The Evolution And Future Of Digital Money In Africa

Zellow Analysis: Africa's digital finance transformation represents one of the most significant financial infrastructure developments in emerging markets. With over 700 million mobile money accounts in Sub-Saharan Africa processing $1.3 trillion annually, cross-border payments projected to grow from $329 billion in 2025 to $1 trillion by 2035 at a 12% CAGR, and the Pan-African Payment and Settlement System (PAPSS) already handling over $1 billion in transactions across 12 countries, the continent is building a multi-layered digital finance ecosystem that bypasses traditional correspondent banking infrastructure. For investors, financial institutions, and fintech entrepreneurs evaluating opportunities in African payments and digital currency, understanding the interplay between mobile money dominance, emerging CBDC strategies, and regional payment integration is essential for identifying sustainable business models in this rapidly evolving sector.

Africa's Financial Transformation Context

Over the past two decades, Africa's financial sector has undergone a dramatic transformation driven by digitalisation. Traditional financial institutions, long constrained by high transaction costs, limited access, and dependence on cash and remittances, are now being complemented by innovative digital solutions.

The Infrastructure Reality

The pace and scope of this transformation are influenced by structural challenges such as inconsistent electricity supply, limited internet penetration, underdeveloped IT systems, and incomplete national identification coverage. These constraints create operational challenges for digital finance solutions that require reliable connectivity and identity verification systems.

Despite these hurdles, broadband networks are expanding, cellular subscriptions are increasing rapidly, and internet usage continues to grow. This improving infrastructure foundation enables progressively more sophisticated digital finance applications while mobile-first solutions continue driving adoption even in areas with limited fixed connectivity.

Emerging Digital Assets

Even in environments with nascent legal frameworks, cryptocurrency assets, including tokens and stablecoins, are gradually gaining traction alongside mobile money. Several countries are also exploring Central Bank Digital Currencies as a means to modernize and stabilize their financial systems.

This multi-track evolution, with mobile money, cryptocurrencies, and CBDCs developing simultaneously rather than sequentially, creates a complex regulatory and competitive landscape that differs fundamentally from developed market digital finance trajectories.

The Cross-border Payment Opportunity

Cross-border payments in Africa, historically constrained by high fees, slow processing, and fragmented regulations, represent a substantial growth market with clear pain points that digital solutions can address.

Market Scale and Growth Projections

Cross-border payments are projected to grow at a compound annual rate of 12% from $329 billion in 2025 to $1 trillion by 2035. This growth trajectory reflects multiple drivers, including regional migration patterns that create remittance flows, rising demand for faster and more affordable payment methods, and the widespread adoption of mobile money and digital wallets.

The $1 trillion projection by 2035 represents a tripling of current volumes, indicating substantial market expansion beyond inflation-driven growth. This scale creates commercial opportunities for payment processors, currency exchange platforms, and infrastructure providers serving intra-African trade and remittance flows.

The Inefficiency Tax

Africa's financial sector has long struggled with high costs and inefficiencies, often referred to as the inefficiency tax. Remittance costs remain the highest globally, averaging 7.4% for a $200 transfer. This cost burden disproportionately affects lower-income individuals sending money to family members, effectively taxing financial inclusion and cross-border economic participation.

Delays and foreign exchange issues increase the cost of intra-African trade by up to 5%. These friction costs limit the $3.4 trillion potential of the African Continental Free Trade Area by making cross-border commerce more expensive and unpredictable than domestic transactions, undermining the economic integration AfCFTA aims to achieve.

Structural Barriers

Electronic Know Your Customer procedures are permitted in only 55% of African nations, requiring repeated compliance across borders. This fragmented regulatory approach creates redundant verification costs and delays for financial institutions operating regionally while limiting user experience for customers who must complete separate KYC processes for each jurisdiction.

Over 40 national currencies and unpredictable foreign exchange policies in countries such as Nigeria add friction and incur billions of dollars in avoidable costs. Currency fragmentation requires multiple conversion steps for regional transactions, with each conversion extracting fees and creating exchange rate exposure for businesses and individuals.

