Prepaid Heating up in Markets across Africa (December 2012)

By Adam Perrotta, Assistant Editor

Prepaid providers are setting their sights on Africa, where large underbanked populations, emerging economies and advancing technology are combining to offer what many industry players see as a golden opportunity—and not just for outside companies looking to enter the market. African banks and other local firms also have carved out a space in the nascent prepaid industry, often as valuable partners offering knowledge of local markets and customs to non-African companies looking to do business on the continent.

Over the past two months alone, a number of new prepaid products have been unveiled in African markets, including MasterCard announcing a new mobile-linked prepaid offering under its Mobile Money Partnership Program, a GPR card in Botswana from U.K.-based Prepaid Financial Services Ltd. and a new prepaid loyalty program in Kenya from retailer Nakumatt set to reach more than 1 million of the merchant’s customers.

The proliferation of prepaid products in Africa is little surprise given the market conditions favorable to prepaid in many African nations, according to David Parker, CEO of London-based Polymath Consulting. Parker, however, cautions against viewing the continent as a single entity, rather than a conglomeration of many very different markets, each offering an array of challenges and opportunities. “Africa is no more a ‘single opportunity’ than Europe is a single country,” Parker tells Paybefore. “So to talk about the ‘African opportunity’ is wrong. We need to talk about the opportunities in Africa.”

The Big Three: Nigeria, Kenya & South Africa

Among the African countries Parker identifies as having the most substantial opportunity for prepaid growth are Nigeria, Kenya and South Africa. All three nations boast some combination of a few key factors, says Parker: a large population; a progressive central bank open to payments innovation; and favorable demographics, with a high percentage of unbanked and underbanked consumers and young people. Nigeria, for instance, has a massive unbanked population, comprising 46 percent of the country’s adults, according to a report by the International Finance Corporation—a figure the Nigerian central bank has committed to reducing to 20 percent by 2020. The bank’s efforts should be bolstered by growth in Nigeria’s economy, projected by the International Monetary Fund to be among the top 10 fastest-growing in the world from 2011 to 2015.

Kenya, meanwhile, has a significantly underbanked population and already has shown rapid adoption of mobile money services with Safaricom’s well-known M-PESA money transfer service (see sidebar). South Africa has fewer underbanked consumers, but boasts a well-established existing payment infrastructure and a huge population of customers already familiar with financial services, according to Parker. Indeed, South Africa, with perhaps the most advanced economy of any African nation, has developed a significant prepaid industry over the past several years, with offerings that include a biometric card for recipients of social welfare, a Citi prepaid Visa card for microloan disbursements and the continent’s first dual-interface payment card (offering both PayPass contactless technology and a traditional magnetic stripe).

African companies have played a major role in much of the recent prepaid activity on the continent, sometimes acting as local partners, such as Botswana-based Kingdom Bank Africa Ltd. serving as issuing bank for the GPR card recently released there. In other cases, African firms have been the driving force behind a product, such as the Nakumatt card.

In Senegal, meanwhile, Parker points to a prepaid card from local technology company FERLO that is usable in eight countries and operates without the backing of a major card network like Visa or MasterCard—instead using GIM-UEMOA, the interbank payment network for the eight-nation Economic and Monetary Union of West Africa. But for African banks, bringing in an outside program manager when launching a prepaid product is often a good option, given such firms’ experience with prepaid, says Parker. “It is a recognition that prepaid is different from credit and debit cards and that they do not have the expertise in-house,” he notes, predicting that “a number of banks in other African markets will partner with program managers and third-party brands to launch prepaid solutions over the next 12 months.”

Companies looking to launch prepaid products in Africa would be wise, however, to keep an eye on coming regulations that could affect operations in target markets, Parker warns. “Prepaid regulation is hot on the list of many [African] regulators,” he notes, citing new electronic money regulations about to be implemented in Kenya, among others. Parker also tabbed governance of telecom firms looking to launch mobile wallets as high on regulators’ to-do lists. Overall, though, the opportunity for prepaid in Africa is a major one. With such favorable market conditions prevailing across the continent, Parker asks, “Why would you not be there?”