Tokenization in Africa: How a fragmented ecosystem provides huge growth opportunities

Key takeaways

• The mobile wallet ecosystem in Africa is highly fragmented. Only two countries currently support Apple Pay and Google Wallet, with telcos and software companies the most common mobile wallet providers
• Cash is still king in Nigeria, but is fast falling out of favour. There are several well-established mobile wallets but also plenty of opportunities for other institutions that want to launch their own mobile wallet
• South Africa is one of the only African countries to support Apple Pay and Google Wallet, but debit cards are still the most popular payment method. Mobile wallets are predicted to surge in use over the next few years.

The digital wallet landscape in Africa is quite distinct compared to other regions. For a start, Apple Pay and Google Wallet are only currently available in two countries – Morocco and South Africa – yet rates of mobile phone penetration are high, and many Africans are more likely to have a smartphone than a bank account.

Some mobile wallets such as M-Pesa, which was launched all the way back in 2007, are well established in the region and can be used across multiple territories. Telcos such as Orange, Vodafone, AirTel, MTN and Millicom and software companies like Opera offer mobile wallets in various territories, making for a highly fragmented ecosystem.

This highlights the huge growth potential of digital wallets in the region. In this blog, we’ll take a closer look at two key African markets and the opportunities they present for institutions that want to launch their own mobile wallet products.

Nigeria: Cash dominates but digital wallets are growing fast

Nigeria has a population of 233 million, making it the sixth most populous country in the world and the most populous nation in Africa. While mobile wallets are growing fast, cash is still king for Nigerian consumers. However, cash is forecast to decline in use at a Compound Annual Growth Rate (CAGR) of -4% until 2027, according to WorldPay’s Global Payments report. 

This isn’t all that surprising when you consider the turmoil physical currency in Nigeria has been suffering from recently. Back in February 2023, there was a cash crisis with insufficient availability of banknotes after new notes were introduced; the Nigerian Supreme Court was forced to step in and mandate acceptance of old notes to alleviate the crisis. The Central Bank of Nigeria (CBN) has been attempting to introduce digital cash, but uptake of e-Naira, the CBN's digital currency, has been very low since it launched in October 2021. 

Mobile wallets, then, would seem to offer a very convenient solution for consumers that are turning their back on cash and aren’t convinced by the CBN’s digital currency. For now, using digital wallets for ecommerce purchases is only the fifth most popular payment method for Nigerians at 11%, with account-to-account payments leading the way at 32%. Meanwhile, at point-of-sale (POS), cash is still overwhelmingly the favourite way of paying at 55%, though digital wallets are the second most popular method at 18%.  

The most popular mobile wallets in Nigeria are Paga, Opay, MTN MoMoPay, KongaPay and PalmPay. Naga is one of Nigeria's most heralded home-grown fintech success stories, and it currently boasts more than 31 million users, more than twice as many as Opay, the next most popular mobile wallet. It seems likely that more mobile wallet solutions will be launched in Nigeria in coming years as this method of payment grows in popularity.

South Africa: Mobile wallets forecast to grow quickly in ecommerce and at POS

In South Africa, another fast-growing African economy with a population of 64 million, debit cards currently rule the roost. They’re top of the pile when it comes to ecommerce and POS transactions, according to WorldPay’s data. However, in ecommerce, digital wallets represent 20% of all transactions compared to 29% for debit cards, suggesting that the sands are beginning to shift. 

At the point-of-sale, debit cards account for more than a third of all transactions (37%), with digital wallets only claiming a 7% share right now. But there are signs that digital wallet use is growing in the country, with WorldPay forecasting that mobile wallets see a Compound Annual Growth Rate (CAGR) of 37% through to 2027, with a 30% CAGR for ecommerce over the same period. 

South African consumers are able to use Apple Pay and Google Wallet, and also have access to MTN MoMo, VodaPay, which is a super app, and domestic wallets such as Cell Pay Point, provided by a local bank, FNB. However, the high use of debit cards in the country means there is plenty of room for other institutions to develop their own mobile wallet product and successfully launch it into the market as these users inevitably transition from physical to digital payments in the near future. 

Tokenization: The key to unlock the potential of mobile wallets 

Tokenization is the process of turning physical payment cards into digital tokens that can be used in mobile wallets. It's a necessary consideration for any institution that wants to launch a mobile wallet product. If you want to find out how it can enable new business models for your financial institution, download MeaWallet's guide to tokenization. 

If you are looking to connect with OEM wallets such as Apple Pay, Google Wallet, Samsung Pay, or issuer-branded wallets then MeaWallet has the solution you need  – get in touch today to explore your options. 

FAQ

Q: Why is tokenization important for mobile wallets?
A: Tokenization converts physical payment cards into secure digital tokens, which are essential for enabling mobile wallets. It allows users to make transactions without exposing sensitive card information, ensuring security and a seamless user experience. For institutions looking to launch or expand mobile wallet services, integrating tokenization is crucial to future-proofing their offerings.

Q: How is the mobile wallet landscape evolving in Nigeria and South Africa?
A: In Nigeria, while cash remains the most popular payment method at the point-of-sale, digital wallets are steadily growing. Major wallets like Paga and Opay are expanding, with more players expected to enter the market. In South Africa, debit cards currently dominate both ecommerce and point-of-sale transactions, but mobile wallet adoption is accelerating, with a forecasted growth rate of 37% through 2027.

Q: What challenges do mobile wallets face in Africa?
A: Fragmentation is a key challenge, with many telcos and software companies offering their own wallets, leading to a lack of standardisation. Additionally, while mobile wallets are growing in popularity, traditional payment methods like cash and debit cards still have a strong foothold in many regions, requiring a gradual transition to digital payments.

Q: How can tokenization unlock growth in the African payments landscape?
A: By enabling secure digital payments through mobile wallets, tokenization can help accelerate the shift from cash and physical cards to digital solutions. As more consumers adopt mobile wallets, institutions that invest in tokenization will be well-positioned to lead in the evolving African payments market.