Underdeveloped infrastructure, including unreliable electricity and limited internet access, further complicates the adoption of digital payment solutions that require consistent connectivity for real-time transaction processing and settlement.

Regional Integration Initiatives

Regional initiatives aim to address these structural challenges through coordinated infrastructure development and regulatory harmonisation.

African Continental Free Trade Area

The African Continental Free Trade Area seeks to harmonise financial systems and reduce reliance on intermediaries such as SWIFT. By creating common standards and frameworks, AfCFTA aims to reduce the regulatory fragmentation that currently requires separate compliance in each jurisdiction.

The $3.4 trillion potential of AfCFTA depends substantially on reducing payment friction that currently makes intra-African trade more expensive than trade with external partners. Digital payment infrastructure that enables efficient cross-border transactions is therefore central to realising AfCFTA's economic integration objectives.

Pan-African Payment and Settlement System

The Pan-African Payment and Settlement System enables instant cross-border payments in local currencies, providing a potential blueprint for regional financial integration. PAPSS represents the institutional layer of Africa's digital finance ecosystem, providing real-time clearing and settlement infrastructure.

By bypassing offshore correspondent banks, PAPSS reduces settlement times from around 72 hours to under two minutes and cuts costs by up to 50%. This dramatic improvement in speed and cost creates competitive advantages for businesses and financial institutions utilizing PAPSS compared to traditional correspondent banking channels.

Active in 12 countries and handling over $1 billion in transactions, PAPSS demonstrates operational viability at a commercially meaningful scale. The system serves as the strategic backbone for regional digital payments by providing infrastructure that individual countries or private sector players would struggle to build independently.

Central Bank Digital Currency Exploration

Several African countries are exploring CBDCs as tools for financial modernisation, with approaches ranging from cautious research to operational deployments experiencing varied adoption outcomes.

Namibia's Cautious Approach

Namibia illustrates a cautious approach to the adoption of digital currency. The Bank of Namibia is evaluating a digital Namibian dollar to improve cross-border payments and enhance financial inclusion. Following guidance from the International Monetary Fund, the Bank of Namibia focuses on research and infrastructure strengthening rather than a rapid nationwide rollout.

Since introducing the concept in 2022, Namibia has engaged with central banks in Eswatini, Lesotho, and South Africa to explore potential cross-border applications. This collaborative approach recognises that CBDC value increases substantially when interoperability enables cross-border use cases rather than limiting digital currencies to domestic transactions.

Lessons from Early CBDC Implementations

Lessons from other African countries inform Namibia's cautious strategy. Nigeria's eNaira has struggled with adoption despite being one of Africa's first operational CBDCs. Zimbabwe introduced a gold-backed digital currency to counter rapid devaluation, linking digital currency value to physical gold reserves as a credibility mechanism. Ghana continues to pilot its eCedi, maintaining experimental status rather than full deployment.

These varied experiences demonstrate that CBDC technology implementation differs substantially from achieving user adoption and economic impact. Namibia's approach highlights the balance between innovation and prudence, recognising the need to address structural weaknesses before committing to a full-scale CBDC.

Strategic Challenges Requiring Coordination

Despite remarkable progress in building Africa's digital finance infrastructure, the ecosystem faces interconnected challenges that no single player can solve alone. The path from current fragmentation to true regional integration requires coordinated action that most stakeholders recognise as necessary but find difficult to execute in practice.

The Reality of Operating across 54 Different Rule Books

Here's what actually happens when a payment company tries to expand across Africa: they build a working solution in Nigeria, secure all the necessary licenses, establish compliance protocols, and start processing transactions successfully. Then they look at Kenya and realise they essentially need to start over. Different licensing requirements. Different consumer protection rules. Different data residency mandates. Different foreign exchange regulations.

Regulatory fragmentation across 54 jurisdictions isn't just an inconvenience written into strategy presentations. It's the reason promising fintechs that should be serving the entire continent remain trapped in two or three markets. Each country's distinct regulatory requirements for licensing, consumer protection, data localisation, and foreign exchange create compliance costs that scale linearly with geographic expansion rather than benefiting from economies of scale. The irony is stark: the very regulatory frameworks meant to protect consumers end up limiting their access to innovative financial services by making regional expansion economically unviable for all but the most capitalised players.

