Africa represents the next best business opportunity, if we get payments right

By Adebiyi Aromolaran, Head of Africa Expansion, dLocal

An astonishing shift is underway, driven by a youthful population – the world’s youngest – expected to hit 1.5 billion by 2026 and two billion just 15 years later. That shift is the rise of Africa as its population continues to surge, in stark contrast to the rest of the world, and its youthful growing population entering the consumer class. According to Brookings, “By 2030, the largest consumer markets will include Nigeria, Egypt, and South Africa,” while many other African countries and cities will be lucrative markets. Yet, the benefits of this opportunity will only be accessible to those who get payments right, navigating either directly or, more likely, through a cross-border payment platform, Africa’s diverse and often challenging payments landscape.

Regional Payment Preferences: Diverse but Promising

Africa is a continent of contrasts, and its payment preferences are no exception. West Africa is a prime example of the continent’s diversity in payment ecosystems, where mobile money reigns supreme. As of 2022, West Africa boasts 1.6 billion registered mobile money accounts, with a year-on-year growth rate of over 13%. In Ghana alone, nearly 60% of the population aged 15 and older have a mobile money account. In Nigeria, mobile money awareness has also significantly increased, reflecting a growing acceptance and usage of these services. On the one hand, the region’s preference for mobile transactions requires businesses to adapt their payment methods accordingly. While on the other, the widespread adoption of mobile money presents a ready-made infrastructure for companies to leverage.

North and East Africa present unique challenges and opportunities of their own. North Africa, with its stricter financial controls and government policies, can be a difficult market to enter. However, companies that successfully navigate these regulatory constraints will likely find themselves in a lucrative position. The region’s digital wallet market reflects significant growth, soaring from approximately $20 million in 2023 to a projected nearly $104 million by 2032, reflecting an impressive compound annual growth rate (CAGR) of nearly 20%.

Meanwhile, East Africa offers a relatively more open regulatory environment but still requires companies to meet compliance requirements. The region is known for its success with mobile money services, especially in Kenya and Tanzania. As of December 2023, Kenya had approximately 77.3 million registered mobile money accounts, while in Tanzania, 44.6% of the population aged 15 and older had a mobile money account as of January 2024. These successes have attracted attention from regulators, making it crucial for businesses to proactively address regulatory challenges to avoid potential pitfalls.

Navigating Regulatory Challenges: Tailored Approaches Are Key

Given the complexities of Africa’s payment ecosystem, businesses must navigate a range of challenges, particularly when it comes to regulatory compliance. In West Africa, for instance, companies must contend with fragmented regulations that vary from one country to another. Guinea-Bissau serves as a notable example of how political instability and economic formalisation can affect financial services. With only four banks operating in what is considered a small market, the country’s political and economic challenges have led to significant regulatory hurdles and limited access to formal financial services. This situation requires a tailored approach, with businesses needing to understand and adapt to the regulatory environment in each market they enter. Failure to do so can result in significant roadblocks, but companies that succeed in navigating these challenges can unlock new markets and drive growth.

In North Africa, stricter financial controls and government policies can make it difficult for companies to enter the market, contributing to the region’s relatively low participation in global trade, with North Africa currently accounting for less than 1% of world trade. However, those who can work within these constraints can tap into emerging opportunities, positioning them for significant long-term growth in a region with untapped potential.

East Africa offers a relatively more open regulatory environment, but companies must still be cautious about compliance requirements. All the East African Community (EAC) central banks have explicit financial stability oversight arrangements with dedicated departments or subunits from regulators, and businesses must ensure they meet all necessary compliance standards. The region’s success with mobile money services has attracted attention from regulators, making the economic and financial environment in East Africa more favorable than in other parts of the continent.

Shared Opportunities: A Youthful, Tech-Savvy Population Drives Growth

Despite the differences in payment preferences and regulatory environments across Africa, there are several common themes that present opportunities for businesses. One of the most significant is the continent’s youthful, tech-savvy population. Africa is home to the world’s youngest population, with a median age of just 20 years. This young demographic is eager to embrace new technologies, including innovative payment solutions. Companies that can offer products and services that resonate with this demographic are likely to find a receptive audience.

Rising incomes across the continent also present a significant opportunity. Over the last 30 years, the number of middle-class Africans has tripled to 313 million people, now representing more than 34% of the continent’s population. As disposable income increases, so too does the demand for better financial services. This creates a market ripe for innovation with consumers looking for payment solutions that are convenient, secure, and tailored to their needs. Companies that can meet this demand stand to benefit from a growing customer base and increased revenue.

The untapped potential of Africa is immense and payments stand as the key to successfully entering and operating in these diverse markets. Despite the progress made in recent years, many parts of the continent remain underserved by existing payment solutions. This gap presents a unique opportunity for companies to step in and fill the void, offering products and services that cater to the specific needs of African consumers. The rewards for those who do so can be substantial, in terms of capturing a significant share of the market and driving long-term growth. And options of cross-border payment experts in the region that tackle both regulatory and financial complexities, such as alternative payment methods and local currency offerings abound.

The time to invest in Africa is now

Africa’s economic growth, driven by its rapidly increasing young population and rising internet penetration, offers a unique opportunity for businesses willing to invest in the region. While the complexities of the continent’s payment ecosystem may seem like obstacles, they serve as gateways to unparalleled potential. For those able to navigate these challenges, the reward is access to some of the world’s highest growth and most youthful consumer markets. Companies that establish a presence in Africa now, and innovate beyond traditional card transactions, will not only capitalize on the continent’s rapidly expanding market but will also lead the charge in defining the future of commerce in one of the world’s most dynamic regions. By embracing Africa’s diversity and strategically tailoring their approaches to meet the specific needs of each region, businesses can unlock Africa’s payment potential and secure a strong foothold in one of the world’s most promising markets.