Africa’s mobile payments market is worth over $456 billion, presenting a promising opportunity for companies like dLocal to simplify cross-border payments.
Payments allow money, whether cash, bank transfer or cryptocurrency, to be accepted in exchange for acquiring goods and services. It is a critical aspect of the market and the economy in general. Like other emerging markets such as Latin America and Asia, Africa offers massive promise. With a mobile payments industry worth over $456 billion and a fast-growing population, the African market is worth buying into.
However, payments in Africa are not as seamless as one would expect. In a continent of 54 independent countries, each has a unique payment infrastructure that, in most cases, disallows interoperability with the other. For instance, a Nigerian on vacation in, say, Cape Verde, will find it difficult to send money home using a Nigerian bank based in the island country.
The same goes for freelancers— like content writers, software engineers, and more— based in Africa, looking to earn foreign currency from clients abroad. As a freelance journalist myself,
I have many unpleasant stories about the difficulties in getting payments for vital services rendered weeks or months after the job was completed. These challenges make me feel isolated from the outside world despite several efforts by fintech companies to bridge that gap.
The same goes for freelancers— like content writers, software engineers, and more— based in Africa, looking to earn foreign currency from clients abroad. As a freelance journalist myself, I have many unpleasant stories about the difficulties in getting payments for vital services rendered weeks or months after the job was completed. These challenges make me feel isolated from the outside world despite several efforts by fintech companies to bridge that gap.
Persistent Problems
Although international payments platforms like MoneyGram and Western Union are dedicated to making cross-border payments easier for Africans, the long processing times and seemingly endless documentation make sending and receiving money cumbersome.
Apart from the time it takes to settle international payments, it costs a lot to transfer money from Africa to the rest of the world. This makes it difficult for individuals as well as small and medium-sized businesses to thrive.
While there are other more user-friendly options like Payoneer, Grey, Geegpay, and Cleva, several challenges around currency rates, documentation, high transaction fees, and more persist.
Consider South Africa, one of the largest and most-advanced economies on the continent, which began exploring the possibility of establishing a digital Rand as part of its efforts to reduce cross-border payments costs.
According to a World Bank report, it is the costliest G20 country to send money from. “In Q4 2021, remitting from South Africa incurred an average cost of 13.02 percent, a moderate decrease from its recorded value of 14.81 percent in Q3 2021,” the report said.
Enters dLocal
dLocal— which boasts a multinational operations network across several countries, including Nigeria, India, and Uruguay— devotes itself to ensuring both emerging and established markets operate payments at the same wavelength. This means helping growing markets like Africa and Latin America to scale their payment processes, enabling seamless both local and international transactions between customers and service providers.
For Adebiyi Aromolaran, former vice president of expansion and compliance at fintech unicorn Flutterwave and current head of Africa expansion at dLocal, his journey into innovation began after two stints at two major Nigerian banks, First Bank and Guaranty Trust Bank. While working at First Bank, he realized many manual processes went into payments— something he says made him see a critical need for automation in the industry.
Aromolaran tells Inc Africa he only discovered payments should be a two-way street when he switched to dLocal. “What dLocal did differently in their mission statement was to not only connect the international market to Africa, but to also develop Africa’s payment infrastructure, giving it the Midas touch to be interoperable with the rest of the world,” he says.
When asked to comment on how dLocal sees cross-border payments, Aromolaran says dLocal thinks of cross-border payments from multiple angles. “We want to know how the beneficiary gets paid and the currency they want to get paid in. We also consider the ease in moving the money from the originating country to the receiving country. Beyond these, we also look at factors such as the destination of the payment, whether bank account, virtual account, or crypto wallet.”
By analyzing cross-border payments through diverse angles, dLocal has built solutions that enable service providers to receive payments with ease from consumers regardless of distance.
Navigating Regulations
In an essential sector such as financial services, regulation is key in ensuring payment providers render secure services that mitigate fraud and money laundering. Complying with laid-down regulations also builds trust between consumers and service providers.
For players in the financial services industry, adhering to regulatory policies is crucial— helping to increase confidence in their brand and shielding them against fines. Aromolaran agrees that it helps to be compliant and gain the trust of the people you work with, adding that dLocal prioritizes in all its operations.
He notes:
“Beyond compliance with regulatory policies, dLocal also looks at how the limitations on certain aspects of their innovations could be relaxed. This involves engaging policy makers by showing them the unique proposition of an idea and why it is relevant to the market,”
Opportunities in Emerging Markets
On the opportunities of cross-border payments in markets such as Africa, Aromolaran believes they are limitless. For him, building an efficient payments system is important because it serves as a means of trade which is a major contributor to the economy.
“If we’re unable to allow people to pay for goods, then there is no trade. Then the economy’s growth will stall. By solving the payments problem, we’re setting the continent up for immense growth that will attract foreign investments.”
He also says that having a reliable payment infrastructure can also inspire local entrepreneurs to collaborate across regions. For example, with such infrastructure in place, a local entrepreneur in Nigeria can consider venturing into other countries in the West African region without any concerns about payment hassles.
“But for that to even become a possibility, payments must be easy, low-cost, fast, and reliable for both entrepreneurs and their target markets.”
– Kolawole Samuel Adebayo put this piece together for incafrica.com