The foreign exchange dimension adds another layer of unpredictability. A payment provider might nail down the regulatory requirements, only to discover that the currency pair they need lacks sufficient liquidity to reliably price transactions. Foreign exchange liquidity is uneven across currency pairs and corridors, creating pricing volatility that makes it nearly impossible to offer customers predictable costs. Some regional currency pairs lack sufficient market depth to support even moderately large commercial transactions without moving the market against themselves. Imagine trying to run a cross-border e-commerce business when the exchange rate for your transaction might shift 3% between quote and settlement simply because your transaction size exceeds available liquidity.

When Systems that Should Talk Can't Understand Each Other

Technical interoperability sounds like an engineering problem, but it's really an economic one. The risk isn't that systems can't technically be connected. Modern APIs can bridge almost anything if you throw enough development resources at the problem. The real risk is creating a situation where every connection requires custom integration work that costs more than the business value it enables.

Without common technical standards for messaging, authentication, and settlement, ostensibly interoperable systems end up requiring exactly this kind of costly custom development. A payment gateway that wants to connect mobile money in Tanzania, PAPSS for regional settlement, and banking systems in South Africa might face three completely different technical specifications. Each integration becomes a separate project. Maintenance costs multiply. Updates in one system require testing across all custom integrations. What should be a network becomes a collection of point-to-point links held together with increasingly fragile custom code.

This is how technical interoperability risks creating silos, even when everyone claims to support openness. Systems connect, but inefficiently. The promise of digital infrastructure was supposed to be decreasing marginal costs as networks expand. Instead, without enforced standards, costs scale with connections.

What Coordination Actually Looks Like in Practice

The good news is that the required coordinated actions aren't theoretical. We've seen versions of these work in other contexts, and Africa has the institutional frameworks to implement them if political will aligns.

Cross-border CBDC trials between cooperating central banks offer the lowest-risk path to learning what actually works beyond pilot projects. When Namibia engages with central banks in Eswatini, Lesotho, and South Africa, they're not just being diplomatic. They're recognising that a digital currency useful only within Namibia's borders delivers a fraction of the value of one that works seamlessly across the Southern African region. These trials can test interoperability models and surface technical and regulatory challenges while the stakes remain low, before anyone commits to full-scale national deployments that would be difficult and expensive to modify later.

Fintech regulatory passporting represents a proven model borrowed from other regions, adapted for African realities. The concept is straightforward: a payment provider licensed and regulated in one jurisdiction should be able to operate across regional markets without going through complete re-licensing in each country. This doesn't mean zero local compliance. It means recognising that a company meeting Nigeria's Central Bank standards has demonstrated sufficient operational capability and risk management to operate in Ghana under supervisory coordination between regulators. Regulatory passporting would reduce market entry barriers that currently force companies to choose between limiting geographic scope or raising capital primarily for regulatory compliance rather than growth.

The foreign exchange challenge requires a more creative solution. Pooled foreign exchange reserves for key corridors could stabilise exchange rates and ensure liquidity for the commercial transactions that underpin trade growth. This isn't about creating artificial currency pegs that inevitably break under market pressure. It's about ensuring that normal commercial activity, trade settlements under AfCFTA, doesn't face liquidity constraints that have nothing to do with the fundamental economic viability of the transactions. When a manufacturing company in Kenya wants to buy inputs from South Africa, exchange rate uncertainty and liquidity gaps shouldn't add 3% to 5% to costs for purely technical financial system reasons.

Mandated PAPSS adoption for AfCFTA trade cuts through the coordination problem that plagues network infrastructure. PAPSS has demonstrated that it works technically. It reduces settlement time from 72 hours to under 2 minutes. It cuts costs by up to 50%. But it faces the classic network adoption challenge: early adopters bear integration costs without corresponding benefits until network density reaches critical mass. Government mandate for AfCFTA-related trade would force the critical mass that makes PAPSS economically compelling for all participants. Sometimes markets need a push to escape suboptimal equilibria, and this is exactly such a case.

