Financial Innovation in Africa: IPSs Empower Transactions and Drive Economic Growth

 Financial Innovation in Africa:

 IPSs Empower Transactions and Drive Economic Growth

Financial innovation in Africa is being propelled by the emergence of Instant Payment Systems (IPSs), revolutionizing fund transfers and payment confirmations with their quick, 24/7 availability. Integrated into various digital platforms such as mobile banking apps, online services, and point-of-sale terminals, these systems play a central role in the ongoing digital transformation across the African continent. According to the report titled "The State of the Inclusive Instant Payment Systems in Africa-SIIPS 2023," published by AfricaNenda in collaboration with the World Bank and the United Nations Economic Commission for Africa, IPSs in operation in Africa have experienced phenomenal growth.

Rapid Growth of IPSs in Africa:

In 2022, these systems processed a staggering 32 billion transactions with a total value of $1,180 billion, showcasing an average annual growth rate of 47% in transaction volume over the past five years. The report highlights the impact of the rapid adoption of digital financial services, further accelerated by the COVID-19 pandemic, on the growth of transaction values, which recorded an average annual growth rate of 39% during the same period. As of 2023, Africa now has 32 active IPSs, comprising 29 national systems and 3 regional systems, including the Pan-African Payment and Settlement System (PAPSS). The innovation momentum continues with the launch of three new IPSs in the past year, namely EthSwitch in Ethiopia, Virement Instantané in Morocco, and PayShap in South Africa, signaling the ever-evolving African financial landscape. However, it is worth noting that 27 African countries still lack instant payment capabilities. Nevertheless, the report suggests that this situation is expected to change in the coming years with the ongoing development of 17 new national IPSs and three regional IPSs. Notably, USSD (Unstructured Supplementary Service Data) protocols remain the predominant channel used by 75% of IPSs, ensuring accessibility even on basic mobile phones.

Usage Channels and Challenges:

Mobile applications rank second (72%), while QR code-based solutions are gaining popularity. While the report highlights the high potential of IPSs in driving financial inclusion, it also sheds light on persistent challenges, including regulatory obstacles, lack of data transparency, and high costs. Currently, no IPS in Africa has achieved a mature level of inclusivity. However, five systems are progressing toward this goal by improving use case integration, reducing transaction costs, and establishing transparent grievance mechanisms. These advancements will further solidify IPSs as key tools for fostering financial inclusion, supporting economic growth, and stimulating innovation in Africa.

New Schengen Visa Rules

On November 13, 2023, the European Union (EU) announced the adoption of groundbreaking rules that allow individuals to apply for a Schengen visa online to visit one or more of the 27 Schengen Area countries. This initiative, praised by Maria Malmer Stenergard, the Swedish Minister for Migration, aims to simplify administrative procedures, enhance security, and reduce the risk of falsification. According to Fernando Grande-Marlaska Gómez, the interim Spanish Minister of the Interior, the online visa application option represents a major improvement for citizens and the processing of applications. It simplifies procedures for travelers and alleviates the administrative burden on national governments. The focus now lies on the configuration of the online Schengen visa application platform, whose finalization will determine the launch date, application process, and eligible beneficiaries. For individuals whose biometric data is not registered, the standard procedure through consulates and embassies remains necessary. This development aligns with the growing trend of African countries adopting e-visas to streamline application processes, as seen in examples like Benin, Ethiopia, Tanzania, Kenya, Togo, and Côte d'Ivoire. The adopted regulations also envision the creation of a EU platform for visa applications, reducing the need for in-person appointments at consulates. Applicants will be able to upload electronic documents, provide all necessary data, and pay visa fees through this platform. These regulations will replace the current visa sticker with a cryptographically signed barcode, strengthening the security of the process. Once signed, they will be published in the Official Journal of the European Union and come into effect on the twentieth day following their publication. The application date will be set after the completion of technical work on the visa application platform and digital visa.

Economic Strains and African Startups:

In response to the slowdown in the global venture capital market, declining valuations, persistent inflation, and rising operating costs, African startups have taken drastic measures to ensure their survival by conducting significant layoffs. During the third quarter of 2023, African startups laid off 738 employees in a landscape characterized by funding shortages and increased operational costs, according to a report by TechCabal Insights titled "The State of Tech in Africa Q3 2023." This figure represents a 210% increase compared to the second quarter of 2023. Twiga Foods, aKenyan agritech company, recorded the largest workforce reduction, with 283 employees being let go in August 2023, contributing to a trend that has been gaining momentum since 2022. Concurrently, fundraising activities experienced a significant decline, totaling $499 million in the third quarter of 2023, a 26% decrease compared to the same period in 2022. Energy-focused startups, for the second consecutive quarter, outperformed fintech companies in terms of fundraising, securing $194.7 million across nine transactions, representing 39% of the total funds raised during the period. Fintechs came in second place, raising $112.7 million. Kenya leads the fundraising efforts by country, followed by Nigeria, South Africa, and Egypt, together accounting for nearly 67% of the continent's total fundraising in the third quarter of 2023. Additionally, the TechCabal Insights report recorded seven acquisitions and four geographical expansions in the African tech scene during the third quarter of 2023.

Conclusion:

Financial innovation in Africa continues to evolve, with Instant Payment Systems (IPSs) playing a pivotal role in facilitating seamless transactions and driving economic growth. The rapid growth and adoption of IPSs across the continent highlight the transformative potential of digital financial services. However, challenges such as regulatory hurdles, data transparency, and high costs need to be addressed to fully realize the inclusive benefits of IPSs. Simultaneously, the European Union's adoption of revolutionary Schengen visa rules reflects a global shift towards digitizing administrative processes, simplifying travel procedures, and enhancing security measures. These developments in Africa and Europe demonstrate the ongoing drive for technological advancements and innovation in various sectors, ultimately shaping a more connected and efficient future.