(Ecofin Agency) - Over the past three years, the electronic money sector in the WAEMU region has seen explosive growth. Between 2021 and 2023, the value of electronic money transactions surged by 288%, rising from CFA44.2 trillion to CFA171.9 trillion. In 2023 alone, it grew by 146%. Transactions themselves doubled, reaching CFA8.78 trillion. The number of service points locations where people can deposit or withdraw money also increased by 16.4%, now exceeding 1.1 million.

This rapid expansion is driven by a critical need. In regions where banks are often unavailable, Electronic Money Establishments (EMEs) financial institutions authorized to issue, manage, and distribute electronic money have become a vital financial resource for people. Thanks to them, millions of people, particularly in rural and peri-urban areas, who were previously excluded from the banking system, now have access to basic financial services.

The number of electronic money accounts rose by 23.3% in 2023, reaching 138.1 million, and the number of active accounts followed the same trend, increasing by 13.3%. In contrast, the number of bank accounts only grew by 6.6% in 2023, reaching 20.8 million, highlighting the deeper penetration and growing adoption of digital financial services across the region.

The increase in active accounts those used for at least one transaction every three months is particularly notable, with a rise of 13.3% in 2023, reaching 52.3 million. Users are taking advantage of the convenience and accessibility offered by these services, especially for proximity payments, money transfers, and even bill payments. Bill payments, in particular, are a newer use case that now accounts for 16.3% of all transactions, while transfers from personal bank accounts and intra-WAEMU transfers still have significant growth potential.

In 2023, the sector’s revenue bounced back sharply, growing by 45.9% to reach CFA252.2 billion after a notable 23.6% drop in 2022. This rebound is largely attributed to the increase in transaction volume, driven by the entry of major players like Wave Digital Finance in Senegal and SAMA Money in Mali. However, behind these encouraging figures lies a more complex reality. EMEs collectively recorded a net deficit of CFA21.3 billion in 2023, a slight improvement from the CFA32.8 billion loss in 2022. This is partly due to the fact that many EMEs are still in a phase of heavy investment, particularly the six largest ones, which hold 55.2% of the market. In 2023 alone, their financial debts skyrocketed by more than 218%.

One significant challenge facing EMEs is the surge in inactive accounts those without any transactions which increased by 30.4% between 2022 and 2023, reaching 85.8 million. In other words, while EMEs are attracting more customers, many of them aren’t actively using the services after opening their accounts.

This presents a real challenge for electronic money institutions. How can they encourage users to stay active? Several factors may explain this disengagement: after opening an account, users might realize they don’t need the services as much as they thought, or they find the technical obstacles and fees higher than expected. It’s also possible that the available services don’t fully meet users’ needs, or that the market is saturated with multiple accounts, each receiving little attention.

Beyond user engagement challenges, prudential indicators paint a mixed picture of the sector’s financial health. These ratios are crucial for understanding how institutions manage risks and ensure economic stability, especially in a fast-growing and uncertain environment.

First, let’s look at the coverage ratio. It measures the proportion of equity the institution holds relative to the electronic money in circulation. Essentially, it ensures that an EME has enough resources in reserve to absorb potential financial shocks. The regulatory threshold in the WAEMU region is set at 3%, meaning for every CFA100 of electronic money issued, at least CFA3 must be backed by equity. While this ratio remained above the minimum required, it dropped from 10.5% in 2022 to 8.3% in 2023. This decline, although not alarming yet, could signal a weakening ability of EMEs to absorb future economic shocks.

Next, the equivalence ratio tells us how well EMEs can meet their commitments, meaning they have enough available resources to cover financial obligations. Ideally, this ratio should be 100%, meaning every cent committed by the EME is fully backed by its assets. In 2023, this ratio improved to 93.1%, up 4% from the previous year, but still below the ideal target. Although EMEs seem to be moving in the right direction, they still have progress to make in fully covering their obligations.

Finally, the placement ratio gauges how cautiously EMEs invest user funds. It sets a limit on the risks they can take with users’ money. In the WAEMU region, this ratio must not exceed 25%, meaning less than 25% of electronic money can be invested in risky ventures. In 2023, this ratio rose by 3.3%, reaching 18.7%, still well below the regulatory ceiling. This can be seen as a positive sign, showing that EMEs are not taking excessive risks with clients' funds. However, in recent months, there have been calls for a regulatory review to allow EMEs to invest more of these resources often dormant savings in financial markets.