like mobile wallets and wearable devices can be explored to address this. Well-known examples in this regard are smart watches linked to digital wallets like Apple Pay and Samsung Pay. If one cannot afford cards, the wearable option can be both fashionable and a payment system. Debit cards and e-wallets would account for 77% of online payments revenue. Chart by Stephen Agwibor, TC Insights. Security concerns, such as the potential for fraudulent transactions, must also be carefully considered. Implementing robust security measures and educating consumers about best practices can mitigate these risks. In Nigeria, the Central Bank introduced a [policy in June 2023](=.OmNyoOAhoc1aIeN1sAfHa8jpKsMC3Rg5R9dWjxWJL3E) pegging transaction limits of ₦15,000 and a daily cumulative limit of ₦50,000. In essence, customers can only make contactless payments of up to ₦15,000 per transaction and up to ₦50,000 per day without entering a PIN or biometric verification. They can also pay with their smartphones if they do not have debit cards at hand. These limits on transactions can help to check cases like theft or fraud. A growing market opportunity The potential market for contactless payments in Africa is significant. The informal retail sector, which accounts for a substantial portion of consumer spending, presents a vast opportunity for growth. In Nigeria, consumer purchases form part of the [$1.4 trillion](=.7ljyZXGLFsS5EFxn4ng0M-C3hIAaIPfB5Ajs1LqlVdg) African retail market. Similarly, a majority of the shopping involves [informal traders](=.dMXq6hs74J3BiUdtAT1l7qEPJ6RaPJccMeGWCCxWXlQ). By enabling these businesses to accept contactless payments, we can drive financial inclusion and stimulate economic development. Using the Total Available Market (TAM) Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM) [model](=.ZFIC_IT-W5VCx0Ig0H9sLmPjGynbOBO6e135Q3O2sWM), there is the possibility of a market generating opportunity that can realise outsized value from here. Government support and case studies Governments in emerging markets, such as India, have played a crucial role in promoting the adoption of contactless payments through supportive policies and infrastructure investments. Sectors like quick service restaurants, pharmacies, food, grocery have seen the [highest adoption](=.WRc23BzOw6f7jTwT5ZZKtI_5_15edi9nQebPNtRvWyU), growing transactions from 2.5% in December 2018 to 16% in December 2021. In Australia, 92% of [Visa card transactions](=.Nc80WUdiQto6N4MoxqnwqmZxQEzocmJmZ1C9tVFrllE) are tap-to-pay. Small retail outlets are at the centre of this mass adoption. In Africa, similar initiatives can accelerate the transition away from cash-based transactions. Case studies from countries like Nigeria demonstrate the potential of contactless payments in specific use cases. The success of initiatives like [Cowry Cards](=.wa0F5gN6gOVRZ_Om8DczQirRtH9Pg6rQPgNlgImkzU4) and [Jump and Pass](=.hHy9GS-zb4bbf-QRE9rLle-pQnIdXwcWlM9KoJ642MI) highlights the benefits of these technologies in transportation and retail sectors. Contactless payments offer a promising solution to the challenges posed by cash-based [microtransactions](=.ROzAPUxECqejD6182TfbPPoKtfiTx_o_hARCHlNRCfg) in Africa. By addressing the underlying obstacles and leveraging the potential of this technology, we can create a more efficient, inclusive, and secure payments ecosystem. As Africa continues its digital journey, contactless payments are poised to play a pivotal role in [shaping](=.sTgmJeJBTCU9DZfqyO326y_asMpGVTI-U52fZ9jObww) the future of commerce. --------------------------------------------------------------- Next Wave ends after this ad. [Moonshot Conversations 2024](=.KHciBv07LMSJV_VrbsHkHEd_aX3YWwLbTir1yiitDmM) Controversies surrounding Nigeria's unique sound and one of the country’s primary 21st-century exports, Afrobeats, have led to diverse conclusions about its global scale and impact. Joey Akan, an award-winning Nigerian music journalist and founder of Afrobeats Intelligence, has consistently provided in-depth industry analysis while exploring the personal journeys and creative processes of Africa’s top music stars. His work delves into the artistry, humanity, and behind-the-scenes efforts shaping African music. Joey Akan is a featured speaker at Moonshot 2024, joining other innovators and industry leaders addressing Africa’s most critical challenges. [Save your seat at Moonshot! Get tickets here](=.h5Tx8M7Ug9BMVsRGSrzwdEAOxmZlzhU_DIm8eJaRlTc) --------------------------------------------------------------- Joseph Olaoluwa Senior Reporter, TechCabal Thank you for reading this far. Feel free to email kenn[at]bigcabal.com, with your thoughts about this edition of NextWave. Or just click reply to share your thoughts and feedback. --------------------------------------------------------------- We'd love to hear from you Psst! Down here! Thanks for reading today's Next Wave. Please share. Or subscribe if someone shared it to you [here](=.hrBAXSr5EWeYSfWltXUosJW6n-A-cJ6DbSvvGHTAqZ0) for free to get fresh perspectives on the progress of digital innovation in Africa every Sunday. As always feel free to email a reply or response to this essay. I enjoy reading those emails a lot. 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