Finally, sustained investment in middleware to connect diverse national systems addresses the interoperability risk at the technical layer. This isn't glamorous infrastructure. It's the APIs, data transformation layers, and protocol adapters that make it possible for a merchant in Lagos to accept payment from a customer in Nairobi without anyone needing to understand the technical details of how Nigerian and Kenyan payment systems differ. The integration layer, where companies like Flutterwave and Interswitch operate, attracted $3.5 billion in investment between 2020 and 2023 precisely because middleware solves real problems. But sustained investment is needed to ensure technical interoperability keeps pace with innovations in the consumer and institutional layers.

From Fragmentation to Integration

These measures aren't just a wishlist. They're the difference between Africa's digital finance ecosystem remaining a collection of national markets that happen to be on the same continent, versus becoming a genuinely integrated regional payments network that enables the $3.4 trillion AfCFTA potential. The technical pieces exist or are being built. The regulatory frameworks are evolving. What's required is coordination that aligns stakeholder incentives around shared infrastructure rather than fragmented national approaches.

When this coordination happens, Africa won't just be catching up to developed market payment systems. It will be demonstrating an alternative model, one built on mobile-first consumer infrastructure, purpose-built regional settlement systems like PAPSS, and competitive fintech innovation, rather than the correspondent banking and card network oligopolies that dominate elsewhere. That's the opportunity: positioning Africa as a leader in integrated regional payments rather than a follower, adapting developed market models to local conditions decades after they've ossified.

Zellow Strategic Framework: The Three-layer Integration Model

Layer 1: Consumer Transaction Foundation Mobile money's 700 million accounts and $1.3 trillion in annual processing provide the volume foundation that makes institutional infrastructure economically viable. Investment opportunities exist in mobile money operators expanding coverage, agent network optimization technology, and financial services built on mobile money rails. The consumer layer's strength is distribution and transaction volume, while its limitation is the inability to serve institutional settlement needs or complex cross-border scenarios without integration with higher layers.

Layer 2: Institutional Settlement Infrastructure PAPSS demonstrates that institutional infrastructure can achieve commercial viability ($1 billion in transactions across 12 countries) when solving genuine pain points (72 hours to under 2 minutes settlement, 50% cost reduction). Investment opportunities exist in PAPSS-connected financial institutions, trade finance platforms leveraging real-time settlement, and complementary infrastructure for FX management and liquidity provision. The institutional layer's strength is regulatory legitimacy and settlement finality, while its limitation is dependence on government coordination and mandate enforcement for achieving network effects.

Layer 3: Integration and API Connectivity Fintech middleware capturing $3.5 billion in investment between 2020 and 2023 demonstrates commercial validation of the integration layer value proposition. Companies like Flutterwave and Interswitch succeed by reducing integration complexity for merchants and platforms. Investment opportunities exist in vertical-specific payment solutions (e-commerce, remittances, B2B payments), embedded finance platforms, and cross-border payment optimisation tools. The integration layer's strength is commercial agility and customer experience focus, while its limitation is dependence on the stability and openness of the underlying consumer and institutional layers.

Integration Dynamics: The three layers are interdependent rather than competitive. Consumer layer volume creates demand for institutional settlement infrastructure. Institutional infrastructure enables integration layer businesses to offer cross-border capabilities. Integration layer innovations drive consumer adoption through improved user experiences. Successful strategies recognize which layer(s) a venture operates in and how to create value through layer interactions rather than attempting to control all three layers vertically.

Investment Thesis Implications: Investors should evaluate ventures based on layer positioning and integration strategy. The pure consumer layer faces intense competition and commoditization pressure but benefits from transaction volume. Institutional layer opportunities require patient capital and government relationships but offer infrastructure-like returns at scale. Integration layer businesses can scale faster with venture capital but face platform risk from changes in underlying layers. Portfolio construction should include exposure across multiple layers to capture ecosystem value creation while hedging layer-specific risks.

Zellow Observations: Market Dynamics And Competitive Positioning

Mobile Money Lock-In Effects: The 700 million mobile money accounts create substantial switching costs and network effects that protect incumbent mobile network operators. New entrants face user acquisition challenges in markets where mobile money is essentially synonymous with digital payments. However, the integration layer remains competitive because merchants and platforms want unified access to multiple mobile money networks, creating opportunities for payment aggregators and API providers.

