For all the hype surrounding mobile payment solution M-Pesa, the far larger potential opportunity for payment cards has giants such as MasterCard and Visa very interested in Africa.

Aside from its blowout success in Kenya and some neighbouring countries such as Tanzania and Uganda, M-Pesa has failed to gain traction in other markets.

Debit, prepaid and credit cards are, however, getting there. Not quite at the same pace as M-Pesa in Kenya but rather at a steady march, market by market, issuer by issuer. MasterCard division president for sub-Saharan Africa Daniel Monehin says the ‘enormous opportunity’ for payment cards on the continent ‘outweighs’ that of most other markets globally. ‘Africa and sub-Saharan Africa continues to be one of the fastest growing regions in the world.’

His sentiments are shared by Jabu Basopo, general manager for Visa in Southern and East Africa. Visa, which began operations on the continent in 1968, points to Standard Chartered Bank’s research on Africa’s middle class. The research reveals that middle class households in 11 sub-Saharan African countries – excluding SA – are set to triple to 22 million by 2030. ‘This will create a burgeoning consumer market with sharp increases in consumer spending,’ says Basopo.

To understand the potential for credit cards and its penetration in any market, you need to consider a number of factors such as financial inclusion (and issuance), card acceptance infrastructure and the availability of retail credit. Now, these may sound obvious, but there exists a complex interplay between them.

The World Bank’s Global Findex data – the de facto authority on the matter – reveals that financial inclusion was at 34% in sub-Saharan Africa in 2014 (for those aged 15 and older). This is a substantial increase from 24% in 2011.

Monehin says that the largest number of active cards in Africa, by far, are debit cards. He puts their estimated share at 85% to 90% of the total number of cards issued on the continent. ‘This is for good reason. These are typically attached to existing bank accounts; banks will generally issue a debit card with virtually every account.’

After debit cards come prepaid cards. MasterCard has noticed a ‘high incidence of these in some corridors’ such as Côte d’Ivoire, Burkina Faso and Angola. Banks have the biggest role to play – they have both the retail and merchant customers.

JSE-listed Barclays Africa, the largest retail bank in Africa by many measures, has 2.8 million customers across nine countries (that figure, as at December 2014, is up by a third in two years). Compare that to the 9.2 million Absa customers it has in SA and it’s easy to see just how much more room there is to grow.

The numbers are starting to scale quickly. In 2014, Barclays launched credit cards in Ghana, Seychelles, Uganda and Zambia (the first time a credit card product was available in the latter market). So-called ‘new to bank credit card sales’ showed growth of 6% in the year. Card-acquiring turnover (the margin made at point-of-sale devices across all card swipes) grew 20% in its African operations.

In June, Nigeria’s Ecobank – with 10.7 million retail customers – announced an agreement with MasterCard to accelerate electronic payments adoption in 32 sub-Saharan African markets. This will see the bank – partly owned by and in a pan-African alliance with JSE-listed Nedbank – issue    debit, prepaid and credit cards to ‘millions of its customers over the next 10 years’.

Typically, the issuance of cards in a market tends to solve the second leg of the puzzle: card-acceptance infrastructure or a network of point-of-sale devices.

It’s ‘very much a chicken and egg scenario’ when you look at acceptance infrastructure and issued cards, says Monehin. ‘You may need to [focus on] one before the other is built, and very often that is card issuance. If it’s issuance, acceptance will catch up, and there will typically always be an imbalance in an emerging context.’

He cites the Nigerian market where the banking regulator is really focused on the acceptance piece of the puzzle. There were 12 000 active point-of-sale devices in the country just three years ago. Now, that number is more than 200 000.

‘If it’s issuance, acceptance will catch up and there will typically always be an imbalance in an emerging context’

DANIEL MONEHIN, SUB-SAHARAN AFRICA DIVISION PRESIDENT, MASTERCARD

One can only imagine what that is doing to card penetration and usage, and it’s in the payment providers’ interests to drive usage. They only see benefits – and revenue – once those issued cards actually generate transactions. However, compared to debit and prepaid cards, credit card penetration on the continent remains very low – also ‘for good reason,’ says Monehin.

Most estimates put credit cards in issue across sub-Saharan Africa (excluding SA) in the low single-digit millions. Add SA to that base, and you get to around 10 million. The debit card base is significantly larger.

The difference between debit, prepaid and credit cards, Monehin says, is that credit cards (rather obviously) require ‘retail credit’ to be in place. In most sub-Saharan African markets, there is no ‘strong retail credit infrastructure such as credit bureaux to rely on’.

A second problem, he says, is the ‘lack of unique identity’ in many countries, where a specific identity number accurately belongs to a specific individual. However, there’s ‘really no economy that has virtually nothing’.

Innovative ways of identifying and then, more importantly, scoring customers are starting to emerge. Monehin points to Kenya Commercial Bank, which – in partnership with M-Pesa – is using billing and transaction behaviour to predict a customer’s credit-worthiness. This proxy for traditional information from credit bureaux, which enables Kenya Commercial Bank to grant low-value loans at attractive interest rates, has seen more than 1 million new customers open accounts with the bank.

Add the fact that credit is currently (mainly) being provided by unregulated, informal providers, at exorbitant interest rates (often as high as 80% or 100% per annum). It’s no wonder that Monehin is bullish. ‘The need is there. The need is massive. The need is unbelievable.’ And, the building blocks (and ways to solve seemingly insurmountable problems) are there.

Some reports have forecast card penetration growth rates of triple figures (off the low base) over the near term. Digital banking – especially on mobile – won’t necessarily replace cards. Rather, it may well accelerate their adoption and usage.

Additionally, there are inherent problems with mobile money platforms. Basopo says that very often ‘mobile money is not interoperable – meaning that if I am on one mobile money network, I cannot send funds to someone on another mobile money network’. This, he adds, is where the power of the large global networks (such as Visa’s) comes in.

‘We can provide the network to help these mobile money solutions scale to deliver cost-effective and efficient services, and we can monitor for fraud so the system is secure. And we can scale across borders, helping economic integration.’

Of course, based on what we’re starting to see in developed economies, whether physical (plastic) debit and credit cards are still around in a decade or two remains to be seen.

Monehin makes the point that ‘the card is only a form factor. It’s time for another form factor’. He cites examples of banks in Africa that are already issuing virtual cards on smartphones as ‘companions’ to physical cards. ‘Smartphone penetration is very high on the continent. Android is taking root in Africa and we see that as part of the future.’ Its mobile solutions tied to cards are already as ‘secure as the physical card’, if not more so. ‘We’re not tied to the card, nor is our future tied to the card.’

By Hilton Tarrant
Image: Mr.Xerty © www.nomastaprod.com