It’s time for fintech in Africa to rise and shine

Photo credit: timhester / 123RF Stock Photo.

Disclosure: Shuyao is a consultant for IBM.

Two years ago, I was traveling from Nigeria to Benin to spend my Eastern holiday. The biggest challenge (and highlight) of the trip was crossing the Nigeria-Benin border located next to a busy open-air market with cars and tuktuk running around. It was March in Africa and the sun was burning as usual.

The immigration process was what you would imagine, filled with chaos and bureaucracy. While I was impatiently waiting to get my Chinese passport stamped by the immigration officer who demanded some “pocket money,” I couldn’t resist looking at a nearby teenage boy. He had no shirt, no shoes, no bags, possibly did not have much education, and was jobless for sure. However, there was one thing he was holding tight in his hand: a Huawei smartphone.

This is Africa. A person might have nothing in his life, but he’s got a phone, and that phone opens a world of services, including financial services that advance his standard of living like nothing else. Interestingly, most of these service providers are not traditional banks, but Fintech firms.

This post is dedicated to fintech in the African continent: its trends, challenges, and potential partnerships with local banks. 

What does the funny word fintech mean after all?

For laymen, fintech covers any upstart company that disrupts (or claims to disrupt) the traditional way people deal with money. Prominent examples include digital-only bank Monzo, digital wallet Apple pay, mobile-only stock trading app Robinhood, peer-to-peer lending site Lending Club, robo-advisor site Betterment, personal financial management tool Mint, and crypto-currencies like Bitcoin.

According to a recent report by Accenture, global investments in finech ventures have tripled over the last 5 years and will double again to an estimated US$6 billion by 2018. Though western countries—London and New York being global hubs—have dominated fintech’s rising, Africa has caught up quickly and, moreover, developed its own fintech characteristics.

Financial inclusion for the young and underbanked

Africa is the youngest continent on earth, with a population averaging 18 years old. However, the banking coverage across the continent is only 20 percent. The majority of Africans have never seen a bank branch nor do they own plastic. The only things that connect them with money matters are cash and phones. Fintech firms have seized this unique demographic, coming up with disruptive solutions to empower the young and underbanked.

Indeed, fintech in Africa has leapfrogged because of smartphones. The classic example is M-PESA, the successful Kenya-based mobile phone financial service, powered by mobile network giant Safaricom and Vodacom. It allows Africans in rural areas to deposit, transfer, and withdraw money, and to pay bills and purchase airtime. This helps the country progress into becoming a cashless society in a heavily cash-oriented economy.

Indeed, mobile banking in Africa has helped the poor transform their lives.

Similar fintech firms have sprung up since then. For example, South Africa-based fintech Snapscan allows customers to pay with a QR code on their phones. Nomanini allows informal vendors to perform and process small transactions with smartphones via a colorful box device that is cloud-based.

Kenya-based Cellulant offers mobile payment services to businesses and even allows them to interact with customers directly via cellphones. The company has also worked with the Nigerian government on an agricultural development initiative in which farmers receive fertilizer subsidies via mobile banking, empowering 14.5 million farmers and increasing their income from US$700 to US$1,800 over the past 3 years. Indeed, mobile banking in Africa has helped the poor transform their lives.

One thriving fintech sector is SME lending. As the vast majority of borrowers in Africa are not considered creditworthy due to their lack of credit history, fintech firms have come up with an alternative matrix to assess one’s creditworthiness.

Challenges?

Fintegration: the way to move forward