How To Combat Payments Hurdles Faced By Startups in Africa

In this article, we will explore the different payment hurdles faced by startups in Africa and discuss strategies to overcome these hurdles.

How To Combat Payment Hurdles Faced By Startups in Africa

Africa is a continent of diverse opportunities for innovation and entrepreneurship. With a young and growing population, increasing internet and mobile penetration, and a vibrant tech ecosystem, Africa is attracting the attention of local and international investors, corporations, and policymakers. 

However, startups in Africa face unique challenges when it comes to payments. In this article, we will explore the different payment hurdles faced by startups in Africa and discuss strategies to overcome these hurdles.

Different Payment Hurdles Faced by Startups in Africa

In the dynamic startup ecosystem of Africa, entrepreneurs often face several payment hurdles that can hinder their growth and sustainability. Here are five key challenges that startups in Africa commonly encounter when it comes to payments:

1. Limited Access to Financial Services

One of the primary hurdles faced by startups in Africa is limited access to formal financial services. Many entrepreneurs struggle to open bank accounts or obtain credit facilities, making it difficult for them to receive and make payments through traditional banking channels. 

Firstly, without access to rapid and safe bank transfers, salary payments must be made manually, which poses security risks, miscalculation risks, transparency issues, and takes up more of your employees’ time. Additionally, many payroll managers have difficulty identifying employees for payment, especially those in unskilled or informal roles who are paid in cash. Making payments to the right person can also be challenging, as it is common for workers to send their relatives to collect their pay. 

This makes it difficult for payroll teams to ensure that the correct amounts are paid to the right employees, leading to more time and resources spent on rectifying mistakes. This lack of access can restrict their ability to transact with customers, suppliers, and other stakeholders.

2. Cash-based Economy

Despite the rise of digital payment solutions, cash remains the dominant form of payment in many African countries. According to the World Bank, 45% of the population aged 15+ in Sub-Saharan Africa did not have a bank account in 2021. This slow uptake of banking services has shaped the financial landscape, making cash payments the norm in Africa, accounting for up to 90% of transactions.

This reliance on cash can pose challenges for startups, as it limits their ability to track and manage transactions effectively. Cash transactions also carry security risks, making it necessary for startups to invest in secure cash handling procedures.

3. High Transaction Costs

Startups in Africa often face high transaction costs when it comes to payment processing. Traditional methods of payment, such as card payments or bank transfers, can be expensive due to various factors, including infrastructure limitations and regulatory requirements. These high costs can eat into the startup’s profit margin and make it financially burdensome for them to accept payments.

4. Lack of Trust and Transparency

Trust is a crucial factor in any payment transaction. In Africa, the lack of trust and transparency in payment systems can be a significant hurdle for startups. 

One of the key challenges for startups operating in Africa is ensuring compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. Companies worldwide are required to abide by these standards to prevent money laundering and fraud. However, compliance in Africa is more complex due to the prevalence of cash-based transactions and the lack of transparency in financial transactions.

Cash-based transfers are common in Africa but are hard to track, making it difficult for companies to maintain financial transparency. This lack of transparency increases the risk of non-compliance with AML and KYC regulations. 

Both entrepreneurs and consumers may be wary of engaging in online transactions due to concerns about fraud, security breaches, or unreliable service providers. Building trust and establishing transparent payment systems are essential for startups to gain confidence from their customers and partners.

5. Cross-border Payment Complexities

According to Afreximbank, Africans pay approximately $5 billion in charges for money transfers and trades done through correspondent banks. These costs can increase further when transactions involve converting between different currencies. 

For startups operating across different African countries, cross-border payment complexities can present significant challenges. Inconsistent regulations, varying currencies, and limited interoperability among payment systems can make it difficult to facilitate seamless cross-border transactions. Startups may encounter delays, additional costs, and administrative burdens when conducting cross-border payments, impacting their ability to expand and scale their businesses.

6. Currency Fluctuations

African currencies are known for their volatility, with exchange rates fluctuating significantly over time. These currency fluctuations pose challenges for startups, especially when making payments from one country to another. The unpredictable exchange rates can result in significant inconsistencies in payment amounts, making it difficult for startups to manage their finances effectively.

Cross-border payments can be costly in Africa due to the need to convert between different currencies. African countries often rely on foreign currencies like the US dollar or the Euro for international transactions, leading to additional costs and complexities. The fluctuating exchange rates of African currencies further complicate cross-border payments.

7. Insufficient Payroll Management

While some African countries have well-developed banking infrastructures, many African economies are still in the early stages of developing their banking systems. For startups, this can pose challenges in payroll and payments. Local banks may have fewer branches, limiting employees’ access to ATMs and causing transaction times to be slow, spanning over a few days or weeks. This volatile banking system is not ideal for employers looking for a reliable way to pay their workers.

