Digital payment experts unanimously agree that a well-structured financial ecosystem optimizes the use of banking products and services. By fostering financial inclusion and digital transactions, countries can reduce the use of cash and thereby benefit from the increased safety, efficiency, and transparency of a cashless economy. Yet there are counterforces working against digitalization.

Cape Verde has bolstered its banking industry over the last decade to increase and improve service for its 483,628 population. The Bank of Cape Verde, the country’s central bank, has spearheaded robust initiatives for the country’s seven banks, such as system automation, payment instruments, and a favorable regulatory framework. The prevalence of card payments, including American Express (a less-utilized international card in Africa, compared to VISA and Mastercard), has surged to account for 86% of digital payments. Its 2,179 Point of Sales (POS) terminals per 100,000 inhabitants captured over 36,000,000 transactions in 2022, a substantial figure considering the total population, compared to the West Africa Economic Monetary Union where, according to BCEAO[1], 13,999 cards have been issued in 2021 for a total population of 141.7 million. Enabling a digital payment landscape is helping to promote the government's strategic focus on tourism.

Nevertheless, cash continues to reign supreme in Cape Verde. Long queues at ATMs and reports that 31.7% of the economy is still informal highlight the persistent use of cash within informal businesses. Despite digital payments being free for both customers and merchants, there remains a strong affinity for cash. Why?

Here are five key elements influencing the prevalence of cash in Cape Verde:

1. The Weight of Cash Culture: Cash holds considerable cultural significance in Africa, including Cape Verde, where people associate it with a sense of assurance and guarantee that other payment instruments may not provide.
2. Limited Customer Experience: Consumers encounter challenges opening bank accounts (which are the only channels available to make digital payments) and navigating a cumbersome customer journey (e.g., entering 20 digits for bank account numbers via mobile phones). This inefficiency diminishes any competitive edge digital payments have against cash.
3. A persistent Informal Economy: Despite dynamic actions taken by the Government to bring small and medium enterprises (SMEs) into the formal economy, Cape Verde’s 31.7% informality rate remains lower than the average in the ECOWAS Region. These merchants prioritize cash transactions over digital channels due to a lack of motivation to enhance transparency in their businesses.
4. Lack of Digital Skills: While digital skills in Cape Verde seem to surpass those in other West African countries, there is still room to enhance the level of digital capabilities of the vulnerable segments. Many smartphone users lack the proficiency to conduct end-to-end payment transactions efficiently.
5. Business Model and ATM Withdrawals: Local card withdrawals at ATMs are free and there is a large ATM network (59 ATMs per 100,000 inhabitants), which make cash affordable and convenient and reinforces its usage.

Addressing the appetite for cash and promoting digital payments in Cape Verde will need to overcome these elements through the following recommendations:

• Strengthen the Payment System: Enhance the customer experience by making transactions inclusive and instant. Involve non-bank institutions in the market.
• Digital Education Campaigns: Launch campaigns to educate both retailers and end-users, particularly those in the informal economy, about mobile phone usage and digital payment transactions.
• Promote Digital Payments in the Informal Economy: Establish and promote government incentives to encourage players in the informal economy to formalize their businesses.
• Incentivize payments through digital channels: Develop incentives for customers (cashback or discount promotions, loyalty programs, etc.) to compete with cash payments.

AfricaNenda has established a partnership with the Central Bank of Cape Verde to contribute to strengthening the payment ecosystem. This is a great opportunity for testing some of these recommendations. Lessons from the Cape Verde market may help pave the way for other countries in the West Africa region to enhance their digital payment ecosystem.

[1]BCEAO - Annual Scoreboard on Regional Monetary Developments in UEMOA, 2021