There’s no escaping the fact that cash still plays an incredibly important role in Africa. According to McKinsey, cash still accounts for approximately 90% of payments across the continent. But, things are changing with more and more businesses and consumers adopting digital payments.

By Joel Bronkowski, country lead: South Africa at Paystack

Research released in 2022, for example, shows that 41% of Africans made a digital payment in 2021, compared with 27% in 2017. The growth of those payments is important for both ordinary Africans and businesses operating on the continent. For the former, they don’t just offer enhanced security and lower risk but can also be a vital access point to other formalised financial services.

Businesses adopting digital payments, meanwhile, can expect to realise cost savings, faster payment processing, streamlined record keeping, enhanced security, and an improved customer experience, among other things.

But they aren’t the only ones to benefit from digital payments. Their increased use and adoption also benefit the countries in which those payments take place. Here’s how.

Reaping the rewards of empowered consumers and businesses

Some of the biggest benefits countries can expect to see are as a direct consequence of those enjoyed by consumers and businesses.

The improved data and record-keeping that digital payments offer businesses, for example, also makes it easier for them to access formal financing from banks and other institutional lenders. That means they can take advantage of the improved customer experience that digital payments offer to expand and grow. In turn, that means more economic growth, more jobs, and increased tax revenue.

When it comes to consumers meanwhile, there are multiple benefits but the financial inclusion offered by digital payments is especially important. Encouraging digital payments can help promote financial inclusion by providing access to banking and financial services for underserved populations. This, in turn, helps in reducing income inequality and supporting economic development and this in turn ultimately results in an even wider tax base.

One of the other positive effects that comes with the widespread use of digital payments is that governments have a lot more data available to them. This data can provide valuable insights into economic trends and consumer behaviour. Governments can also use this data for economic planning, policy formulation, and decision-making.

Central banks, meanwhile, can benefit from the data generated by digital payments to make more informed decisions about monetary policy, interest rates, and inflation targeting, contributing to economic stability.

Direct benefits too

The increased use of digital payments has direct benefits too.

Governments can, for instance, streamline their financial processes by accepting digital payments for services like taxes, fines, and fees. This can reduce administrative costs and improve efficiency. Digital payment systems can also be used to improve the delivery of public services, making them more efficient and accessible to citizens.

Another big benefit that digital payments offer countries is that ones with robust security features can help reduce fraud and corruption, which can have a significant impact on government finances and public trust. The growth of digital payments can additionally drive investments in technology infrastructure, including internet access and digital payment processing systems, which can benefit other sectors of the economy. That’s to say nothing of the fact that digital payments allow for simpler international transactions, further bolstering the economy by stimulating trade.

These benefits all contribute to economic development, financial stability, and improved government operations, ultimately fostering overall well-being within a country.

Maximising the benefits

In order for African countries to reap the full benefits of digital payments, they need to ensure they have the right conditions in place. While part of that means ensuring that the regulatory environments favouring secure digital payments are in place (something which a growing number of African governments are doing), that’s not all there is to it.

Governments can, for example, work with the private sector to drive the growth of digital payments. That means working together to provide support, funding, and regulatory sandboxes to encourage the growth of FinTech startups that offer innovative digital payment solutions. The South African Reserve Bank (SARB), for example, has established a fintech unit to regulate and support fintech innovation.

The unit developed the central bank’s initial position on innovation facilitation structures (such as regulatory guidance units and sandboxes) and has also taken on initiatives such as the hosting the Southern African leg of the Global Fintech Hackcelerator, Project Khokha. That kind of assistance, coupled with the country’s pre-existing financial knowledge and resources has helped create an environment where some of the country’s fintech startups are ranked among the world’s best and where the country accounts for 40% of all fintech revenue in Africa.

From a cross-continental perspective, meanwhile, things like the African Continental Free Trade Area (AfCFTA) have prompted countries to improve cross-border digital payment infrastructure to make intra-African trade simpler. This includes efforts to harmonise payment systems and reduce cross-border transaction costs.

Perhaps the most high-profile of these efforts is the Pan-African Payment and Settlement System (PAPSS). First mentioned in 2019 and launched in 2022, the system is designed to ensure that payment facilitators (whether banks or fintechs) can plug into it and make instant, secure payments on behalf of their customers. It is, in other words, a great example of a rising tide lifting all of the proverbial boats.

Much room for growth

While cash will likely continue playing an important role in the African payments landscape, it should be clear that digital payments will only increase in use and importance in the coming years. As some of that growth will be organic, the benefits of high levels of digital payments to individual countries and the continent as a whole are too significant. It’s therefore critical that public and private players alike do everything possible to encourage their adoption.