Despite mobile money boom, cash remains king in Africa, undermining potential benefits
Despite leading the world in mobile money adoption, Africa remains heavily reliant on cash, limiting access to credit, driving up transaction costs and holding back small businesses. A new report argues that the next challenge is not building digital infrastructure, but making digital payments more attractive than cash.
A new report highlights that despite a boom in mobile money across Africa, physical cash continues to dominate, impeding the continent's economic potential. Affinity Africa, a Ghanaian digital finance firm, co-authored the report with the Mo Ibrahim Foundation and Yale University's International Leadership Center. Titled "Breaking the Cash Equilibrium: Unlocking Africa's Digital Financial Future," the study reveals that despite processing over $1.1 trillion in transactions on 1.1 billion accounts in 2024, more than 90% of this activity still involves physical cash withdrawals rather than digital payments for goods and services.
The report argues that while Africa accounts for 74% of global mobile money transactions, the gap between existing financial infrastructure and its economic application is substantial. Convenience remains a major factor; for street vendors and informal merchants, accepting cash costs nothing and settles instantly, while digital payments incur fees and require digital literacy.
Affinity Africa's CEO, Tarek Mouganie, emphasized that the disparity between the continent's financial infrastructure and the economic behavior it aims to promote is stark, with the cost of this gap growing annually.
Nigeria's push for debit cards and point-of-sale terminals has expanded a network of approximately 2 million POS agents in cities like Lagos, yet these digital channels often serve to distribute physical currency more efficiently, rather than eliminating cash transactions. In Ethiopia, the introduction of the national digital ID system, Fayda, and the mobile money platform Telebirr has been met with trust barriers.
Users sometimes keep cash reserves due to system outages during emergencies, while others avoid digital records out of fear that pooled funds might be deemed taxable income.
The narrow adoption of digital money significantly impacts Africa's growth. Small and medium-sized enterprises (SMEs), constituting about 80% of jobs and 90% of privately owned businesses in Sub-Saharan Africa, receive only 5.4% of bank credit. The report notes that cash-dependent businesses generate little transaction history, complicating lenders' ability to assess creditworthiness.
Consequently, banks favor large corporations and government securities over smaller enterprises, leading to a $300 billion annual credit gap.
High costs in cross-border payments also persist. Sending $200 from Tanzania to neighboring Uganda incurs a 39.1% fee, whereas the same transaction from the United States to Nigeria costs just 2.3%. African households lose about $8 billion annually in remittance fees. To tackle these issues, the authors recommend collaborative efforts from governments, regulators, financial institutions, and tech firms.
They suggest making digital payments cheaper than cash withdrawals, ensuring interoperability among payment platforms, and incentivizing consumers and businesses to stay within the digital financial system through access to credit, savings, insurance, and other services. Ghana, Kenya, Nigeria, and South Africa are identified as key markets where the transition from cash to digital finance needs deeper integration.
The report suggests prioritizing merchant acceptance, real-time payment interoperability, and regulatory reforms to scale digital financial products. Drawing from successful international models, the report cites India's digital public infrastructure, which created over 500 million bank accounts and facilitated 100 billion annual digital payments, and Brazil's PIX system, processing more than 40 billion transactions by 2023 and substantially reducing cash usage.
The authors conclude that Africa has laid much of the necessary digital infrastructure for financial transformation, but the challenge now is to make digital payments cheaper, more useful, and more attractive than cash for both consumers and businesses. Given Africa's projected population to account for one in four people globally by 2050, delaying this transition could become increasingly costly.
Written by urgent.news from Africa Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
