July 29, 2021
Fintech is booming in Africa, as of July 2021 as much as USD900 million has been raised by fintech startups in the last six and a half years. The bulk of the innovation in Fintech has been around payments inspired by the success of Mpesa in Kenya. While a startup’s purpose in the space is to improve financial inclusion, the innovation is mostly coming from outside. In fact, investment towards fintech is following global trends (payments, digital banking, etc.) but not enough of local trends (financial needs and wants of Africans). In Africa, salary payment represents a large chunk of payment volume for people and usually, these payments are processed by established employers in partnership with established banks. How does consumer financial stability impact salary payment frequency? Let’s compare Congo and Senegal.
The Senegalese are More Financially Stable than the Congolese.
While it should not come as a great surprise, a Kasi Insight survey on financial situations in the respective countries revealed more than half of the Senegalese respondents have enough savings in case of emergency, only 11% of the Congolese respondents are as stable. Of course, in view of the fact that the Congo is significantly less developed and stable than Senegal, this is to be expected.
The other questions in the survey relate to how quickly one runs out of money: a week after being paid, two weeks, or the week before being paid again. 40% of the Congolese respondents indicated they run out of money halfway through the month and 30% said they run out of money the week before payday. As for the Senegalese, only 19% of those surveyed indicated they run out of money halfway through the month and only 3% said they run out the week before payday.
As the Senegalese are more financially stable and are less likely to run out of money regularly, it would make sense that they prefer to be paid in full at the end of the month. This also demonstrates stronger financial literacy skills. As the Congolese are most likely to run out of money halfway through the month, it makes sense they prefer to be paid twice a month. If they were paid biweekly, it would be much less likely that they would run out of money at any point.
The Congolese Prefer Biweekly Payments, While the Senegalese Prefer End of Month Payments.
An E-commerce survey carried out by Kasi Insight in the Congo and Senegal revealed that opinions on when and how often paychecks are received varies greatly. The survey uses a hypothetical pay of USD1000 and asks whether respondents would rather be paid in full at the end of the month or the middle of the month or paid biweekly. Overwhelmingly, the majority of Congolese respondents (80%) indicated that they would prefer to be paid twice a month, half in the middle and a half at the end. Only 8% opted for being paid in full at the end and 12% opted to be paid in full in the middle.
The Senegalese on the other hand were slightly more divided on their responses. Just over half the respondents, 60%, indicated their preference would be to be paid in full at the end of the month and only 28% opted for being paid biweekly. However, 13% preferred to be paid in full in the middle, which is very similar to the Congolese survey. Clearly, neither the Congolese nor the Senegalese want their whole paycheck mid-month.
Time to Get More Innovative: Branch Out into Flexible Payments.
Overall, only 41% of Senegalese respondents regularly run out of money before payday, while 89% of Congolese respondents regularly run out of money. While it's clear the majority of Congolese would prefer biweekly payments, the Senegalese are more split on what they prefer, and people’s needs change month to month. To address this, companies could invest in flexible payments where employees are able to choose what works best for them based on their financial situation. Not only would this be good for the company and employees, but it is also good for the economy as there would be an increase in money circulation if people can spend whenever they need. It also allows people to budget better based on current situations.
As mobile money is becoming more and more popular globally, as well as other alternative points of service payment systems, it is only reasonable that paycheck payment systems grow and evolve as well. An innovative option that is not yet widely used but is gaining traction and could allow for people to rarely run out of money (as long as they are working), is instant payments. The gig economy is already utilizing instant payments and it is only growing and the desire for instant payments is expanding across sectors, especially with the pandemic. Not only would instant payments mean not having to choose what to buy, but it would eliminate the need to take out payday loans and allow people to invest more in the economy, not paying off interest.
This is especially important in the informal economies often found across Africa and in this pandemic era where economies have been constantly disrupted. For those that have been out of a job or working fewer hours, waiting to be paid after not being paid for a while or being paid less can have devastating impacts on their lives, such as not being able to feed themselves or their families. Getting paid right after working can allow people to pay off bills and buy groceries immediately which will lead to happier and healthier lives. Happy and healthy employees also tend to stay with one company longer, which is good for a company’s bottom line. An instant payment system would also allow for flexible payments so people can choose whether they want to be paid immediately, biweekly, or monthly based on need. Now is the time to invest in instant payments.
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