Presently, people throughout the African continent use USSD (Unstructured Supplementary Service Data) to spend or send money. Although USSD plays a pivotal role in augmenting mobile wallet payments, there is still scope for expansion.
Meanwhile, as a sunrise segment, fintech companies are making swift strides in Africa. The overall capital invested in the industry in 2021 rose by $149 billion compared to the previous year. The average deal size and the number of deals have also registered steady growth.
Significantly, Africa has the youngest population globally. Approximately 40% of its population was 15 years or younger in 2021, against the universal average of 26%. Since young cohorts are more inclined to deploy fintech tools, it could be a major reason why investors are focusing on this continent.
While mobile money holds huge potential in Africa, with the advent of interoperability, further growth will be facilitated. For example, Africa has a huge underbanked population, with estimates indicating that, even in 2022, 42% of adults (approximately 456 million people) do not have a bank account. Consequently, fintechs are leveraging the opportunity to offer alternative solutions through mobile. Currently, Africa is witnessing robust adoption of mobiles with 650 million users.
But at this point, mobile wallet users can only make payments to merchants within their country. With the continent accounting for 70% of the globe’s mobile money value of $1 trillion, the potential is unmistakable. From $495 billion in 2020, the value of its mobile money transactions rose 39% in 2021, reaching $701.4 billion. No doubt, mobile represents the future of banking in Africa.
As the appetite for cashless transactions rises across the world, it is imperative to introduce a simpler process for merchants and people wishing to make and collect payments across borders. This is where Request-to-Pay could transform the scenario. As a unique cross-border mobile wallet payment solution, Request-to-Pay permits the acceptance of mobile wallets across various merchant networks, irrespective of the country. Sellers can initiate a request for a specific payment from the payer via their PoS device, requesting payment from the customer’s mobile wallet. Once approved by the customer, credit transfer is done to the merchant’s account in the local merchant's currency, with a debit functionality in the customer’s mobile wallet in his/her local currency. With Request-to-Pay, customers can use the same USSD mechanism to make merchant payments while they travel outside or even while transacting online. This interoperable payment solution also allows the customers to make payments via mobile apps provided by their mobile network providers.
The need for interoperability
Interoperability for mobile wallets can help merchants grow their customer base and business while allowing wallet holders to use their wallets for making payments across domestic borders. It will also boost fintech investments in Africa. Following a brief lull in 2020 during the pandemic, foreign investments surged in 2021, with more than $1.6 billion invested in 153 deals. This was double the $800 million in 2020, accounting for a 50% jump in the number of transactions.
Against this backdrop, Request-to-Pay can act as a revolutionary payment mechanism, allowing customers the ease of continued use of their wallets for making payments to merchants beyond geographical boundaries. It has benefits such as the ability to undertake real-time ad hoc transactions while curbing chargeback fraud – a situation wherein a consumer seeks a refund despite retaining the product or service.
While Request-to-Pay is not likely to replace card usage completely, it offers mobile wallet providers and fintechs the opportunity to improve client relationships by providing more accessible and diverse payment options. For instance, customers could manage multiple currencies and cards without much hassle. While Request-to-Pay is still in its infancy, it is set to revolutionize the world of payments by making it far more inclusive. The solution holds enormous potential in powering Interoperability between consumers, mobile wallets, digital payment providers, and other stakeholders.