More than 400 million people in Africa are financially excluded which makes them to be left behind from benefitting the finance and economic activities of their respective countries, according to the State of Inclusive Instant Payment Systems (SIIPS 2024) annual report.
The annual report released by AfricaNenda, a foundation which works on promoting inclusive instant payment systems in the continent further indicates that only 45 % of the continents adult population are able to access instant payment systems and even these members of the population have to grapple with challenges like energy, internet connectivity, and a lack of cross-border trade facilitation in the continent.
Hence despite some levels improvements observed in the existing systems, inclusivity remains a formidable challenge that needs more intervention in terms of connectivity, energy supply and legal frameworks that enable data privacy and security, among others, the report indicated.
The foundation launched its third annual State of Inclusive Instant Payment Systems in Africa (SIIPS 2024) report in Accra, Ghana, on November 20, 2024, in collaboration with the Bank of Ghana and Ghana Interbank Payment and Settlement Systems (GhIPS).
In his opening remark Foundation Chief Executive Officer Robert Ochola (PhD) said “One of the foundational pillars for Africa’s structural transformation is financial inclusion. To uplift millions of our brothers and sisters from poverty, we must provide them with the tools and infrastructure necessary to empower them financially. This includes enabling every African to own and access a form of financial wallet”
Instant Payment Systems (IPS) are retail payment systems that are open loop and that enable irrevocable, low value, digital credit push transactions in near real-time for use 24 hours a day, 365 days a year unless there is planned maintenance or system downtime, AfricaNenda, SIIPS 2024 Report explains.
In addition to this, Inclusivity is mentioned as the bottom-line factor that determines whether IPS can help address the gaps in financial service delivery and the resulting economic outcome for cross-sections of society.
Ochola elaborated “At AfricaNenda Foundation, we recognized the importance of understanding and addressing the barriers to financial inclusion. Over the past three years, we have worked to document the challenges and quantify the opportunities through our flagship SIIPS reports.”
Representing the United Nations Economic Commission for Africa (UNECA) a key partner in the preparation of the report, Stephen Karingi noted that ensuring an inclusive and instant payment system in Africa plays a decisive role in realizing one of the continents flagship projects of Agenda 2063, which is putting in place the Africa Continental Free Trade Area (AfCFTA).
“Today, we celebrate not only the findings of the third edition of the SIIPS report but also the crucial discussions on interoperability and governance frameworks -essential components for Africa’s digital future. As we strive to advance regional integration, instant payment systems are essential in providing secure, real-time, and inclusive financial services across borders. At ECA, we acknowledge the pivotal role that these instant payment systems play in supporting regional integration in Africa, particularly in promoting digital financial inclusion in the context of the African Continental Free Trade Area (AfCFTA) implementation.”
Over the years a few number of IPS have passed through the gradual levels of inclusivity and attained the progressing levels. Based on the improvements observed so far, Deputy Chief Executive Officer of the Foundation Sabine Mensah expresses hope to see more inclusive IPS in the continent in the coming 3 to 5 years.
“This year, we have 26 countries that have access to instant payment systems, and they are live. 27 countries are about to launch the instant Payment Systems. Out of these, 7 of them will be live in the next 18 months. So if you put 26 country lives and then the 27 that are coming eventually, all African countries will have a live instant payment system in the next 3 to 5 years. And for us, this is great momentum and instant payment system”
With their current level of inclusivity, the IPS in the continent are able to process some 49 billion transactions which, in terms of value have surpassed the 1 trillion USD mark.
However, without dwelling much on the successes achieved so far, it is compelling to focus on further reaching out to the large number of the continent’s population that remain unreached due to various constraints.
“While we celebrate record highs in transaction volumes and values through Instant Payment Systems (IPS), we must also confront a sobering reality: 45% of adults in Africa remain financially excluded as well as Over 400 million adults lack access to the financial tools they need to save, manage finances, and build resilience against life’s uncertainties,” said Ochola in his remarks.
