How a cashless Africa strengthens the economy of the continent [THISDAY]

How a cashless Africa strengthens the economy of the continent [THISDAY]

Originally posted on THISDAY

Written by Efayomi Carr, Principal, Flourish Ventures

The dream of a completely cashless Africa, where a Kenyan can trade easily with a Zambian despite the countries having different currencies and being in different economic zones, was a far-fetched reality less than a quarter of a century ago, and it was definitely a time most Africans were only familiar with via the media they consumed showing depictions of cashless transactions in more developed regions and economies.

Change is the only thing in life that is constant, and this we can attest to in every area of life. Currently, the transition to a cashless society is already happening and while Kenya may not be fully ready to switch over completely to a cashless economy, financial institutions including credit and debit card firms are more than willing to support this idea.

The prospect of a cashless Africa has triggered a scramble for control of its payments plumbing. Thanks to their “ mobile money“ networks, the continent’s top telecoms operators have become big financial players thanks to their “mobile money” networks, which provide basic banking to tens of millions through handsets.

Restrictions on movement and increased wariness of handling physical cash helped lift sub-Saharan mobile money transaction volumes 23% to $490 billion last year, greater than the GDP of Nigeria, the region’s biggest economy. Active users increased by 18% to 159 million, according to the GSMA, an industry body.

There are strong advantages of choosing to go cashless. It makes life easier and helps verify the transactions that are done, therefore reducing theft and fraud cases. It also reduces the expenditure incurred in printing and transportation of currency notes considering the fact that the lifespan of paper currencies is about six years.

Going cashless helps to curb corruption, which is one of the major problems in Africa, while also preventing the inflow of laundered money which leads to an increase in economic growth.

Apart from improving financial inclusion, a cashless Africa could also embrace Africa’s large informal economy. But with the growth of technology and a population that is able to easily adapt to digital platforms, growing a cashless economy can have a major impact on the continent’s growth.

Innovation has to lead for policy to follow. The impact of mobile money can be seen in the financial inclusion statistics of the continent. In contrast to the high number of unbanked individuals, according to the GSMA State of the Industry Report on Mobile Money 2021, Africa accounts for 64% of all mobile money transactions globally.

Mobile technology has played a big part in that, making it easier both to send and receive money, but it’s also opened the door to a lot of potential exploitation by unscrupulous opportunists, preying on people who might use a service for convenience and not be completely clear on how the actual pricing breaks down.

For instance, Kenya came up with the concept of mobile money through the creation of M-PSEA and continues to lead the continent to grow and develop the services.

Digital technology is now being leveraged in building an ecosystem that enables people to digitally send and receive money and offer simple financial access for everyone. This has played a part in building financial technology to improve the lot of people living in emerging markets either through better access to payments facilities or access to remittance services.

For that reason, the UN has set a goal for remittance pricing and commissions to be no higher for any company than 3% of the total sent — one way to ensure that players focus more on volume and less on margins. Taptap Send, an Africa based financial services provider is one of the few companies in Africa that has publicly committed to that goal.

Such firms are solving two key problems that exist around the world – eliminating the use of cash for transactions and access to financial services. These companies have been of great assistance in helping people send and receive money with ease.

The question is, does money have to be in the physical form? The generations to come are likely to live at a time when their idea of money will be credit and debit cards. This will be the time when cash will have to give way to a world where exchange will take place without money being visible and tangible.