- Artificial intelligence in Africa can potentially propel the fintech industry into a new era of financial inclusion.
- AI tools can analyse data from client discussions, producing legal documents in simple language and at a fraction of what it would typically take to draft a contract.
- Banks, for example, can make their services more affordable to their customers by rolling out AI-powered chatbots to handle routine queries while sparing them from having to travel to a bank branch.
It’s difficult to imagine a time before the widespread adoption of mobile technology in Africa – particularly where financial services are concerned. For millions of unbanked people, transactions were limited to cash, postal services or even the barter system.
Now, in much the same way as mobile payments completely disrupted the status quo, AI has the potential to propel the fintech industry into a new era of financial inclusion. And perhaps most exciting of all is that Africa is not simply catching up with AI-powered developments but surging ahead with innovative solutions that have considerable implications for the underbanked.
Already, homegrown fintech companies have completely changed how people in Africa transact, helping to reduce reliance on cash transactions.
Innovative payment solutions have revolutionised access to essential services, such that millions of people can now afford everyday necessities like airtime. In fact, research from McKinsey has shown that these items are now available to lower-income households at up to 80 per cent less of the cost associated with traditional banking players.
And when one considers that half of Africa’s population is still unbanked or underbanked, we can begin to appreciate just how dramatically the fintech sector has had on the very nature of financial services in Africa.
For example, the net result in Kenya is that adopting digital payment solutions helped increase financial inclusion by as much as 25 per cent in just 15 years.
A cloud-powered payment revolution
More recently, cloud technology has created a whole new realm of possibilities for fintech companies looking to accelerate financial inclusion, helping them scale their operations, create operational efficiencies and spin up new innovations overnight.
African payment giant Flutterwave is a case in point, having recently shifted its legacy infrastructure to Microsoft Azure with a view to expanding its operations and processing high-volume payments at scale. As one of the continent’s safest and most reliable payment companies, Flutterwave has been at the forefront of Africa’s payment revolution. Its multiple payment modes, including local and international cards, mobile wallets and bank transfers, change the game for many African people and businesses daily.
Artificial Intelligence (AI) ushers in a new era
Now, building on the progress enabled by the cloud, the world is undergoing a new wave of technological transformation driven by AI. Suddenly, businesses don’t need vast datasets or powerful computers to benefit from the technology, with most of the necessary computing power now available through cloud providers. As the barriers to AI adoption have fallen away, new tools are giving rise to substantive productivity gains and revolutionising industries such as fintech.
While AI provides champions of financial inclusion like Flutterwave with the tools they need to expand their reach, it’s also helping to fast-track access to financial services in many ways.
Traditionally, the cost has been a significant barrier for local SMEs when it comes to the adoption of digital financial services. In fact, it’s estimated that around 90 per cent of transactions in Africa are still cash-based, which is often because cash transactions don’t carry any fees. However, the ability of AI to lower the cost of the entire ecosystem of financial services – from fraud detection to risk management optimisation and compliance improvements, can lead to substantial operational efficiencies and cost savings, which can ultimately be passed on to the end-user.
Banks, for example, can make their services more affordable to their customers by rolling out AI-powered chatbots to handle routine queries while sparing them from having to travel to a bank branch.
Fintech companies are already helping customers improve their financial literacy by using these same chatbots as affordable advisors. Drawing on the power of AI, these bots can produce personalised recommendations, such as budgeting strategies, so that the user can make a more informed financial decision. Mosabi, a company in Sierra Leone, has even gamified the process to help customers elevate their financial behaviours.
What’s more, AI tools can analyse data from client discussions, producing legal documents in simple language and at a fraction of the cost of what it would typically take to draft a contract, extending access to these services in terms of understanding and affordability.
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Real-time lending at scale through Artificial intelligence in Africa
Perhaps most importantly, many fintech companies have access to vast amounts of data, meaning that when AI is introduced to the equation, they can offer real-time digital lending on a major scale.
M-KOPA, for example, leverages Microsoft’s AI services to manage lending risk and provide financial forecasting. The company provides digital financial services to underbanked consumers by combining digital micropayments and IoT technology, drawing on cloud technology to process over 500 payments per minute, and making it possible for 3 million people across Africa to access essential services such as solar power systems, digital loans, health insurance and smartphones.
AI has helped M-KOPA achieve significant increases in customer repayment performance – particularly for the follow-on products and services that M-KOPA offers customers once they have successfully repaid their initial loan. In fact, more than 440,000 additional credit lines have been made to customers following payment of their first product.
With the digital payments market maturing quickly in Africa and AI rapidly gaining traction among fintechs, the implications for accelerated financial inclusion are significant.
The question is – how do we ensure fintechs can fully realise the AI opportunity?
Much of the answer lies in capacity building, from infrastructure to connectivity, skills and essential digital tools. With improved internet access, fintechs have the potential to access more data, and with larger volumes of data available, they can provide more innovative services.
For that reason, Microsoft continues to make significant investments to bolster the continent’s digital capacity – from new connectivity solutions through our Airband Initiative to essential cloud infrastructure through our enterprise-grade data centres in the region. Through key partnerships, such as our collaboration with Safaricom, we’re upskilling hundreds of thousands of developers to build entirely new digital ecosystems.
Regulation is another hurdle that must be overcome to accelerate AI-powered payments in Africa. Though more African countries are expected to introduce regulations to guide AI development and deployment, relatively few have strategies and policies in place at a national level. In fact, many FSI organisations in Africa view the risk of new safety and regulatory requirements as one of the biggest stumbling blocks to wider technology implementation, hindering greater progress in financial inclusion.
Finding new ways of collaborating across industry and government is critical to advancing AI in financial services. To this end, Microsoft continues to engage with the African Union and national governments in priority markets to help strengthen our collective role as responsible stewards of AI.
For some time now, Africa has been at the forefront of the payment technology revolution – empowering millions of people with access to financial services. Imagine what more could be done through the unprecedented power of AI. To turn that opportunity into reality tomorrow, we must begin by ensuring the groundwork for AI transformation is done today.
The author, Lillian Barnard, is the President of Microsoft Africa.
