Fintech has the potential to revolutionize the African financial services landscape. Already mobile payments and microloan technologies are taking root rapidly across the continent.
The success of mobile money provider M-Pesa in many countries such as Egypt, Ghana, India, Kenya, Lesotho, Mozambique, Romania, and Tanzania among others is an example of the potential of fintech on the continent.
Read Also: Mobile money making Africa bankable
Financial Inclusion
In Africa access to traditional financial services is limited. Transaction costs with banks are usually very restrictive. This coupled with poor infrastructure, lack of employment and rural environments has created room for fintech innovators in financial services provision.
62% of the African population remains un/underbanked. Mobile phones are relatively more accessible which has increased the reach of mobile money services. In sub-Saharan Africa mobile money transactions account for 10% of the region’s GDP against an average of 2% in other economies; this shows the extent to which mobile money has spread in Africa
Mobile phones are now used for paying bills, receiving salaries, and buying goods among other payment services. Beyond this financial technology has improved to encompass microloans, crowdfunding services, mobile banking, and stock market transactions.
Potential of Fintech on the Continent
Financial inclusion is not an end in itself, it is a means to an end. Financial technology has the capacity to stimulate financial activity through increased savings, expansion of revenue pools, and increasing productivity. Additionally, improved efficiencies help to attract foreign direct investments. This economic stimulation can create a ripple effect that leads to growth in other sectors and the economy in its totality.
Some of the expected by-products of fintech include human capital growth, improved financial literacy, and financial inclusion.
Further fintech has the potential to drive the digitalization of the economy, leapfrogging Africa into an era of efficiency in trade and commerce. This is a necessity in order to diversify from commodity-driven economies. With the high expectations placed on the African Continental Free Trade Area, fintech expansion will catalyze trade and improve the performance of the trade arrangement on the content
Fintech Value Propositions
The fintech bandwagon has grown significantly. Still there exists enormous potential for fintech providers to move up the value chain in terms of more improved service provision.
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Business efficiency
There is potential to incorporate fintech in the way businesses are run to improve growth. Areas such as blockchain supply chain monitoring, cloud-based cybercrime supervision among many others have the capability of impacting Africa’s business space.
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Lending
One of the biggest challenges for small to medium enterprises on the internet is access to finance. Most SMEs do not meet the criteria for bank lending. Therein comes the opportunity for fintech to provide loans and financing possibilities using easier credit rating systems that do not require the use of asset-based collateral.
In the same vein, fintech can leverage its relative ease of use to provide lending risk assessment software and frameworks to the traditional banking sector. This has the potential of improving lending and therefore production within economies.
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Savings
Fintech providers can cater to the increasing middle class to provide fast convenient and cost-effective automated savings platforms. This has the potential to increase savings returns consequently improving the savings culture on the continent.
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Investment
The high-cost structures within the traditional banking systems are mostly attributable to the brick and mortar infrastructure. This infrastructure, the pride of the banking sector, is usually expensive to establish and maintain.
With fintech allowing customers access to investment and wealth management services on a purely online basis gives the scope of reducing transaction costs. Wider reach is also expected to come from innovations of this nature.
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Remittances
For a number of reasons, including the challenges that weigh so heavily on the continent, a number of Africa’s populace has found homes elsewhere. There is a sizable African diaspora in the world who sends money to their loved ones back home.
Traditional banking systems typically charge high fees and tend to be slower at receiving such remittances. World Bank statistics indicate that African banks rank among the most expensive, charging an average of 11% per transaction. The potential disruptive power of fintech lies in being able to process remittances faster, cheaper, and reach even remote areas seamlessly.
There are many other value propositions within the area of financial technology such as digital wallets, which in various degrees have the potential to positively disrupt the African economies. There exists scope within these areas for investment, innovation, and growth.
Aligning Regulation to Innovation
Regulation
The relative ease of access into the fintech market calls for sound regulatory systems to be in place to avoid a collapse of the market. However, stiff regulatory policies will have the effect of stifling innovation and slowing down the growth process.
Fintech provides a channel for Africa to catch up to the rest of the world in terms of financial inclusion, saving an investment. Slowing down innovation will only impact negatively on the continent. There is, therefore, a need for robust regulatory systems that enforce compliance but maintain flexibility.
This calls for regulatory policies that speed up new product approvals to enable fintech to improve and regularly update products. Fast-paced regulatory frameworks have to be implemented to catch up with the fast-moving pace of technology
Improve infrastructure
Improving the infrastructural landscape indulging the digital infrastructure is an important step towards accelerating the growth of fintech in Africa. An emphasis on ICT and power generation is necessary to move the fintech agenda forwards.
Financial inclusion
Regulators should continue to push the drive towards financial inclusion. This has the dual effect of improving human capital and also taking a step towards attaining developmental goals.
Final Thought
According to the African Tech Startups Funding Report 2019, fintech was the most popular sector attracting investment among the 311 start-up tech companies that secured US$491.6 million worth of investment. More recently Nigeria’s Paystack was acquired by international payment company Stripe for over US$200million. This is a testament to the potential of fintech.
The disruptive potential of fintech cannot be ignored and more must be done to encourage growth, and successfully regulate fintech on the continent.
Also Read: Fintechs solving Africa’s generational challenges make continent innovation hub
