Rise of virtual credit cards in Africa

Demand for streaming services, a rise in online shopping and the push for financial inclusivity are all creating a demand for the new product.

Photo credit: Courtesy

Africa has begun making its own virtual credit cards as fintechs push to end legacy challenges experienced in physical, traditional bank-aligned cards.

As startups across the continent move to bring millions of unbanked into the financial sector using digital payment cards, they are also looking to tap into new demand for payment services created by growth in e-commerce and streaming services.

Virtual cards offer shortened issuance times and lower costs when compared with traditional cards, and are speedy, cheap and convenient even for those residing in rural areas.

Pan-African digital payments company MFS Africa in June affirmed plans to accelerate its offering of card connectivity to mobile money users through a groundbreaking deal to acquire US-based, Global Technology Partners (GTP) in a cash-and-shares deal valued at 34 million US dollars. 

Growing commerce 

“We are building MFS Africa into a safe, sound, scalable and high impact Pan-African payment infrastructure that will facilitate Africa’s rapidly growing commerce, both now and in the future,” MFS said in a statement.

The company said it is venturing into multiple initiatives to develop solutions that would simplify economic activities across the continent, through "any-to-any" interoperability.

It is keen on connecting millions of mobile money accounts with its virtual cards to enable users to pay for streaming services run by international firms including Netflix, Spotify and Amazon.

Africa’s subscription video-on-demand (SVOD) market is projected to triple in the next five years to 15 million subscribers, according to Global business intelligence and media company, Dataxis, as local operators and international firms battle for the growing viewership numbers.

MFS also has its eyes on developing solutions that will provide access to Africans at home and in the diaspora - hinting at a big play in diaspora remittances.

The acquisition of GTP opens up MSF to a potential market of 320 million mobile money wallets across more than 35 African countries.

Research and Markets, the world's largest market research company, projects that the Africa and Middle East Prepaid Card and Digital Wallet Market, currently valued at 56.5 billion US dollars, will reach 94.6 billion US dollars by 2026.

According to the research firm, growth in the adoption of prepaid card payment methods in the region will primarily be driven by a rise in technology-driven products and services.

“Moreover, governments are persuading the consumers in the region to use cashless payment methods such as digital and mobile wallets,” said Research and Markets.

Another pan-African-focused startup, Union54, has begun issuing virtual debit cards in its home market of Zambia, allowing users to settle bills, purchase goods from online marketplaces, and gain access to local and global supply chains. 

Debit cards

Union54 says its API platform allows fintechs and corporates to issue US dollar virtual and physical debit cards from anywhere in Africa, without needing a bank or a third-party processor.

“We’ve made sure that your team doesn’t need to stitch together disparate systems or spend months integrating payments functionality,” said Union54.

It has listed a number of uses for its card, including corporate cards, buy-now-pay-later services, digital banking, real-time access to credit funds and managing expenditure for delivery firms.

The first YCombinator-backed startup in Zambia now has its eyes fixed on other African markets following a seed extension round of 12 million US dollars in April.

In Nigeria, Sudo Africa, a fintech that describes itself as an open API platform, shares similarities with offerings from Union54 and also targets small businesses with programmable virtual cards.

“With our infrastructure, you can issue cards swiftly to your customers without being constrained by cumbersome requirements of traditional banking,” said Sudo.

In March, the startup raised 3.7 million US dollars in pre-seed funding to fund its expansion in other African markets.

African telcos are also tapping into this market segment. Kenya’s largest mobile operator, Safaricom, in June linked up with giant global payment firm, Visa, to launch, M-Pesa Global Pay.

The service allows Kenyans to make online purchases using mobile money at more than 100 million merchants, through Visa’s global network in 200 countries.

Last year, another telco, South Africa's Telkom, launched a Mastercard virtual card in South Africa to enable customers to make e-commerce payments through a digital payment wallet, Telkom Pay via WhatsApp.

World Mobile, a Blockchain-based mobile network operator earlier in this year forecast that Africa’s internet economy would grow to 180 billion US dollars in gross merchandise value, by 2025.

The operator listed Kenya, South Africa, Nigeria and Egypt as key markets that will fuel the mobile commerce boom.