For many working in the digital financial services industry, 2018 brought a lot to celebrate – growth in number of active DFS account users, growth in the number of agents nationwide and growth in the number of products available to customers. These indicators of growth in the industry demonstrate how much the industry has transformed in a few short years since 2015; the digital financial services industry in Zambia is primed for further expansion and depth in order to meet the financial needs of Zambians, particularly those not yet served. These and other findings were revealed in the Annual Provider Survey (APS), which UNCDF has conducted for over three years.

In 2018, 18 DFS providers operated in Zambia, the same as the previous year, and though no new products were launched in the year, the majority of providers considered DFS a commercially sustainable side of their business. This year, 85% of providers continuously increased investment in their technical and organisational capacity, and providers dedicated more than 72% of their DFS staff to agent network management, further illustrating how meaningful these services are to providers. This increased investment in DFS is critical to Zambia’s financial inclusion initiatives, and should the trends in the industry continue, many more Zambians will have the opportunity to access formal financial services. In addition, the increased investment in DFS operations by providers is likely driven by the increasing importance of the digital economy in Zambia’s overall commercial trade and industry; customers have shown greater demand for products beyond just over-the-counter (OTC) domestic remittances. Zambians have increasingly used DFS to complete airtime payments, make on-grid and off-grid solar payments, take out loans and repay them, and save, in some cases, in interest-bearing accounts.

In the last twelve months, there has been a rapid rise in micro-, small- and medium-sized enterprises in Zambia, many of which are turning to mobile money as a payment mechanism for their goods and services, and this drives growth in the DFS industry, as evidenced in our current survey.

In the 2018 APS, the number of active agents in Zambia’s DFS ecosystem was reported to be 46,781 nationwide, an increase of 104% from 2017. The growth in number of agents is critical to increasing access to DFS, however, the challenges within the 11 agent networks exhibited in 2018 may inhibit that access and further industry growth. The major challenges identified were agent activity level, agent transaction volumes and agent commissions. The agent activity rate – those who have conducted at least one transaction in 30 days – increased from 36% in December 2017 to 69% in December 2018, mostly demonstrated among mobile network operators (MNOs) rather than banks and third-party operators. Among banks and third parties, the low agent activity rate was a result of a lower profit margin for agents and agents serving multiple providers to increase their overall transactions and ultimately commissions.

Last year, agents transacted greater volumes than in 2017: from ZMW 72,954 ($5,790) on average per agent to ZMW 124,689 ($9,824) on average per agent. While the total value of monthly commissions increased, there was a decline in average commissions earned by agents of MNOs and third-party providers. All providers should work to ensure agent commissions are maintained in order for agents to continue serving the industry and supporting the growth made year-on-year.

One area of growth and expansion that has become more visible in 2018 is partnerships between industry players to broaden the type of products offered to customers. There has been a growth in the number of active users of second-generation products, such as digital loans and Bank2Wallet transactions, from 1.3m in December 2017 to 2.3m in December 2018. To further include those financially excluded, DFS providers need to explore a suite of products that reach customers at the last mile.

UNCDF partnered with Bank of Zambia to produce the State of the DFS Industry Report. Dr Bwalya Ng’andu, then Deputy Governor - Operations, Bank of Zambia launched the report.

The annual survey revealed that as the Zambian DFS industry grows, more effort is required to educate customers on products and services that meet their financial needs and maximise DFS in Zambia. Increased customer education will lead to on-boarding more customers and reducing customer dormancy, which, at 70% in 2018, is high and a lost opportunity for DFS providers.

By addressing agent management and customer dormancy, the growth in Zambia’s industry can be sustained and providers can develop products that meet the Zambian customers’ unique needs and include them in the formal financial sector.