Pioneering Card Adoption in Africa's Cash-Dominant Market

When, in 2009, Dare Okoudjou founded Onafriq, he had a vision. He wanted to develop an African financial infrastructure that would last over 100 years.

By 2018 we were well on the way: a major player in the continent’s fintech space whose innovative and creative approach placed us at the forefront of interoperability, working with banks, the telecoms industry, money transfer operators, humanitarian organisations and other fintech players to make payments as easy as a phone call.

But, he realised, something was missing. For African consumers in the fintech ecosystem, it wasn’t sufficient to receive, store or send money. Real progress would come with the ability to use that money in the global digital economy - an expansion of possibilities. Like their counterparts elsewhere in the world, the continent’s consumers want to watch Netflix, buy clothes from Shein and access Facebook ads to grow their own businesses.

His vision, Dare realised, wouldn’t be complete if it didn’t include cards.

Conventional wisdom suggests that Africa, where “cash is king” (in 2020, about 95% of all transactions on the continent were done in cash), isn’t a card market. Data seems to bear this out. In a 2022 document, BPC Banking Technologies and the Fintech Consultancy Group (Fincog) reported that sub-Saharan Africa accounts for some of the world’s lowest credit and debit card penetration rates in the world, with 3% and 18%, respectively.

However, significant innovations and adaptations in the past decade have ensured that bank cards are more widely available. Today, there’s no shortage of card schemes on offer across Africa.

Despite the growing ubiquity of such schemes, card penetration rates in sub-Saharan Africa remain extremely low, according to a 2022 report by BPC Banking Technologies and the Fintech Consultancy Group (Fincog): it stands at around 3% for credit cards and 18% for debit cards. This is, at least in part, because many card products are linked to programmes offered by traditional banks, and, again, according to the BPC and Fincog report, hundreds of millions of people across Africa are unbanked. Mobile money account adoption rates, though on the rise, remain low in many countries.

World Bank data on account ownership at a financial institution or with a mobile money service provider among people aged 15 and older offers some insight into the variety across countries and regions of the continent. Some examples from highest ownership rates to least include:

• Mauritius (90.53%)
• South Africa (85.38%)
• Kenya (79.20%)
• Ghana (68.23%)
• Cameroon (51.65%)
• Rwanda (50.02%)
• Nigeria (45.32%)
• Democratic Republic of the Congo (25.83%)

That “cash is king” refrain is another factor that keeps bank and mobile money account adoption low in parts of Africa. The BPC and Fincog report places the rate of payments and transactions in sub-Saharan Africa made with cash at 90%.

So why cards?

For Dare and Onafriq, cards are the true link between alternative stores of value such as mobile money and the global digital economy. Not all mobile money schemes are built with the same standards so it’s difficult for global merchants to accept payments from the more than 150 on offer just in Africa. Simplifying users’ ability to transfer their money from wallets to cards opens the world up to the continent - and Africa to the world.

And there is a strong business case for cards. In 2022, McKinsey explicitly identified cards as a core revenue generator in the next five to ten years:

“Card-based payments will grow, fuelled by the ease of use for end users (offline and online) and better economics for issuers. E-wallets will see growth, enabled by their ability to integrate several payment methods into one—including mobile money, a solid value proposition in the deeply fragmented landscape of payment methods in Africa.”

It identified cards, including prepaid cards, as “unique in their versatility.” This is because they can be linked to multiple money stores, such as mobile money and bank accounts. Virtual cards also don’t have the associated costs of physical, plastic cards - a win for both issuers’ and users’ pockets. They’re also touted as a way to guard against credit card fraud and phishing scams. Besides being a general spend card, prepaid cards apply to numerous use cases targeting specific markets such as travel, including corporate and holiday travel, remittances, rewards and loyalty, and payroll management.

So Dare chose to bet on his instinct.

Rajat Mishra, Onafriq’s Chief Operating Officer for Cards, explains how our card strategy has unfolded: “We started our card journey with a strategic partnership in 2019 with Visa: we were the first non-banking fintech to get a principal license to issue cards in Africa. We then spent two years developing the stack and testing the waters in various markets and realised we also needed an in-house tech platform for cards.”

This led to our June 2022 acquisition of GTP. The company, based in Tulsa, Oklahoma, was a prepaid cards pioneer in Africa and provided the backbone for our next major goal: interoperability between card networks and mobile money. In 2023 we enabled card-to-wallet and wallet-to-card transfers. This is a critical service given the growth of e-commerce and cross-border transactions: customers with mobile money wallets can transfer to prepaid cards, subscribe to their favourite streaming service or pay the merchants whose products they love – yet another expansion of possibilities for African consumers.

