African countries were some of the first countries to heavily adopt mobile-based payment applications. The convenience afforded by these payment applications made this region very open to adopting new technologies that seek to improve the way of life. However, these payment applications also came with some challenges in cross-border transactions.
As such, people have started looking for alternative payment systems which has led to the growth in adoption and use of cryptocurrencies. Brokers like FP Markets in Africa are seeing an increase in the number of people coming to buy crypto and other assets.
The Current State of the African Payment System
Currently, a huge number of payment applications are operated by private institutions, banks and mobile network operators. For the most part, these institutions have figured out a seamless way to send and receive money. However, cross-border transactions still remain a huge challenge. Additionally, there is a problem with the control that these institutions have over transactions and people’s data.
As such, people are shifting to technologies that allow them to have more control. Cryptocurrencies run on the blockchain and their ledgers are maintained by a network of computers. Cryptographic algorithms ensure transactions are secured and verified on the blockchain. As such, there is no need for a central institution to maintain the ledger and verify transactions. This gives consumers more control over their transactions.
Moreover, the lack of a central institution means that there is no company bound by a county’s regulations and policies that might prevent cross-border transactions. As such, it is much easier to send and receive funds across borders using cryptocurrencies. Evidently, there is a genuine need for crypto in Africa.
The Unbanked Population in Africa
Currently, Africa has one of the largest populations of unbanked individuals. More than 300 million are currently living without access to financial services. There are many factors that lead to this including high operational costs for banks, lack of infrastructure, and lack of financial literacy. Lack of money, trust, and privacy concerns can be other reasons why such a large number of people remain unbanked.
The inaccessibility of traditional financial services leads to many more problems including a lack of credit access and an inability to save. This can hinder people from infusing funds into improving their living standards including an inability to run and improve existing businesses. As a result, people can fail to lift themselves out of poverty or improve their financial class within an economy.
The Crypto Solution
Coindesk reports that Africa now has the largest number of small retail payments of less than $1,000. The website reports that Sub-Saharan Africa conducts the highest proportion of crypto retail payments under $1,000 at around 80%. A rise in the adoption of new technologies suggests an improvement upon the older ones. As businesses grow across borders, there is a need for an efficient payment method without many restrictions.
Moreover, the idea of having full control over your transactions is attractive to all kinds of individuals. There is no need to submit your valuable data to any company as you can transact straight with your peers without needing a middleman to process the transaction. The freedom afforded here is priceless.
Further, cryptocurrencies are a great solution to accommodate the unbanked. In Africa, there are many people in rural areas that do not have access to financial service providers. With cryptocurrencies, they can shift from a cash-based economy to a cashless economy easily. All they need to do is buy cryptocurrencies and go on to transact with their peers.
On top of that, some cryptocurrencies give clients access to some traditional financial services. These can include credit access, insurance and a savings system. These are essential services for people to gradually improve their living standards.
Advantages of Using Cryptocurrencies
- Cross-border transactions are possible when using cryptocurrencies.
- The cost of crypto transactions can be fairly lower than those of fiat transactions.
- The decentralisation of cryptocurrencies gives consumers the freedom to transact as they please.
- The speed of crypto can be fairly fast with some taking mere seconds.
- The vast accessibility of cryptocurrencies gives all kinds of people access to financial services. It is a possible solution to the unbanked population in Africa.
- Cryptocurrencies offer an added layer of security through cryptographically encrypted algorithms.
Disadvantages of Using Cryptocurrencies
- Mining cryptocurrency transactions can take a long time and hence slow down transactions.
- Some cryptocurrency networks have hefty mining fees. These are part of the transaction and can lead to costly transactions.
- The lack of a regulatory framework can lead to scam operations and unfair operational environments.
The progress that payment systems in Africa have made is remarkable. Mobile payment applications have given a lot of people access to financial services that would be inaccessible otherwise. However, these payment systems are not without challenges. There is still a large population in Africa that remains unbanked for many reasons. Moreover, there is still a problem with cross-border transactions using existing payment systems.
This is where cryptocurrencies can come in and provide a solution. With cryptocurrencies, it is easy to transact across borders as consumers have all the control. Additionally, the entry barrier is greatly lowered with cryptocurrencies, which leads to the unbanked population gaining access to financial services. Consequently, they can use the services available to fund an improvement of their living standards.