Financial systems can vary dramatically from one market to the next and this is particularly true in emerging and frontier markets. Political and social factors often influence these economies, making domestic and cross-border payments between nations highly challenging. It is incredibly hard to send, receive or save money, and almost impossible to access credit and financial advice. In many countries, low bank penetration and lack of local infrastructure adds further barriers, making the delivery of funds to the intended beneficiary harder to achieve. Despite data suggesting that in 2022, 456 million adults in Africa will have a bank account, over around 900,000,000 of the population still won’t have access to traditional services. This is exacerbated by poor intra-regional connections, both physical and digital, leaving some communities cut off from access to financial services completely.
Last-mile delivery proves particularly challenging in rural areas, where the required infrastructure has historically proved too expensive and logistically problematic. Things are, however, beginning to see improvement thanks to new agile digital solutions. As well as giving individuals access to financial services, this development promises to support better intra-Africa trade aiding the movement of goods, services, people and ideas, thereby creating vast economic opportunities.
Mobile as financial means
The increasing use of mobile technology in emerging markets means that the lack of traditional banking infrastructure in some areas no longer needs to be a hindrance. The number of mobile phone users in Sub-Saharan Africa for example is estimated to reach half a billion this year, up from a subscriber base of 477 million in 2019, according to GSMA.
Africa has been recognised as a leading innovator in mobile money for more than a decade. This proliferation of smartphone users in Africa has opened up new capabilities for cross-border payment, enabling payments to be made much more easily between different African nations and internationally, facilitating growth in cross-border commerce and e-commerce.
According to Anna Rosenberg, Frontier Strategy Group, “there is no competitive urgency to establish a presence there (in Sub-Saharan Africa) and it is too volatile and unpredictable for international businesses to deal with”. Despite this claim, research from our special report on UK-African trade found that over two-thirds (69%) of companies are planning to expand their presence in Africa post-Brexit, demonstrating the region’s potential to become one of the fastest-growing markets.
Disruption and innovation in action
In 2018, MTN Group and Orange launched Mowali to enable interoperable payments across Africa and to provide the optimal environment in which the mobile money industry can thrive. By allowing users to seamlessly send money between accounts and across different providers, Mowali successfully reduced the costs of transfers and enabled a wider global reach for mobile money users and businesses. In turn, this leads to the creation of connections that span different
geographies and markets all over the world, leading to a much more inclusive global financial ecosystem.
The reduction in the cost of transactions has further accelerated the adoption of financial services in Africa and as such the continent’s economic growth. Sub-Saharan Africa’s economy is expected to grow by 3.5% in 2022, buoyed by rising commodity prices, the lifting of some anti-coronavirus restrictions and a pick-up in global trade, according to a World Bank report.
Supporting future financial innovation
Emerging markets have proven themselves to be hungry for payments innovation, with essential new use cases revealed on a regular basis. For example, here at Crown Agents Bank, we’ve seen how essential digital payments have been in transferring aid and remittances to individuals while banks have been closed during lockdowns.
Focusing on reducing the cost and complexity of transactions will, in turn, result in greater access to financial services and financial inclusion across frontier markets, globally. The evolution of payments in these markets is addressing the challenges associated with previous systems and breaking down barriers to regional connectivity for traditionally unbanked users.
