Leverage Fintech For An Inclusive And Equitable Economic Growth In Africa

Mastercard recently announced a strategic partnership with MTN, to enable millions of consumers in 16 countries across Africa to make global e-commerce payments safely and securely.

It is against this backdrop that CIO Africa secured a Q&A with the Mastercard Middle East and Africa Executive Vice President for Market Development Amnah Ajmal, to explore the depth of this partnership and what it means for the future of fintech in the continent.

Q. What factors are shaping the future of financial services in the digital economy?

A. Digital economy – and digital financial services specifically – are one of the most dynamic industries, defined by continuous innovation, evolution, and disruption. Covid-19 has further advanced these factors, challenging how we live and work with each other, and changing the needs and priorities of consumers, businesses, and governments.

One major factor resulting from this has been the rapid move by shoppers from traditional forms of retail towards contact-free and digital transactions. As a result, the growth of touchless experiences, contactless transactions, and digital payments has been rapidly accelerated. This is evident in a recent Mastercard study on consumer spending in Kenya, which revealed that nearly four out of five consumers are shopping more online since the onset of the pandemic.

According to the World Bank, today Sub- Saharan Africa remains the global leader in the use of mobile money with 21 per cent of adults in the region having a mobile money account. In Kenya, mobile money penetration is actually above 100 per cent, due to consumers owning multiple SIM cards.

Therefore, there is a tremendous opportunity to imagine and build smarter, safer, and more convenient ways for consumers and merchants to buy, save, and invest.

Another significant aspect that determines the successful long-term growth of the global economy is financial inclusion. We’ve seen the effects of the pandemic on the digital and financial exclusion on the most vulnerable, and there’s an urgent need to prioritize inclusion when it comes to financial services. This is especially important for the SME sector, which has an outsized impact on economies in the Middle East and Africa region, providing a livelihood for many while advancing financial inclusion to reduce poverty and boost prosperity. To illustrate this, the World Bank estimates that SMEs are responsible for 77 per cent of all jobs in Africa and as much as half of GDP in some countries. When they suffer, we all suffer.

It is estimated that the widespread use of digital finance has the potential to boost the annual GDP of emerging economies by US$ 3.7 trillion by 2025, with a third coming from additional investment in the MSME sector.

According to the 2020 Facebook Global State of Small Business report, SMEs continue to face challenges in operating their businesses during the Covid-19 pandemic which has contributed to a drop in employment and businesses shutting down. At Mastercard, we are committed to leveraging our network, insights, technology, and partnerships to help, inform and enable small businesses to sustain and grow their businesses. We have therefore committed to connecting 1 billion people to the digital economy by 2025, including 50 million small businesses, with a direct focus on 25 million women entrepreneurs.

Q.What is Mastercard’s role in the evolution?

A. At Mastercard, our innovation and diversification strategies are based on partnerships and collaboration.
Therefore, a big part of our focus is on connecting telcos, digital e-tailers, and fintech to their consumers through digital partnerships that advance financial inclusion for communities across the world. These companies already connect people, and with Mastercard’s help, can help connect them to digital financial services and secure digital payment options.

In SSA, 58 per cent of the population are financially excluded or do not own any formal accounts. 63% of young adults between the age of 15 -24 are financially excluded according to the 2018 World Bank Global Findex Report. Specifically looking at Kenya, specifically, this is a market dominated by mobile money and online lending platforms with 96% of households owning a mobile money account compared to 41% of the population who own bank accounts.

Through partnerships with telcos such as MTN, we can reach millions of people – especially those who don’t have bank accounts. The partnership will enable millions of MTN customers in Africa to pay on global online platforms with a Mastercard virtual payment solution linked to MTN MoMo wallet. Partnerships such as this one, open up digital commerce opportunities for consumers and merchants with or without a bank account, driving a new wave of inclusion through mobile devices for millions of people.

Together with our partners, we are able to address the needs of the unbanked and underserved, working together to build communities that are less reliant on cash and better positioned to take advantage of digital growth.

Q. What does Mastercard do to enable market-led digital financial services?

A. The key to enabling truly market-led digital services is the ability to recognize and address real-life challenges. Challenges that have the potential to change people’s lives.

The Mastercard Farmer Network (MFN) initiative is a good example of this. It is a platform that digitizes marketplaces, payments, workflows, and farmer financial histories within the agriculture sector. MFN increases farmer linkages to markets and formal financial services relevant to their needs and aspirations. The platform brings together various agri-sector stakeholders, such as farmers, farmer producer organizations, buyers, financial institutions, and value-added services providers, amplifying the collective positive impact on farming communities.

MFN is being rolled out in East Africa and India and is designed to support small-holder farmers that are critical to developing economies across the globe. Despite their importance and large numbers, small-holder farmers remain marginalized and face barriers to improving their livelihoods and managing risk. They also face varying levels of access and capability challenges to adopt technology-enabled solutions. MFN turns these challenges into an opportunity to offer a simple, standard interface for farmers and buyers that facilitates greater efficiency in the agriculture value chain.

