Low digital payment penetration hinders e-commerce in Africa

E-commerce is the norm world over but in Africa, the lack of a trusted digital payment platforms limits its progress.

Digital payment for services has grown in Kenya thanks to the integration of mobile money in many outlets. This has been favoured above credit and debit card payments for various reasons.

Mobile money users have the assurance of seeing their balance to know if it is enough when purchasing goods and services. But even so, overall digital payments in retail have lagged behind cash and major players are looking for ways to improve on this.

Kenya’s telecom company Safaricom’s Lipan at MPesa (Pay with MPesa) recorded a rise in payments by 74% by March 2016. “20 billion in payments were made in March 2016 at more than 44,000 M-PESA merchants,” the company said.

In the same period Safaricom said that it was able to convert only 5% of cash payments to mobile money. It goes to show that cash is still king in Africa.

Digital payment is one of the ingredients in having a successful online business. Most online entrepreneurs have admitted that people prefer to have the option to pay on delivery due to persistent trust issues.

During a recent meet up of online and offline retailers in Kenya at Nest VC’s #WhatsNext event, lack of trust on digital payments was highlighted as a barrier. While one of the biggest retailers in Kenya, Nakumatt Supermarkets admitted that only 25% of its US$700 million yearly sales volume, come through credit and debit cards payments.

Ramamurthy Thiagarajan, the regional Strategy and Operations Director at Nakumatt Holdings, said that most buyers would still prefer to go to ATM machines, withdraw cash to shop in the stores, although there is a provision to pay for goods by cards.

“We don’t want to handle cash for various reasons. But it’s a culture here that people are comfortable in carrying cash to the retail stores,” he explained.

In most African countries, debit and credit card holders feel unsafe using them online or even paying for goods in physical stores. For mobile payments, only the user’s phone number is exposed and they have full control when they activate payments.

In the process of trying to encourage digital payments, Nakumatt introduced loyalty cards which also double as credit cards. It has also recently introduced mobile money payments in stores, but the uptake has been slow.

Thiagarajan said that digital payments help in easy consolidation of cash coming in and out of the business.

The supermarket chain is gearing up to launch an online store which would be the first brick and mortar supermarket to launch a working e-commerce platform.

Visa has also made inroads in Africa by partnering with banks in the continent to enable mobile payments.

According to the Director of Merchant Sales and Solutions at Visa Kenya, Francis Mbugua Mugane, the company is interested in the mobile payment space.

“With the mobile phone we can do a lot more cool things,” Mugane said. “What we are doing is to see how we can tie mobile to payments so that whether you are online or offline, you are able to make some of these payments.”

He announced that by September, the company will launch Visa Mobile which is crafted especially for the African market.

“Business can make a smooth transition from cash. Cash is costly to business and has a lot of risks,” he added. He said that businesses which have more digital payments have an easier time doing accounting and can secure their documents online.


Mobile the way to go

For Dr. Rutendo Hwindingwi, divisional director for Sage East and West Africa, the continent is moving in the right direction in incorporating mobile money in major payments.

“We’re seeing more and more Kenyans go online, thanks to cheaper smartphones and mobile data,” Hwindingwi said. “Combine that with Kenyans’ comfort with electronic transactions after years of using mobile data, and we can expect to see digital shopping and commerce really start to take off.”

Dr. Hwindingwi says that most digital transactions in Kenya will take place via smartphones and mobile broadband because of low fixed-line and PC penetration.

“With mobile money providers like MPesa now adding APIs for smartphones to their products, they are opening up a range of new m-commerce applications and services,” he said.

“This is particularly significant given the low penetration of credit and debit cards in Kenya – a factor that has inhibited e-commerce. Kenyans excluded from the formal banking system have lacked safe, easy and convenient ways to pay and be paid. We hope to see mobile wallet solutions come to market that make it easy for customers to make digital payments.”

“Some of the solutions that we have for payments were not made for Africa,” Mugane admitted. “What we are now shifting towards is building solutions that are catered to solve some of our challenges.”

The upcoming Visa Mobile will address the trust challenge that Africans face by enabling users to pay for goods through the application, without exposing their sensitive details.

The panellist at the WhatsNextRetail meetup agreed that more education needs to be put in to trying to attract users to do less cash transactions. Mobile money has done a great job but other avenues such as the use of credit cards and engaging platforms such as PayPal would go a long way in boosting e-commerce ventures.

With countries such as Kenya having over 80% mobile penetration and accounting for Kshs 3 billion (US$30 million) daily mobile money transactions, the future of e-commerce in the continent in certainly good – as long as confidence in the current systems are assured.