- The use of digital solutions is revolutionizing all kinds of financial transactions from making simple payments to borrowing and lending.
- With mobile phone and internet penetration rising at a phenomenal phase, even the remotest parts of Africa can now access financial services through their mobile phones.
- The World Bank: It is time for policymakers to embrace fintech opportunities and implement policies that enable and encourage safe financial innovation and adoption.
Financial technology or the application of digital tools to streamline financial services more commonly known in the short form Fintech, is reshaping the future of financial services and creating a boom for investors in the fast-growing segment.
The use of digital solutions is revolutionizing all kinds of financial transactions from making simple payments to borrowing and lending. Be it your next investment portfolio or your insurance, you name it, almost any financial service you can think of can now be done digitally and in most cases handled on a mobile phone with an internet connection, and in some cases even offline.
In Africa, the digitalization of financial services has greatly increased financial inclusion for otherwise excluded communities. Most persons in rural Africa, which is 90 percent of any one of the continent’s 53 countries, were mostly unbanked and for all purposes, they were excluded from modern financial services.
Even Western Union, which revolutionized sending and receiving money across borders only operated in city centers and inside banks mostly. In rural Africa, banks did not see the need to invest in setting up shop, it is expensive, hard to reach, and, well, the market is of ill-financed peasants, and the feasibility studies did not add up.
Then came the internet and the mobile phone and what we now call Fintech and the financing world changed altogether. Now, with mobile phone and internet penetration rising at phenomenal phase, even the remotest parts of Africa can now access financial services through their mobile phones and telecoms are ‘making a killing,’ so to speak.
“Fintech is helping to bridge gaps in access to financial services for households and firms and is promoting economic development,” notes the World Bank in its December 2022 report on Africa’s fintech performance.
The multilateral lender acknowledges that fintech development has,”…improved access to basic financial services translates into better firm productivity and growth for micro and small businesses, as well as higher incomes and resilience, to improve the lives of the poor.”
With the advent of digital technology and its application to the financial sector, service providers have been able to overcome geographical barriers and with it, move over some of the cost constraints that they faced before.
Fintech development has also helped increase the speed, security, and transparency of transactions. In fact, fintech in Africa (and around the world) is helping to provide much more tailored services and that way allowing service providers to better serve their customers.
When we speak of inclusivity, we also should point out that the fintech boom in Africa has helped bridge gender gaps. The World Bank notes in its report that women have especially benefitted from the application of digital technologies to the financial sector.
A lot of women in Africa now find jobs in the fintech industry and a great portion own their own fintech startups, too.
Despite all this positives brought about by the fintech boom; “yet too many people and firms still lack access to essential financial services that could help them thrive,” decries the World Bank.
In the report, the World Bank urges African governments to step up to the challenge and see the potential economic development changer that the fintech revolution is and how much more it can do.
“It is time for policymakers to embrace fintech opportunities and implement policies that enable and encourage safe financial innovation and adoption,” advises the World Bank.
It is obvious that with the boom of the fintech industry, the government and the nation as a whole stand to gain from increased internal revenue and the resulting national development that will be funded by the raised income, respectively.
Further, the fintech services are just that, a service; a product that needs to be checked and monitored for safety, security for utility, and overall consumer protection. The government must be involved to ensure regulation and supervision are in place.
However, these regulations should not hinder growth or limit the adaption of new technologies, especially in Africa where affordability is a big factor.
The World Bank says as the financial sector continues to transform itself, policy trade-offs will evolve, and regulators will need to ensure that market outcomes remain aligned with core policy objectives, risk management, fostering innovation and competition, and reassessing regulatory perimeters.
In another analysis finding delivered by advisory firm McKinsey & Co. August 2022 report, analysts found that fintech development is not only “delivering more affordable services to customers” but it is also providing “transactional solutions that can be up to 80 percent cheaper.”
In fact, the report shows that through the fintech industry, the public can enjoy much higher interest on savings, “up to three times higher than those provided by traditional players.”
At the same time, the report shows that the fintech industry offers cost of remittances that are up to six times cheaper than what traditional banks and financial service providers could afford to offer.
The fintech industry allows small businesses to apply for online funding almost anywhere and it is in effect building credibility for a community that was otherwise unbanked and had no digital footprint before the advent of the fintech industry.
“Fintech is transforming Africa by giving business owners the ability to manage their cash flow better than ever before. It gives businesses every chance of success and successful businesses improve economies and help with job creation,” comments Trevor Gosling, CEO of Lulalend and a fintech expert.
Read also: Mobile money stands strong in Africa
To optimize potential benefits from the fintech industry, African governments can explore a number of strategies to accelerate growth of the industry while creating jobs for millions of people. Policymakers will need to review the existsing regulatory, supervisory, and oversight frameworks while being mindful of evolving policy trade-offs as fintech adoption deepens.
Monitoring the market structures and conduct to foster a healthy competition as they modernize and open financial infrastructures could also bolster the industry. Equally, by ensuring public money remains fit for the digital world and pursuing strong cross-border coordination and sharing of information and best practices could yield good gains for investors in the fullness of time.