Although Africa remains the home of mobile money, the shift to digital wallets is in full swing in countries with high smartphone penetration.

This is according to a white paper published by market analyst firm Omdia and commissioned by CR2, which discusses the rise of digital wallets and how mobile wallets have successfully targeted the underserved banking population.

The market analyst firm notes the adoption of digital wallets has been steadily growing for several years, but the COVID-19 pandemic accelerated the trend for online and in-store payments, as merchants’ priorities shifted to increasing acceptance of new payment tools (such as digital wallets).

In some regions, it says, digital wallets have evolved into so-called “super apps”, which have diversified beyond money management into restaurant bookings, taxi-hailing, food delivery and even gaming.

A matter of lifestyle

In SA, mobile operators like Vodacom announced the VodaPay Super App, a mobile payments solution that has been customised to meet the specific lifestyle and payment needs of consumers, businesses and tech developers, says the mobile operator.

Big-four bank Nedbank also has its own super app, known as Avo. According to the financial institution, Avo garnered over 250 000 South African users in 12 months, as the bank accelerated the use of digital solutions.

Omdia believes digital wallets could lead to super apps that provide banks with the opportunity to offer products and services beyond banking.

The market analyst firm explains that digital wallets have become an entry point for consumers to engage with financial services, and thereby create new opportunities to target the underserved banking population.

It points out that consumers in the Middle East and Africa region are embracing digital payments and subsequently using digital wallets as smartphones become more widely available.

Omdia expects smartphone penetration in Kenya to reach 60% in 2021 and forecasts it to rise to over 80% by 2025.

M-Pesa, the Kenyan mobile money service owned by telecommunications operator Safaricom, is looking to capitalise on this trend, having launched its own super app in June.

M-Pesa’s new app enables users to book bus or train tickets, purchase insurance and buy tickets for various events, with more services to be added in the future.

According to Omdia, M-Pesa is taking inspiration from Asia and is looking to emulate the success of WeChat and AliPay, which between them account for more than 90% of digital payments in China.

WeChat started life as a messaging app and sought to add gaming, shopping and payments to its portfolio as an incentive for users to stay in its ecosystem.

The analyst frim says e-commerce services such as Alibaba and Amazon set up their own digital wallets to make it easier to make payments on their own sites before they recognised the benefits of extending this to third-party websites.

QR code boost

It explains that while digital wallets have largely benefited from the growth of e-commerce, the introduction of QR codes was the fundamental reason behind the success of digital wallets as an in-store payment method in Asia. They are beginning to become more prevalent in other regions too, particularly as the world adjusts to a post-COVID-19 environment.

Omdia points out that Ghana was the first African country to introduce a universal QR code, and South Africa is in the process of standardising QR codes across the sector as adoption of alternative payment methods continues to rise.

“Digital wallets provide an incentive for new customers to sign up and in turn will boost potential revenue, as they encourage users to open other banking services, such as savings and loans,” the firm says.

“The COVID-19 pandemic has accelerated the shift to digital payments, with numerous studies showing unprecedented adoption rates for digital payments across Africa. This was seen with the launch of Apple Pay in South Africa in March 2021.”

Apple Pay allows users to make payments in person, in iOS apps, and on the Web using Safari. Customers simply hold their iPhone or Apple Watch near a payment terminal to make a contactless payment.

Leading banks Absa, Discovery Bank, Nedbank and FNB immediately adopted the service because of demand from their customers.

One of the key takeaways of the white paper is that in-country regulatory initiatives are increasing competition for financial services, with financial and telco firms launching digital wallets as a first step to gaining banking licences.

“This has resulted in banks facing increased competition from non-traditional rivals. In western Africa, for example, both Orange and MTN have been issued banking licences, and in Saudi Arabia, 16 licences have been issued to fintech firms for payment services.

“This highlights the need for retail banks to adopt broader digital banking platforms that support customer-to-bank interactions for direct and emerging channels such as digital wallets, and offer customers new products and services that go beyond banking through, for example, super apps.”