Africa’s cashless revolution banking on virtual cards

What you need to know:

  • UnionPay International, a subsidiary of China's Union Pay, is the latest entrant in the African card payments market, warming up to face-off with Visa and Mastercard.

Nairobi. International card companies are vying for Africa's fast-evolving electronic payments market as middle-class incomes rise and the quest for cashless transactions intensifies.

UnionPay International, a subsidiary of China's Union Pay, is the latest entrant in the African card payments market, warming up to face-off with Visa and Mastercard.

Notably, UnionPay International is partnering with the Standard Bank Group, the largest bank in Africa by assets, in a collaboration deal that could accelerate e-commerce adoption in Africa.

According to Innovation Village, the two companies unveiled the landmark partnership aimed at “attracting more eCommerce businesses and customers to the bank’s platform.”

“As one of Africa’s leading financial institutions, we intend to ensure that our clients across the continent have seamless access to regional and international markets and services,” Bill Blackie, Chief Executive of Business and Commercial Banking at Standard Bank Group, said in a statement.

Standard Bank operates across 20 African countries, while UnionPay surpassed Mastercard and Visa, emerging as the world’s most popular debit card provider in 2022, according to Techpoint Africa. It commands more than 40% of the global debit card market.

Standard Bank introduced the UnionPay card to its South African customers in 2019 and is seeking to expand the service to all 20 of its African markets.

According to the Innovation Village, UnionPay already has a presence in 50 African countries and is also looking to expand its network further.

In November 2023, UnionPay International entered the Nigerian market, partnering with Fets, a mobile money platform, to launch virtual cards in the West African country.

Traditionally, Visa and Mastercard, seen as frontrunners in the African market, have relied on telcos Safaricom and MTN to dominate the card payment business, now offering virtual and physical cards linked to customers' mobile money accounts.

However, the new deal between UnionPay International and Standard Bank signifies a large-scale rollout of virtual card issuances by banks, marking a strategic shift as banks actively respond to the growing appetite for virtual cards.

Standard Bank is not acting in isolation, as more African banks have in recent years shown increased interest in rolling out virtual cards across different markets.

Diamond Trust Bank in August 2023 partnered with Boya, a technology provider, to roll out a virtual expense card at zero fees as part of its digital transformation strategy.

According to Nelson Mechuli, a Kigali-based fintech innovator, the greatest disruptive attribute of virtual cards lies in their central role in propelling Africa’s e-commerce sector.

“They offer the convenience and flexibility required in online purchases, making them an attractive option for those who rely on mobile money for payments,” he explained.

Africa’s e-commerce sector has experienced rapid growth in recent years, despite UNCTAD projections showing uptake still below the global average.

However, with international card payment players closely eyeing the continent and traditional banks issuing virtual cards, this trend is evolving rapidly.

Additionally, African countries are also showing increased interest in capitalizing on the booming digital ecosystem to accelerate e-commerce.

Kenya launched its National E-Commerce Strategy on December 14 to streamline the industry's private-sector players and government. According to public broadcaster KBC, the strategy is anchored on four pillars: overhauling legal and regulatory frameworks, optimizing payment accessibility, refining trade logistics for seamless e-commerce fulfilment, and upholding standards for data privacy, protection, and consumer rights.

The sector is underpinned by Kenya’s fast-growing e-commerce space. A B2B new e-commerce platform, Zandaux, recently launched in Nairobi, targeting the fast-growing intra-African trade, while in September, Kenyan e-commerce firm initiated operations in the Democratic Republic of the Congo, making it the first ever large-scale e-commerce platform to establish itself in the fast-growing digital ecosystem in that country.

The DRC market received a major boost last week after Mastercard and Illicocash, the fintech subsidiary of Rawbank, unveiled a collaboration that will bolster e-commerce.

A press statement on the Mastercard website shows the two partners will leverage a virtual card program that allows consumers and businesses to transition into a digital future.

An upcoming merger deal between Wasoko and Egyptian B2B e-commerce platform MaxAB, with both parties having signed preliminary terms, could further fuel e-commerce expansion into new African markets.

Africa-focused e-commerce company Flutterwave is also keen to take off in new African markets. The Nigerian unicorn debuted operations in Malawi in October 2023 and has also secured money transfer licenses for 13 US states.

Efforts by individual countries, growing interest from international card companies and efforts by African e-commerce companies all promise to shift Africa to a digital economy.

According to projections by the International Trade Administration, by 2025, Africa will be home to more than half a billion e-commerce users.

Mesuli believes the new interdependence of Africa’s payment ecosystem highlights the need for creative solutions that address the unique challenges faced by the continent.

“By working together, mobile money network operators, fintech companies, and card schemes can create a new era of financial inclusion and economy,” he explained.