These payment hurdles can hinder the growth and success of startups in Africa. However, by leveraging innovative financial solutions and working towards improving financial infrastructure, startups can overcome these hurdles and thrive in the African startup ecosystem.

Strategies to Overcome Payment Hurdles Faced by Startups in Africa 

To overcome the payment hurdles faced by startups in Africa, entrepreneurs can employ various strategies. Here are some effective approaches:

1. Embrace Digital Payment Solutions

While cash remains dominant, Africa is also witnessing a rapid growth in digital payments. According to a study by McKinsey, Africa is part of the digital payment movement, and the continent’s domestic e-payment business revenues are anticipated to increase by approximately 20% annually, reaching about $40 billion by 2025. This growth is fueled by the increasing adoption of digital wallets, which are software-based applications that allow users to store, manage, and transact various forms of digital currency or financial assets securely.

Companies like YoguPay, a cross-border payment solution have contributed to the growth of digital payments in Africa. YoguPay connects businesses with scalable payment solutions for cross-border money transfers, mass payouts, seamless currency conversion, and third-party invoice payments.

Startups can leverage digital payment solutions to overcome the limitations of cash-based economies and high transaction costs. Mobile money platforms, digital wallets, and fintech startups offer convenient and cost-effective alternatives to traditional payment methods. By adopting these solutions, startups can streamline their payment processes, improve transparency, and expand their customer base.

2. Build Partnerships With Financial Institutions

Collaborating with banks and other financial institutions can provide startups with access to formal financial services and infrastructure. By establishing partnerships, startups can leverage the existing banking networks, payment gateways, and regulatory frameworks to facilitate secure and efficient payment transactions. These partnerships can also help build trust and credibility among customers and investors.

3. Invest in Financial Literacy and Education

Limited access to financial services often stems from a lack of financial literacy and awareness. Startups can invest in educating themselves and their customers about digital payment solutions, online security measures, and the benefits of formal financial services. By promoting financial literacy, startups can empower themselves and their stakeholders to make informed decisions and overcome payment-related challenges.

4. Foster Trust and Transparency

Building trust is crucial for startups to overcome the trust deficit associated with online payments. Startups can prioritize security measures, such as encryption and secure payment gateways, to protect customer data and transactions. Additionally, transparent pricing, clear refund policies, and responsive customer support can help build trust and confidence among customers.

5. Advocate for Regulatory Reforms

Startups can actively engage with policymakers and regulatory bodies to advocate for reforms that promote a conducive payment ecosystem. By participating in industry associations and forums, startups can contribute to shaping regulations that address the specific challenges they face. Advocating for simplified licensing processes, reduced transaction costs, and improved interoperability can create a more favorable environment for startups to operate and grow.

These strategies, combined with the innovative use of technology and a customer-centric approach, can help startups in Africa overcome payment hurdles and thrive in the competitive business landscape.

However, the strategies mentioned above are based on general insights and best practices for startups. It is important for entrepreneurs to assess their specific context, market dynamics, and legal requirements to tailor their approach accordingly.

Promising Industries for Startups in Africa

Despite the challenges, Africa offers promising opportunities for startups in various industries. Some of the most promising sectors for startups in Africa include:

Fintech: The financial technology sector is experiencing rapid growth in Africa, driven by the need for innovative solutions to address financial inclusion and access to banking services. Startups in this sector are leveraging mobile technology and digital platforms to provide banking services, payment solutions, and microfinance services to unbanked populations.

E-commerce: With the increasing internet and mobile penetration in Africa, e-commerce is booming. Startups in this sector are capitalizing on the growing consumer demand for online shopping and providing platforms for businesses to sell their products and services online.

Health Tech: The healthcare sector in Africa faces various challenges, including limited access to quality healthcare services. Health tech startups are leveraging technology to address these challenges by providing telemedicine services, health information systems, and mobile health solutions.

Agritech: Agriculture is a significant sector in Africa, employing a large portion of the population. Agritech startups are using technology to improve agricultural practices, increase productivity, and enhance access to markets for farmers.

Renewable Energy: Africa has abundant renewable energy resources, and startups in this sector are harnessing these resources to provide clean and affordable energy solutions to off-grid communities.


While startups in Africa face unique challenges when it comes to payments, there are also opportunities for innovation and growth. By embracing digital payments, leveraging technology, and navigating the complexities of compliance and cross-border transactions, startups in Africa can overcome payment hurdles and thrive in the dynamic and competitive African market. With the right strategies and partnerships, startups can unlock the diverse opportunities in the continent and contribute to its economic growth and development.

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