What is e-payment? Electronic payment, or sometimes referred to as e-payment or digital payment, can be defined as the transfer of value from one payment account to another using digital devices. Those might include mobile phones, POS (Point of Sales), or computers, through a digital channel of communications such as mobile wireless data or the Society for the Worldwide Interbank Financial Telecommunication (SWIFT) network.  In 2020, due to the impact of COVID-19, cash transaction values fell steeply from one-third of global POS transactions in 2019 to a mere one-fifth, while mobile wallets gained much of cash’s share to reach over one quarter of 2020 POS transactions, according to the FIS WorldPay report.[1]

Box 1: History of E-Payments

E-payments have been around for almost 150 years, undergoing a slow but gradual transformation. It started with the Western Union’s debut of electronic fund transfer (EFT) in the 1870s, followed by the Federal Reserve of America’s use of the telegraph to transfer money in the 1910s. In the 1950s, Diner’s Club International established itself as the first credit card company, with American Express soon following. In 1959, American Express introduced the world to the first plastic card for electronic payments, which is still dominant in large developed markets. In 1972, the Automated Clearing House (ACH) technology was developed to batch process large volumes of financial transactions, which is essential to the processing of small value, large volume retail payments.[2] The introduction of the internet and the world wide web in the late 20th century served as a huge imperative to lead commerce and payments to enter a new, enthusiastic era. In the 1990s, online internet banking services were offered to bank customers. Then came the popularisation of mobile phones and smartphones which paved the way for mobile web payment (WAP) in 1997 and the current wave of mobile payments apps, such as PayPal, Samsung Pay, Apple Pay, AliPay, and WeChat Pay, just to name a few.

 

Why are e-payment solutions accelerating? The reason can be multifold. First of all, e-payments are an indispensable element to the growth and success of the digital economy. According to Boston Consulting Group (BCG), online marketplaces could create around 3 million new jobs across Africa by 2025, making assets more productive, and unlocking new demand in remote locations.[3] E-payments are critical to e-commerce as they enable secure, convenient transactions between buyers and sellers regardless of their physical location or currency. Together with e-payment, e-commerce can be a force for sustainable development, as it opens up new markets to isolated rural communities to service the fast-growing consumer class and enable women entrepreneurs to tap into e-business opportunities where previously social norms or family duties may have kept them out of the traditional workforce, as pointed out by the World Economic Forum.[4]

Secondly, in 2020, the world was shaken by the outbreak of COVID-19, which has virtually impacted every single aspect of our lives and business. Thirdly, technology improvements add to the disruptions. New forms of payments, from more established mobile money and digital wallets, to more controversial digital currencies which run on systems like blockchain, are debated as the future of money. Throughout the current COVID-19 crisis, internet banking/direct account transfers were the preferred payment method, followed by contactless (tap-to-pay) cards, and digital wallets, as confirmed by 68 percent, 64 percent, and 48 percent of respondents, respectively. Additionally, from a developmental perspective, digital payment solutions can help to address financial inclusion issues. As noted by the Bank for International Settlements (BIS), financial inclusion starts with payments, which serve as a gateway to other financial services, such as savings, credit, and insurance.[5]

In Africa, the success story of mobile payment provides a strong case for the broader adoption of e-payment across the continent. It is widely recognised that many African consumers have leapfrogged from cash to mobile payments without ever owning a plastic card. Mobile payment seems to be a perfect solution for the African market: the payment threshold is low, requiring simpler due diligence processes. At the same time, the large volume of transactions makes up for the low margin for the payment service providers. Since its introduction, Africa’s mobile money has expanded into a diversified ecosystem with over 157 mobile money services, accounting for more than half of the total mobile money services operating worldwide. Mobile money has also been an integral part of the continent’s response to COVID-19, mainly due to reducing cash transactions and increasing mobile money in the government’s cash transfer programmes.  By 2025, the ultimate size of the market across Africa could be as high as 850 million customers, supporting about USD 2.5 trillion to USD 3 trillion in transaction volume and USD 25 billion to USD 30 billion in yearly revenue from the financial transactions alone.[6]

Still, challenges to cross-border e-payments persist on multiple fronts. There are infrastructure barriers – be it either the unreliable power supply and internet connection – or the lack of interoperability between payment systems that restrains the transmission of money amongst systems and countries. Regulatory barriers including licensing and capital requirements also inhibit the integration of payments systems and the expanded provision of payments services.

Harmonisation of standards and consensus of core principles is needed. In order to harmonise regulations on e-payments at the multilateral level, naturally, the World Trade Organisation (WTO) is the framework-setter. Under the WTO framework, electronic payments fall within the scope of the General Agreement on Trade in Services (GATS)[7]. Only 17 countries in Africa have made commitments on payments services under the General Agreement on Trade in Services (GATS), among which only six have made specific commitments on cross-border payments services. Most payments commitments are for payments services provided via commercial presence. However, there are often conditions attached, including local incorporation, local headquartering, and licensing as a bank.[8] Regulatory divergence can also present a challenge. The mere existence of multiple, different regulatory regimes – even if each is well-calibrated – can be a barrier to doing business across borders, especially for smaller enterprises.