Q. What are some of the evolving business models in the financial industry?

A. As I mentioned earlier, the onset of Covid-19 has brought to light the importance of digital inclusion as a means to provide better access to financial services.

Digitization of payments through leveraging mobile money solutions has seen rapid acceleration since the pandemic. Solutions such as our Pay on Demand business model, which supports digital and financial inclusion, are the key to improving economic possibilities for businesses and individuals.

By giving customers the flexibility to pay for services via their mobile phones on terms that work for them, our research in Kenya, Uganda, and Nigeria shows that Pay on Demand business models resolve real pain points by giving people the ability to pay only for what they use, as they need it. 75 per cent of SMEs in SSA cite affordability as the barrier to go digital. This can lift millions of people across Africa out of poverty and make prosperity possible.

We are also experiencing rapid fintech disruption in online banking, which is a key driver for inclusion, especially in East African economies.

At Mastercard, we are helping drive this progress by connecting fintech to financial institutions and merchants. In Kenya and Nigeria, we have launched Mastercard Engage. The programme connects financial institutions, merchants, and IoT manufacturers with the right technology partners that can help them deliver innovative payment solutions, for businesses and consumers alike. The capabilities of these partners include deploying digital wallets, enabling tokenization, facilitating instant pay-outs, and launching mobile point of sale solutions, among others.

We have also launched Fintech Express in Africa. This programme supports digital payment innovators by making it simple to collaborate with Mastercard and its partners to launch new fintech products and expand rapidly.
Through these platforms, we are building the domestic payment ecosystem, and creating new connections to the digital economy, expanding a thriving world beyond cash.

Q. What factors are currently influencing the emerging markets?

A. It is a fact that Africa is well-positioned for growth, being home to four of the world’s top five fastest-growing economies according to IMF. Africa’s greatest opportunity, therefore, lies in its ability to develop inclusively.
Digitization is transforming African economies in many ways – whether it’s retail payments systems, financial inclusion, sustainable business models for MSMEs, or public administration. These changes will benefit only those economies that embrace digitization, invest in the required infrastructure, and introduce relevant regulatory technology.

Technologically, Africa has already leapfrogged older economies and legacy infrastructures in bypassing landlines and going straight for mobile, paving the way for new infrastructure such as digital payments. We expect to see this trend continue especially in digitally advanced economies such as Kenya and Uganda.

GSMA’s 2020 Mobile Economy report also anticipates Sub-Saharan Africa to cross a 50% penetration rate of unique mobile subscribers by 2025. This is why we work closely with mobile network operators to drive growth through digital financial services, unlocking value for millions of consumers and SMEs.

Another trend shaping future growth in Africa is e-commerce. A recent Mastercard study revealed the true extent of COVID-related surge in e-commerce spending, with 20-30% of this surge estimated to be a permanent feature. And, with seven in ten MEA consumers saying they shop more online than before the pandemic, this trend is permanently transforming the regional marketplace.

Q. What are some major financial technologies to watch out for in 2021 and going forward?

A. Trends that are currently impacting the payments ecosystem include the surge in touchless experiences, contactless transactions, digital payments, and emerging payments such as cryptocurrency and biometrics
In Africa specifically, mobile wallet services are rapidly gaining popularity. Mastercard has been at the forefront of integrating issuers’ cards with mobile wallet services. Mobile apps such as Apple Pay, Google Pay, and Samsung Pay use Mastercard’s advanced tokenization solution, which replaces the sensitive cardholder primary account number with an alternate card number or token that is used by the payment device and merchant, thereby reducing the possibility of fraud as it can only be used from the device or credentials on which it was registered.

Telcos have also evolved from their previous offering of devices and data plans and are now offering lending services and insurance blurring the lines between the financial industry and telcos. Our partnerships with telcos have allowed us to bring our innovation to a whole new set of consumers. We have partnered with mobile operators such as Airtel, Vodacom, Tigo to provide VCN (Virtual Card Numbers) solutions that enable safer online purchases locally and internationally. The virtual cards allow customers, even those without a bank account, to make payments to local and global online merchants that accept Mastercard cards while ensuring that the customer’s financial data is always secure and private.

Contactless solutions such as prepaid travel cards are also gaining popularity. We have spearheaded this with the recent introduction of the first-ever Mastercard branded prepaid contactless travel card in Ethiopia. The pre-paid travel card also enables the user to access all Mastercard points of sale and ATMs in the world, as well as platinum insurance benefits, which cover card fraud protection and purchase protection.

There has also been an uptake of emerging payment methods, such as cryptocurrency and biometrics over the past year. The Mastercard New Payments Index shows 54 per cent of people in Kenya expect to use more payment technologies like QR codes in the next year. 99 per cent of Kenyan consumers will also consider using at least one emerging payment method in the next year. Furthermore, 97 per cent of consumers in Africa are considering emerging payments such as wearables, biometrics, digital wallets and currencies, and QR code, in addition to contactless. With consumer interest around new payment technologies increasing, businesses will have to adapt their payment methods for the long term.

Technology is helping us achieve things previous generations could only dream of by helping reduce poverty, include more people financially, and create economic growth that’s more inclusive and equitable.