CBDC Adoption Gap: The contrast between Nigeria's struggling eNaira and mobile money's success demonstrates that government mandate and technology deployment differ from achieving user adoption. CBDCs face a fundamental challenge: users already have functional digital payment options through mobile money, reducing the value proposition for switching to CBDC alternatives. Successful CBDC strategies must offer capabilities that mobile money cannot provide, such as programmable money features or direct central bank settlement, rather than merely replicating existing mobile money functionality.

PAPSS Adoption Dependency: PAPSS's value realisation depends on mandated adoption for AfCFTA trade, creating the critical mass necessary for network effects. Without government mandate enforcement, financial institutions face coordination problems where early adopters bear integration costs without corresponding benefits until network density reaches useful levels. This suggests PAPSS success is ultimately a policy execution question rather than a technology or business model question.

Currency Fragmentation As Opportunity: The 40+ national currencies creating friction costs also create commercial opportunities for currency exchange platforms, FX risk management tools, and stablecoin applications. Solutions that reduce currency conversion costs or provide hedging mechanisms can capture value from the inefficiency tax currently paid by businesses and individuals conducting cross-border transactions.

Infrastructure Investment Timing: The improving but still inconsistent electricity and internet infrastructure creates a moving target for digital finance solutions. Ventures must balance designing for current infrastructure limitations (offline functionality, low-bandwidth optimization) while positioning for infrastructure improvements that will change competitive dynamics (real-time payments, rich media customer experiences). The optimal strategy depends on the investment time horizon and the target customer segment.

Future Outlook: From Leapfrogging to Regional Leadership

Africa's digital financial ecosystem is moving beyond legacy infrastructure toward regional leadership. The trajectory from $329 billion in cross-border payments in 2025 to $1 trillion by 2035 represents not merely volume growth but fundamental infrastructure transformation.

The Multi-track Evolution Model

Inclusive mobile-first solutions, strategic institutional frameworks like PAPSS, and agile fintech innovation are creating interconnected, efficient regional networks rather than reliance on a single global system. This multi-track evolution, with mobile money, institutional infrastructure, and fintech integration developing simultaneously, creates complexity but also resilience through diversity.

Africa's experience demonstrates how emerging markets can develop resilient, inclusive, and forward-looking financial systems capable of reshaping economic landscapes. Rather than adopting developed market models, African digital finance is pioneering approaches suited to African market conditions, with potential applicability to other emerging markets facing similar infrastructure constraints and financial inclusion challenges.

Strategic Imperatives for Stakeholders

For financial institutions, the imperative is integration across all three ecosystem layers rather than defending single-layer positions. Banks must connect to mobile money networks, participate in PAPSS settlement, and provide APIs that enable fintech innovation rather than viewing these layers as competitive threats.

For fintech ventures, success requires recognizing that sustainable businesses build on rather than bypass existing infrastructure. The $3.5 billion in fintech investment between 2020 and 2023 flowed primarily to companies that integrated ecosystem layers rather than attempting to replace them.

For policymakers, the priority is regulatory harmonisation that enables the cross-border interoperability necessary for AfCFTA economic integration. The technical infrastructure exists or is being built. The binding constraint is regulatory fragmentation requiring coordinated policy action across jurisdictions.

For investors, the opportunity exists across all three ecosystem layers with different risk-return profiles. Consumer layer businesses offer transaction volume and user data. Institutional infrastructure provides utility-like returns at scale. Integration layer fintechs enable rapid growth with venture economics. Diversified exposure across layers captures ecosystem value while managing layer-specific risks.

The transformation from $329 billion to $1 trillion in cross-border payments by 2035, combined with 700 million mobile money accounts and emerging institutional infrastructure, positions Africa's digital finance ecosystem as a global case study in financial innovation under infrastructure constraints. The ventures, institutions, and policymakers that recognise the multi-layered nature of this ecosystem and build strategies that create value through layer integration rather than layer dominance will capture the substantial opportunities this transformation creates.