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Prepaid in Sub-Saharan Africa
VRL Financial News Publishing, Nov 2010
The Sub-Saharan region presents a lucrative prospect for financial services institutions because the market for debit and prepaid cards is under-developed.
This report examines the social and economic development of this region and the affordability of bank accounts, and therefore, prepaid and debit cards.
Only 19% of the population in this region has a personal bank account while 42% own a mobile phone, with analysts expecting mobile ownership to increase to 65% by 2013. This indicates that the mobile channel provides the most direct access to the population.
Mobile payment providers will be key to banking rural populations that do not have access to the main banking infrastructure. However, the development of mobile payments is actually inhibiting the development of a strong traditional financial sector that encourages saving, responsible lending and debit or prepaid card usage.
This report provides:
- An overview of the market in the Sub-Saharan region
- Assessment of economic activities and natural resources in the region
- Recent economic developments in this region
- A wealth of data on the prepaid market across Sub-Sarahan Africa
- The drivers and inhibitors of debit and prepaid card growth in the region
- The success of current payment systems
- Expert advice on how to launch a successful prepaid programme in the Sub-Saharan region
Key findings of this report include:
- The social and economic development of the region and the ability of its population to afford bank accounts and, hence, debit cards;
- As prepaid cards are generally accompanied by a charge for their use, affordability will need to be addressed when developing an appropriate business model that generates profit for providers;
- Card providers will need to focus on urbanised regions in the short to medium term to ensure that there are enough people to use any physical infrastructure (e.g. bank branches, ATMs and telephone banking facilities) to make the investment viable and profitable, with as short a payback period as possible;
- Mobile payments providers will be key to banking rural populations that do not have access to the main banking infrastructure, but providers of bank accounts and cards will need to ensure that schemes like M-Pesa do not steal a march on gaining market share and integration with retailers.
Summary
It is unlikely that rural populations in the Sub-Saharan region will be served by traditional banking, at least not in the immediate future, and so mobile payments will become increasingly important. From a provider's perspective, a lack of government support to develop an infrastructure that facilitates debit and prepaid cards is inhibiting card adoption, and in some countries, the cost of owning a bank account is prohibitively high.
Sub-Saharan Africa presents a challenging opportunity for financial services providers looking to develop debit and prepaid cards from a number of aspects. Card growth is likely to be fuelled by the take-up of bank accounts by more affluent customers who have enough money to pay into accounts on a regular basis to fund debit card payments. Also key to the development of this market is retailer acceptance of cards as a payment method.
Countries in the Sub-Saharan region still rely on cash payments, and debit card penetration varies from country to country. In South Africa, for example half of the population owns a debit card and the financial sector is comparable to those in the West, whereas in Nigeria, under a quarter (23%) of the country’s large population of 150m is banked.
Bank account and debit card ownership is low due to a lack of money to pay into an account, with over two-thirds (66%) of the population citing this as a reason for not owning a bank account.
This report presents primary research in the two most developed markets in the Sub-Saharan region – South Africa and Kenya. The growth of basic bank accounts looks set to be the future key driver of the adoption of debit cards in South Africa, whereas in Kenya, increased retailer acceptance will fuel growth. In terms of prepaid cards, in South Africa, the need for a more convenient alternative to cash payments will be key to increased adoption, and in Kenya, demand from younger consumers will result in growth of adoption of the product. The primary research findings of this report suggest that debit and prepaid cards are set to grow in Sub-Saharan Africa, but the big growth story is likely to be mobile payments. The population of Sub-Saharan Africa is largely rural and dispersed. Banks and other financial institutions are unlikely to invest in infrastructure such as bank branches and ATMs in such areas, whereas mobile phone ownership is relatively widespread, even amongst those on minimal wages.
The extent to which mobile payments are a positive development in sub-Saharan region is debatable. From one perspective, they provide a low-cost alternative to cash for people that do not have access to traditional banking services, such as branches and ATMs. However, it can be argued that the development of mobile payments actually inhibits the development of a strong traditional financial sector that encourages saving, responsible lending to fund asset ownership, and debit or prepaid card usage.
Prepaid cards are favoured by younger consumers, who have a dislike for credit, or who find obtaining a credit card difficult due their financial circumstances. Providers in South Africa expect an ‘explosion’ in the growth of prepaid cards, but also state that the opportunities for providers have not yet been clearly defined.
From a political perspective, governance is a key issue to be addressed in the sub-Saharan region, although this is highly variable from country to country. The Ibrahim Index for Africa found Botswana to be the best governed amongst the countries featured in this study, ranking third overall in comparison with the rest of Africa. Nigeria, on the other hand, ranks 37th out of 53 countries, and it is the worst governed of the countries in this report.
Socially, the region’s population is extremely youthful, but plagued by a high prevalence of disease, not least HIV / AIDS. Progression towards the region’s Millennium Development Goals has generally been poor, with the expectation that many of the Goals will not be met by the target date of 2015. Large proportions of the population of Sub-Saharan Africa live in rural areas with varying degrees of transport infrastructure development. There is also a problem with hunger, with over half of the population (56%) of the region claiming that, in 2009, there were times when people did not have enough money to feed their families.
There is a perceived lack of government support for the development of a debit and prepaid cards infrastructure in a number of countries, and the extent to which this will change in the future is uncertain. The Sub-Saharan region is struggling to meet the majority of its Millennium Development Goals, and the focus of any available investment is likely to be directed towards achieving them. It is likely to take external investment and an influx of international finance players to boost the development of the cards markets in the region.
In economic terms, there is generally a high dependence on agriculture, making Sub-Saharan Africa susceptible to adverse weather systems that impact on valuable crops. The region is rich in natural resources, although in a number of countries, the money is not available in order to fund their exploitation. Despite this, overall, countries in the region have experienced steady to strong GDP growth in the last decade.
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