Challenges Along the Way

Put this way it may sound like a simple process. But there have been a number of hurdles along the way that have required a combination of deep institutional knowledge and expertise, world-class technology and strong partnerships and relationships to overcome. These include:

• Limited banking penetration: A significant portion of Africa's population remains unbanked or underbanked, limiting the potential customer base for card products. This is often due to a lack of access to banking services in rural areas and a general mistrust of formal financial institutions.
• Regulatory hurdles: Each African country has its own regulatory framework governing financial services, including card issuance and transactions. Navigating these diverse and sometimes complex regulations can be challenging for companies looking to launch card products across multiple countries. Requirements like closed-loop networks, integration to domestic switch for monitoring, among others, make it even harder.
• Fraud and security concerns: Fraudulent activities, including card skimming and online fraud, pose significant challenges in Africa. Implementing robust security measures to protect cardholders' data and prevent fraud is crucial but can be resource-intensive.
• Low levels of financial literacy: Many consumers in Africa may not fully understand how card products work or the associated fees and risks. Educating consumers about the benefits and responsible use of cards is essential for widespread adoption.
• Currency volatility: Some African countries (Nigeria is an example) experience high levels of inflation and currency volatility, which can impact the value of transactions conducted using card products.
• The cost of issuing cards: Setting up card issuance infrastructure and building a network of merchants that accept card payments is expensive. This cost may be prohibitive, especially in areas with low transaction volumes.
• Behavioural factors: In certain regions, cash remains the preferred method of payment because it’s still the cheapest store of value. Poorer consumers make many small payments, and if each payment has an additional cost, it becomes very expensive. Convincing consumers to switch to card-based transactions may require incentives and lower costs for small transactions.
• Logistical challenges: Delivering physical cards to customers in remote or poorly serviced areas can be logistically challenging, requiring innovative solutions such as mobile card issuance or partnerships with local distribution networks.
• Competitive landscape: Africa's financial services market is increasingly competitive, with both traditional banks and fintech start-ups vying for market share. Successfully launching card products requires differentiation and a deep understanding of local market dynamics.

Key Learnings

The past five years have been a steep learning curve. We’re glad about that – those lessons provide rich insights not only to help us keep improving and innovating, but can also help newcomers to Africa’s fintech markets in navigating this complex landscape. Rajat outlines our ten biggest learnings:

• Understand the local market – the regulatory environment, consumer behaviours, cultural norms, and infrastructure limitations specific to each country or region.
• Build trust – when you’re launching a card product in Africa you have to communicate transparently about fees, be proactive on reporting and regulatory needs, and deliver on the promises you make to customers.
• Leverage technology – African fintechs often succeed by using their tech to overcome traditional banking constraints. Mobile-based solutions, biometric authentication, and AI-driven fraud detection are just a few examples of technologies that have enabled fintechs to offer innovative and accessible card products.
• Keep your front-facing processes simple – fintechs should design intuitive user interfaces, minimise documentation requirements, and offer customer support in local languages.
• Offer value-added services – differentiate yourself by offering value-added services such as budgeting tools, rewards programmes, and access to credit or savings products. All this can be achieved by working with the right partners in the value chain who understand these factors and have experienced the challenges in real-time.
• Integration is key – you need to identify potential partners like local banks, mobile network operators and merchants who can help expand your reach and overcome regulatory or infrastructure challenges. This will allow you to develop the best plan for integrating your card products into the broader financial ecosystem.
• Carefully plan your distribution and customer acquisition – how can you do this cost-effectively? You must also identify the best channels for acquiring customers and plot out how to incentivise adoption and usage.
• Manage your clients’ risks – there must be clear and effective measures in place to mitigate the risks associated with card issuance, like fraud, credit risk, or cybersecurity threats. Ensuring that cardholders’ data is secure is critical in building and maintaining trust.
• Your tech infrastructure must be scalable and flexible – you hope and plan to grow, so make sure what underpins your enterprise can accommodate future expansion into new markets or product offerings. Scaling your operations cannot come at the cost of service quality and efficiency.
• Always adapt and innovate – what will you do to stay ahead of the curve and adapt to changing market dynamics, technological advancements, and evolving customer needs? A culture of innovation within the organisation is key to driving continuous improvement and growth.