How Covid-19 is accelerating online spending & digital payments in Africa

CEO of DMA Global, Leon Isaacs, was recently interviewed by Juliana Olayinka about the gaps in online spending between the UK and Nigeria and how the COVID-19 pandemic has affected these trends as well as that of digital payments in the informal sector. 

The interview was broken into two main sections. The first question, which can be viewed here, revolved around the hurdles to increased online spending and why countries such as Nigeria are far behind the numbers seen in countries like the UK. The 2nd question, which can be view here, revolved around how COVID-19 has spurred a trend towards more people, including those in the informal sector, using digital financial products. 

Where are the hurdles in Nigeria and across Africa that create such a significant gap in online spending?

Olayinka mentioned that Nigeria is approaching USD 4.5 billion dollars in online spending this year, whereas the UK is sees USD 885 billion in online spending in a year. 

Leon responded that to get to high levels of online spending, you have to start somewhere and Nigeria, like many other Africa countries, are starting at a place far behind the UK. He pinpointed 5 hurdles that are contributing to the gap in online spending between the two countries and others like them: 

1. How many people are actually familiar with digital financial products? How many people have access to financial products that aren’t care related. In Nigeria, it’s only around 30% of people who access finances through accounts or other digital products. 
2. The infrastructure is just not there. To get these systems to do real time payments for financial services is extremely complex. This takes a while to build up and you need a strong regulatory environment and other systems. 
3. You also have to look at the availability of products and services. We’re only just starting to see digital financial products pop up in Nigeria and other African countries. If they are able to learn lessons from other countries, it won’t take them long to get where other countries are. 
4. We often forget, that while the number for the UK is impressive, the country as a whole has been working on this for at least 50 years in one way or the other. Whereas, in Nigeria, it’s closer to 5 years or there about. 
5. Finally, we often give Africa countries a hard time when in reality, they haven’t had some of the luxuries that the UK have had in terms of time, attention, money and resources to achieve these levels of financial inclusion and digital payments.

Is the rise in digital payments during COVID-19 a flash in the pan or can it be used to further formalize the informal sector?

Olayinka mentioned that according to the African risk report, 70% of the Africa economy is informal. But, during the COVID-19 pandemic, we’re seen a formalization of this sector because when people couldn’t go out and work, they had to rely on palliatives and government handouts, some of which were distributed digitally. The question remains though, will government officials be able to leverage this to enhance data on the informal economy and start pushing market traders onto digital platforms.

Leon continued on to say that COVID-19 has given an acceleration to things that people have been talking about and known for a long time, which is that digital is more efficient, it’s cheaper and it’s generally better for people. Due to the lockdowns during COVID, people had limited options and have therefore had to test and use digital products. Getting people to trust digital payments or anything outside the norm is a difficult task, particularly in an environment of fraud and mistrust.

So what has happened, due to having no other choices during COVID-19,  is that people have tried out digital payment, seen it’s worked and they’ll continue to use it. Going forward, it’s important that we don’t take the foot off the peddle and actually find means of encouraging and incentivizing people to use digital financial products. 

We at DMA Global would like to thank the Channels Business team for having us on their program. We’re passionate about seeing the continued growth of digital payments across Africa and the world. 

At the beginning of the COVID-19 pandemic, we released a blog post about some of the positive developments that might arise from the crisis in the field of remittances and digital payments. We’ve since worked with organizations like the World Bank , IFAD and IOM to track the effects of COVID-19 on remittances, market operators, diaspora members and their families and labour mobility. 

We hope that everyone and their families continue to stay safe during these uncertain times.