This situation calls for revamping the activities that boost the inclusivity of the IPS. The IPS have to expand their accessibility to the large number of unreached people by taking various measures. Indeed, regardless of the extent to which they are moving forward, there are some steps in enhancing inclusivity scored by the existing IPS in the continent.
“The other thing we have noticed is that inclusivity is improving. Last year, we had 5 countries that were at a progressed inclusivity level. Today, we have 9 systems. Last year’s 5 systems and this year’s 9 systems actually cover 13 countries because 1 system is regional, i.e. the GMAC. This is good news for the ecosystem. Systems are becoming more and more inclusive. Those for me are critical differences that we need to take into consideration” according to Mensah.
Realizing a smooth inclusive IPS is primarily a matter of duly advanced fintech in a country. However, fintechs cannot shoulder the entire task of ensuring any level of IIPS. For instance, the IPS need mobile phones, basic or smart, reliable network connectivity as well an adequate source of energy, among others. The continent is in dire need of all these and it makes the journey to mature inclusivity of IPS an uphill battle.
Commitment of governments and service providers is mentioned as a game changer in putting in place an inclusive payment system starting from low level. For instance Ethiopia’s national payment system, EthSwitch, has jumped one step this year to Basic level of inclusivity after embarking on P2P and P2B in its services.
This is part of the aggressive intervention of the government in promoting digital finance and payment, according to Girum Fekadu, a Digital Financial Services Risk Manager at Ethiopost, with expertise that includes auditing at EthSwitch S.C. financial inclusion, digital transformation and providing subject matter expertise at the Digital Frontiers Institute, where he focuses on financial inclusion and digital transformation currently, AfricanNenda Community of Practice Ambassador.
“The government of Ethiopia is working aggressively to promote the country’s Digital Public Infrastructure, which is called Public Key Infrastructure (PKI), which is fundamental in implementing inclusive IPS, as IPS also the cornerstone for DPI. As a result currently the penetration of internet service, number of smart phones, digital wallet service provides, point of sales as well as ATMs is increasing throughout the country”
Girum further expressed hope that the recent reform that liberalizes the country’s Macro Economic will attract more vibrant players in the country’s instant payment ecosystem. Currently mobile money like Telebirr and Mpesa are operating in the country while many more, including fintechs are expected to join the ecosystem, he noted.
Among the major challenges in digital IPS is the vulnerability to fraud, cyber-attack and breaching of customer’s privacy rights. Such threats to both the privacy rights of the subscribers or consumers as well as the security and safety of their finance pose threat on the trust further aggravating the exclusion of many people in the finance sector.
Countries need strong legal protection system to preempt the violation of the privacy rights as well as cyber related crimes that hinder IPS. While there are a lot of measures that the country should take to enhance the smooth operation of inclusive IPS, the country can be said somehow in good shape given some of the legal and policy measures.
“The National Bank of Ethiopia (NBE) has promulgated various laws and guidelines that are based on risk management approach. For instance there is clear guideline of data privacy law as well as standards that regulate cyber security.
In addition to this, the Ethiopian government has issued the new Personal Data Protection Proclamation No. 1321/2024, which provides a detailed legal framework for data protection across all sectors.” Girum elaborated.
He further stipulated that the country’s Consumer protection law can step in to assist in the protection of customers against fraud and other problems that could happen in payment systems.
Given the current level of commitment the country is likely to attain the progressed level of inclusivity in the coming few years, added Girum.
Mensah also insists on bringing together all these to see the final outcome being fruitful.
“It takes a village, we need to make sure that digital public infrastructure is a priority to our country, we need to make sure that the infrastructure level connectivity access to a phone. Then at the regulatory level, how do we enable more digital payment system operators to come into the ecosystem? So licensing of fintech is an area where Regulators can help by bringing more visibility more streamlining, the licensing process communicating and how, fintech can have a license so they can participate in the digital payment ecosystem”
BY ZEKARIAS WOLDEMARIAM
THE ETHIOPIAN HERALD TUESDAY 26 NOVEMBER 2024
