The impact of financial technology (FinTech) in developed countries cannot be overemphasised: the benefits associated with this innovation has helped made business processes, faster, easier and more rewarding. In the same vein, financial technology has impacted the lives of the people in developing continents by providing them with services that weren’t previously available.
The industry, coupled with the global availability of affordable mobile phones and cellular networks, has displayed great potential in its ability to minimise global financial exclusion rates (i.e. the inability of people earning little to now income to access basic financial services). As new technologies are developed and old business models are challenged, financial services can be provided with greater speed, accountability, and efficiency.
The emergence of Africa’s FinTech industry, through its software and platforms, has made financial products and services more accessible to consumers in developing countries with low standards of living. It has also made these products and services more affordable by reducing the cost of doing business for financial institutions and other intermediaries.
The African Context
The Sub-Saharan African region has the ability to become one of the leaders in the global FinTech space. Continuous growth and development in Sub-Saharan Africa’s FinTech industry has attracted global attention to the region, according to reports from PWC. Said growth and development is attributable to the region’s large population size and constant growth in the usage of mobile phones, which has been made evident by the region’s increase in mobile money usage.
Mobile money, as defined by Ernst and Young, is an e-payment/wallet platform that allows for the transfer of money, payment of goods and services (airtime, DSTV, GOTV, electrical bills), peer-to-peer lending and so much more through the use of mobile phones and tablets.
Africa’s largest economy, Nigeria has experienced 27% growth in mobile money usage between the years of 2011 and 2016. The country’s FinTech industry currently comprises of over 50 companies with investments exceeding $200m in the last two years. Nigeria, according to Irrational Innovations, has developed effective payment and lending platforms, with 37% of FinTech start-ups focused on offering payment and remittances services (such as Paga and Remitta) while 32% offer lending and financing services (like Renmoney and Onefi). The remaining 31% are divided amongst insurance, banking, trading, data, bitcoin and business solutions.
Some notable mentions in the Nigerian FinTech space include Casava, a fintech start-up focused on being the first company in Africa to offer peer-to-peer insurance, and Interswitch, the first FinTech company in the country to be valued at over $1bn.
From West to East
Similar to Nigeria, Kenya has also exhibited very promising potential and growth in the mobile money lending operations. In March 2015, financial times reported that $150m worth of loans had been issued to borrowers, following the collaboration between Kenya Commercial Bank and M-Pesa (a mobile money platform). The vast majority of these borrowers are low income earners previously regarded as un-bankable due to their lack of credit history and access to financial services (financial exclusion).
This collaboration has not only increased financial inclusion rates but has enabled low income earners and provided them with the necessary resources suitable for businesses, healthcare and education, all of which can ultimately contribute to the further development of the country.
Ghana has also been on the rise in regards to Africa’s FinTech space. As of 2009, about 70% of Ghana’s population were un-banked, and the country had a GDP growth rate of 4%. But between 2011 and 2015, largely due to the utilisation of mobile money, the country recorded a 41% increase in the population’s access to formal financial services, as well as a compounded GDP growth rate of 7.7% between the same periods.
Africa’s FinTech Future
Technology has given rise to different kinds of innovation in the financial services sector. The use of mobile money in Sub-Saharan Africa has increased over the years, with approximately 70% of adults in Kenya, for example, utilising mobile phones for money transactions. African small- to medium-sized businesses (SMEs) account for over 45% and 33% of the continent’s employment and GDP rates respectively.
Improvement in the access to finance is crucial for continuous growth and development. Africa’s middle class is one of the fastest growing in the world, which has helped financial institutions recognise the potential that lies within Africa’s large consumer base. As these institutions exploit the opportunities offered by financial technology, several sectors of the African economy will achieve growth and development.