‘financial technology,’ used to describe new tech that seeks to improve and automate the delivery and use of financial services.
Just 17% of people in Sub-Saharan Africa have bank accounts. Comparing this to developed economies where 60% have bank accounts and traditional banking services have been embedded into everyday life for decades highlights a significant gap. This gap has left millions of Africans unable to access core financial services integral to economic empowerment.
Source: World Remit
Technology is set to change this. Whilst traditional banking has seen limited penetration in Africa the adoption of mobile technology has been rapid. In Nigeria, for instance, 80 million Nigerians do not have bank accounts yet 92 million are internet users and 142 million have mobile phones (Nigerian Communications Commission). This has presented a unique opportunity for technology to plug the gap in access to financial services.
The spread of mobile technology in Africa has given rise to the concept of ‘leapfrogging’, a phenomenon that describes how countries can ‘make a quick jump in economic development by harnessing technological innovation’. In economies like the UK, for example, we’ve gone from bank tellers to ATMs to online banking to making payments with just the swipe of our mobile phones. Each transitional wave has required years of development, effort and capital to educate consumers and encourage adoption.
Challenger Banks are posing a threat to traditional providers (think Monzo, Moneybox and Revolut) and consumers are using physical branches less and demand digital services that work – which, with archaic systems, traditional banks cannot always deliver. The concept of leapfrogging dictates that African markets will skip these transitional stages and go straight to mobile infrastructure. Therefore, bringing the ‘unbanked’ into the financial services sector faster.
Kenya is a prime example of the concept of leapfrogging at play. In 2007 Safaricom launched M–Pesa its mobile wallet. This effectively digitised the financial journey of the low-income worker who can now save himself time and money by sending money instantly via mobile to his suppliers, partners and even family members in rural areas. But there have since been many others. For example, Nigerian founded Flutterwave is making it easier for banks and businesses to process payments across Africa by allowing consumers to pay for things in their local currency. Flutterwave’s clients include Uber and Booking.com
Flutterwave accepts 350 currencies across 30 African countries and has processed over 10million transactions to date.
From M-Pesa in Kenya to Paystack in Nigeria (See my African fintechs to watch below) African fintechs are stepping up to the plate and investors are taking notice. According to Disrupt Africa in 2017 over a third of venture funding in Africa went to fintech companies.
Despite the momentum, the African fintech market is dominated by mobile payments and this is only scratching the surface. There is still a whole host of integrated financial services to be built before real financial inclusion is achieved: savings, insurance, credit, wealth management to name a few. As well as unique economic challenges Africans have financial needs which are universal and require the services to meet them.
“A mobile wallet is not enough, yet many companies delivering just one aspect of a solution expect success – this is a major part of the problem. A real solution needs a joined-up strategy that must work for all parties in a meaningful way that can make a real difference, with all aspects of society being considered; otherwise, it will simply fade into history.”
Due to the extensive penetration of mobile technology on the continent (from rich to poor and young and old) fintech has the potential to service both the formal as well as informal sector – an integral part of Africa’s economic story that is often underserved. Ultimately African fintechs are innovating out of necessity which means solutions are tailored to the African market – African solutions for African problems which is promising (Africinvest.com).
According to an Africainvest report, mobile networks and telecom operators are the main African disrupters as due to extensive mobile penetration they have access to millions of potential clients. This has presented an opportunity for diversification into other core financial services e.g. Safaricom’s M-Shwari a savings and loan service. However, we are still seeing innovative tech start-ups in the African fintech space. The ecosystem is growing but it needs to be backed with effective regulation and diversification for financial inclusion to be a reality.
African Fintechs to Watch
Paystack – Nigeria allows businesses to accept payments via credit card, debit card, money transfer and mobile money on their websites or mobile apps. (Paystack was the first Nigerian startup to be accepted to Y-Combinator)
Piggybank.ng – Nigerian Savings app automating the process of saving tiny amounts, daily, weekly, or monthly. Features include applying charges of up to 5% for withdrawing money before you reach your savings goal! (Piggybank.ng’s debit layer is built on Paystack!)
Branch – Kenya Virtual Lender using algorithms to determine creditworthiness via customers’ smartphones. Recently raised funding to offer microloans as little as $2 to small businesses!
Yoco – South Africa Offers a card reader and app which allow users to turn smartphones into payment terminals – targeting small businesses that do not currently accept card.
Who is on your watchlist? Share below