- Fintech has become more important in Africa’s financial inclusion as the tech sector expands.
- The digital economy, AI, and Web3 revolution will touch every element of human life over the next 10 to 20 years.
- Banks are increasingly responding to unique client demands to improve Africa’s financial inclusion by delivering customized financial products for small enterprises and low-income people.
Africa is considered one of the fastest-growing, continental economies. Despite this, a major part of the population faces poverty and economic inequality which in turn impacts the overall economic growth. Financial inclusion remains a largely researched topic as it has the potential to improve the livelihoods of low-income individuals.
Africa taking over the tech space
Human evolution is being driven by technological advancements and innovations. The digital economy, AI, and Web3 revolution will touch every element of human life over the next 10 to 20 years, including production, consumption, banking, finance, and payment systems. Africa’s youthful entrepreneurs continue to lead the digital revolution. Novel technologies and commercial models emerge from their original ideas, allowing humanity to address major challenges.
Many African nations started to expand their economies in the 1960s by investing in industrial areas. Eventually, the continent witnessed the birth of software and electronics spin-offs. These spin-offs have grown into viable enterprises that generate revenue for African countries over time. Some have dubbed these businesses “the next Silicon Valley.”
African technology innovators have taken the lead the world over in recent years. The World Economic Forum (WEF) nominated six African start-ups to its 2022 Technology Pioneers list. Until around six years ago, Africa did not have unicorn start-ups, or companies worth more than a billion dollars. Today, the continent boasts over seven unicorns. The fintech sector accounts for six of these unicorns. Consequently, fintech has become more important in Africa’s financial inclusion as the tech sector expands.
Also Read: Financial inclusion, the missing link in Africa
Technology and financial inclusion
Africa, the world’s second-most populated continent, has a much lower median age of 19.7 years old. The continent is expected to have the world’s youngest population by 2025 (approximately 362 million individuals aged 15 to 24), providing an enormous potential for the banking, financial services, and insurance sectors to bring this group of people into the mainstream financial services fold.
However, with a significant number of Africans still unbanked, boosting financial inclusion will be critical to reaching this goal.
Africa has seen a dramatic decline in the proportion of its unbanked inhabitants over the last several decades, owing mostly to the emergence of financial technology (FinTech) and insurance technology (InsurTech) firms in the continent.
According to the International Monetary Fund, Africa currently accounts for about half of the world’s 700 million consumers of digital financial services. This advancement may be due to the use of digital infrastructure and banking, which bypasses conventional brick-and-mortar financial processes.
Mobile money providers, digital wallets, neo- or digital banks, and online payment platforms have emerged as critical participants in closing the financial inclusion gap in Africa. These technologies break down geographical boundaries and lower transaction costs, allowing underprivileged people to access and navigate the world of financial services.
Savings, credit, and insurance options are also being created by technological improvements, allowing previously excluded individuals to engage in the formal financial system. As a consequence, social inclusion improves, contributing to the larger objective of integrating excluded people into society.
The continent’s steadily increasing mobile phone coverage, expected to exceed 50 per cent by 2025, expands access to banking, finance, and insurance services, especially in detached and rural areas. Physical infrastructure limits are overcome by employing digital communication technologies, and a broader client base receives access to financial services.
The role of the banking sector
Traditional banking institutions already have the infrastructure in place to assist with rapid client acquisition; they have established corporate governance, and their contacts with regulators are clearly advantageous.
Banks are increasingly responding to unique client demands to improve Africa’s financial inclusion by delivering customized financial products for small enterprises and low-income people. Banks also give consumers accessibility and convenience via online banking services and mobile banking apps. Adopting new digital technologies has also made it possible to conduct safe digital transactions.
Collaborations with non-governmental organizations (NGOs) and government agencies can broaden their reach, facilitating a more inclusive approach to financial services. McKinsey emphasizes the significance of conventional banks partnering with FinTechs in the Fintech in Africa: The End of the Beginning study. Partnerships, rather than fierce rivalry, hold the key to long-term business growth and financial inclusion levels across the continent.
Also Read: Mobile money use surge heralds new era for Africa
The role of technology is expanding accessible banking services
The availability of communication technologies, especially internet connection and mobile networks, has proven a critical component in the development of accessible financial services throughout Africa. FinTech and digital banking could thrive as a result of internet connectivity.
Although the continent has come a long way, internet penetration remains low in comparison to the rest of the globe. However, according to World Bank statistics, internet penetration in Sub-Saharan Africa increased by 4 per cent between 2020 and 2021.
Internet connectivity enables financial institutions to build digital platforms and online banking services, as well as improve access to financial management for consumers. Mobile networks bring financial services into customers’ hands and encourage the emergence of agent banking, where local firms operate as middlemen for banking services in places where physical bank branches do not exist.
Digital communication channels, including email, messaging applications, and social media sites, promote effective and efficient communication between financial institutions and their consumers while raising financial literacy in areas where they are prominent.
Digitization and increased use of mobile technology in Africa
A state of the industry report by GMSA shows that the global mobile money industry now has 316 live services and more than 1.35 billion registered accounts, with over US$1 trillion in transaction value. Africa alone contributes more than 54 per cent of the live services and 70 per cent of the transaction value. Since the advent of M-Pesa in Kenya, the continent has led the way as a mobile money pioneer.
The World Bank states in its Global Findex Database of 2021 that mobile phones could overcome many of the barriers that currently unbanked individuals say are keeping them from accessing financial services. Leveraging mobile phone ownership, which is rising sharply on the continent, could also assist in narrowing the gender gap evident in Africa’s financial inclusion.
Mobile technology offers an opportunity for financial services providers to ensure penetration of the formal financial sector and the provided services to boost Africa’s financial inclusion. Mobile and digital payments have transformed African financial transactions, driving economic growth and development. For instance, a study by Visa shows that Kenyans, with their digital and mobile money history firmly rooted in the M-Pesa story, prefer to use cashless payments to conduct business.
The role of Web3 and cryptocurrencies in Africa’s financial inclusion
Africa’s Web3 and cryptocurrency market has been on a meteoric rise, buoyed by a tech-savvy young generation keen on alternative investments and by public and private institutions interested in using emerging technology to find lasting solutions to local problems.
Cryptocurrency has been embraced as a digital finance tool connecting people and businesses through modern transactions while opening up new frontiers to the continent’s population without access to banking systems.
But beyond the democratisation of finance, digital currency has pointed users to opportunities ranging from economic participation, enhancing cross-border trade, bolstering financial resilience, and bridging the digital divide. With the rise of blockchain technology and the increasing popularity of cryptocurrencies, Africa remains at the forefront of this new digital economy.
One of the most significant impacts that crypto can have lies in promoting Africa’s financial inclusion. People can send and receive money without a traditional bank account through cryptocurrencies. This could benefit people without access to formal banking services or ATMs.
Conclusion
Currently, financial inclusion is a target that all African countries must achieve. Boosting Africa’s financial inclusion will have a positive impact on economic growth and the prosperity of society. Through financial inclusion everyone has access to a variety of quality, effective and efficient financial services. Increasing public accessibility to financial service products will further reduce the level of economic and social inequality which in turn will improve the welfare of the community.
One of the efforts to achieve this financial inclusion target is through technology in form of digital finance. When financial products and services use internet technology it makes it easier for people to directly access various kinds of payments, shopping, savings, investments, including loan and credit facilities. Among these digital financial elements, the payment facility is the service that is experiencing the fastest development and contributes greatly to the achievement of Africa’s financial inclusion targets.
Also Read: Digital banking key in boosting financial inclusion