The African Continental Free Trade Area (AfCFTA) negotiations in this area have the potential of unlocking barriers to cross-border e-payments. Financial services, including payment services, are part of the first round of the AfCFTA trade liberalisation for which a number of offers have been made. With regards to the specific commitments under the AfCFTA Trade in Service Protocol, it was determined that for those AU member states that are WTO members, the starting point for negotiations on the schedules of specific commitments would be deeper commitments than are currently scheduled under the GATS (“GATS plus”). For those AU member states that are non-WTO members, the starting point for negotiations would be autonomous liberalisation at the national level.[9] The deadline for the conclusion of these negotiations is June 2021. Cross-border e-payments may also be covered under the Protocol on Digital Trade as well as a future regulatory framework on financial services, according to an update on the AfCFTA negotiations by the African Union (AU).

At the sub-regional level, the Smart Africa Alliance is leading several digital initiatives to accelerate sustainable digital ecosystem development on the continent, including an E-Payments Blueprint for the Facilitation of Digital Trade across Africa that aims to deliver a framework for the development of an inclusive network open to any financial services provider in Africa, including banks, mobile network operators (MNOs), money transfer operators (MTOs), FinTech firms, and other financial service providers (FSPs).

In 2021, International Economics Consulting’s team has led the drafting of the E-Payments Blueprint for Africa with GFA, designed an ASEAN Regional Trade Connectivity Roadmap with IMC, supported countries in AfCFTA negotiations in digital trade areas with UNECA, worked with the Central Institute for Economic Management (CIEM) in Vietnam in piloting its first online dispute resolution platform, as well as collaborated with other international organisations on the topic of digital trade and e-commerce across the world, such as the WEF, World Bank, UNESCAP, UNECA, and Governments in G-8, G-20, G-33 and G90.

Paul Baker is the founder and CEO of International Economics Ltd (IEC). He is a consultant for various governments in developed and developing countries, an adviser on global corporate strategies to multinationals, and a Visiting Professor at the College of Europe. He is an Expert in the Working Group of the World Economic Forum’s (WEF) Digital Flows Initiatives, an Expert in the WEF/WTO’s TradeTech Working Group on AI, IOT, Blockchain and Digital Identities for trade, and is on the Board of the United Nations Economic and Social Commission for Asia Pacific’s Trade Intelligence Negotiation Adviser. He is currently leading a foresight study for the German Ministry of Economic Cooperation and Development on Blockchain solutions for Development Finance.

 

References:

[1] FIS (2021). The Global Payments Report. Rebuilding payments for a smarter world.

[2] Bishr Tabbaa (2019 July 4). Shop Till You Drop: WorldPay’s Service Failure of 2016. Medium. Available at https://medium.com/dataseries/shop-till-you-drop-worldpays-service-failure-of-2016-95c8196f3561

[3] BCG (2019). How Online Marketplaces Can Power Employment in Africa. Available at https://www.bcg.com/en-ch/publications/2019/how-online-marketplaces-can-power-employment-africa

[4] WEF (2019). 8 ways to help African e-commerce fulfil its potential. World Economic Forum. Available at https://www.weforum.org/agenda/2019/09/8-ways-to-help-african-e-commerce-fulfil-its-potential/

[5] BIS (2020d). Payment aspects of financial inclusion in the fintech era. Bank for International Settlements. Available at https://www.bis.org/cpmi/publ/d191.pdf

[6] BCG (2020). Five Strategies for Mobile-Payment Banking in Africa. Boston Consulting Group. Retrieved from https://www.bcg.com/publications/2020/five-strategies-for-mobile-payment-banking-in-africa

[7] Paragraph 5(a)(viii), Annex on Financial Services to the GATS covers all “payment and money transmission services, including credit, charge and debit cards, travellers cheques and bankers drafts.” Consistent with the principle of technological neutrality, which means that “market-access commitments cover the supply of the committed service by all technological means, including electronic means,”[iii] payment services should cover all payment and money transmission services through technological means, i.e., electronic payment services.

[8] Ashly Hope (2019). Payments services. Trade Law Center (Tralac). Available at https://www.tralac.org/documents/events/tralac/2742-tralac-brief-payments-services-march-2019/file.html

[9] Beatrice Chaytor (2019). Creating a Single African Market on Trade in Services: Negotiating the Schedules of Specific Commitments under the Protocol on Trade in Services. Available at https://www.tralac.org/blog/article/14293-creating-a-single-african-market-on-trade-in-services-negotiating-the-schedules-of-specific-commitments-under-the-protocol-on-trade-in-services.html