As seen around the world, investment into digital transformation is paving the way for growth across Central Europe, Middle East and Africa (CEMEA) region – a trend reflected in the increasing share of consumers and retail merchants making transactions online. In tandem, prospects for new businesses are encouraging, especially in Sub-Saharan Africa (SSA): while start-ups across CEMEA are seeing triple-digit growth rates for investment — the figures for SSA are particularly strong, with investment up 285 per cent to US$2,120m and deals up 26 per cent to 392 in number in the last year.
How acceptance is key to growth
How has the digital transformation seen around the world supported current and future growth in SSA? Acceptance of new forms of digital payments is key, businesses say. In a recent Visa survey, three-quarters of small businesses indicated that accepting digital payments was essential to their growth, with 90 per cent reporting that pivoting to eCommerce – which relies on digital acceptance – had helped them survive the pandemic. “If there is going to be a digital payment evolution, says Aida Diarra, it cannot be limited to large businesses. In solving this segment, we need to address the complexities, drive lower cost, and innovate to create more frictionless ways for SMEs to begin accepting payments.”
With this goal in mind, Visa has launched ap to Phone, mobile POS (point of sale) technology – where sellers download an app to enable their smartphones to accept payments – in several markets in the region. The process has underlined the importance of a robust internet infrastructure, with connectivity (and the related costs) and integration with other business management systems both key to success in this area.
The global economic outlook turned gloomier in recent months amid rising energy and food prices, and aggressively tighter monetary policy in advanced economies, with interest rate hikes in the U.S., E.U. and the U.K. The impact of the global economic slowdown is being felt throughout Sub-Saharan Africa; the region has been quite sensitive to the rise in food and energy prices, weighing heavily on households’ budgets, who often allocate a large share of their income to food purchases compared to other regions – around 40 per cent of income. Higher consumer prices and rising public debt remain key challenges for the region going forward.
Nonetheless, as Aida Diarra, Visa’s Senior Vice President and Head for SSA, says: “Our region is open for business and the volume of activity we encounter in conversation and in the news demonstrates how dynamic our industry is. More players are entering the market in response to the wealth of opportunities that exist.”
Inside the great e-commerce pivot
In SSA, as seen around the world, reduced movement and an increased wariness of handling cash have encouraged a shift from in-person to digital transactions – which can present new risks to manage. Aida Diarra explains: “There has been an accelerated growth in e-commerce as more consumers have become comfortable with transacting online and that necessitates a need to secure those transactions.” Indeed, the Global Cyber Security Outlook reports a 31 per cent increase between 2020 and 2021 in terms of cybercrime accelerated by the pandemic.
In response, and pioneered by Visa, tokenization – where a customer’s card number is replaced with a 16-digit equivalent, or token – continues to be a simple but powerful concept to protect sensitive payment data, secure digital payments and thereby accelerate eCommerce acceptance. Through Visa Token Service (VTS), Visa has already issued more than tokens surpassing the number of physical cards in circulation globally. Some 8,600 issuers and 800,000 merchants now use the service worldwide, leading to a 28 per cent reduction in fraud rates and a 3-point increase in transaction approval rates –so helping to boost sales for merchants, while also saving them money on fraud-related expenses.
In SSA specifically, Visa issued nearly 1.2 million tokens, across 17 countries, in the month of August this year alone. This clear appetite among issuers, acquirers, merchants, and consumers to use Visa tokens reinforces that the future of money is truly digital – and that digital money must, as with any form of currency, be built on trust. That is why Visa will continue to prioritize enabling tokenization in the region, working with local eCommerce partners with the goal of taking tokenization to 70-80% of local transactions.
If digital sales are developing, in-person transactions are changing shape also. Nearly half of all card-present transactions in Sub-Saharan Africa are now contactless, another shift accelerated by the pandemic. This growth is largely concentrated in South and East Africa, so the opportunity is to support contactless take-up in the rest of the region – because a market with strong contactless adoption not only depends less on cash, with all the benefits that can bring, but its merchants see a lift in transactions also.
So how is this best achieved? “Contactless only grows when the entire ecosystem engages to fully understand the landscape and its barriers,” says Aida Diarra. “For example, engaging regulators and retailers to establish reasonable limits and risk management approach that all stakeholders are comfortable with.” To that end, Visa has upped its efforts with contactless in Botswana, South Africa, and Kenya, using what it has learned in those markets to launch contactless pilots in four more SSA countries, involving five urban transport operators.
Collaboration with fintech
Of course, just as recent years have seen consumers embrace digital payments, businesses have responded by using digitalization to transform their operations. “The pandemic has emerged as the trigger to push digital adoption and create the Fintech 2.0 era,” explains Aida Diarra. “The accelerated demand for digital services brought on by the pandemic has also brought a demand for a more integrated customer experience and less fragmented offerings – a question of ease and for many consumers a question of cost.”
Here, there is an opportunity to find more agile ways to work with fintech, in solving the need for integrated financial services at scale and – crucially – at the right cost. Visa is working both to address the readiness of the payments ecosystem and accelerate progress in this area, as well as connecting traditional and non-traditional players to help achieve these goals.
Building trust in BNPL
In SSA countries, consumers increasingly not only expect to pay how they want but when it suits them also. The rise of buy-now-pay-later (BNPL) transactions can be attributed to several factors: the flexibility they offer the consumer; growing adoption by merchants; and their appeal for both online and physical purchases. As a result, younger consumers have particularly embraced BNPL as a payment option.
While spending by this method is still relatively low compared to that on cards, its growing popularity deserves focus: BNPL is expected to account for roughly 24% of all global eCommerce transactions by 2026, up from 9% in 2021. This is illustrated by merchants’ appetite for the solution, with 65% of merchants in one survey planning to add BNPL as a payment method by 2022. The benefits are clear, says Aida Diarra. “Globally, Visa has seen BNPL drive a bigger basket and the purchase of higher ticket items. We are also seeing merchants embed BNPL in consumer shopping journey and how consumers are using BNPL in the everyday purchase as well.”
As with any new payment method, practical realities are still catching up. In SSA, Visa is working to enable the BNPL ecosystem in key markets by incentivizing development for processors and gateways. Specifically, Visa is supporting the ecosystem for instalment payment services (that let consumers use their existing Visa cards to access BNPL plans) in several SSA countries by launching instalment payments with key card issuers.
As with aspects of digital payments, what consumers want will drive progress and by extension, growth. As Aida Diarra says: “Consumers must be met where they are today so they can be better served tomorrow. With the speed at which change occurs, digital-first commerce will soon be the new normal, the faster we adapt, the more competitive we will be.”
Article by Aida Diarra – Senior Vice President and Group Country Manager SSA Visa.