Africa has proven to be a unique testing ground for some of the newest fintech innovations. Due to a comparatively much lower penetration of other financial services mobile fintech dominated the African landscape early on. The initial fintech players in Africa aimed to offer digital substitutes for conventional banking services. They soon realized that there was much room for innovation. Soon the world’s largest mobile and fintech service providers, as well as a profusion of startups entered this arena. Here is a glimpse into the current and future state of mobile fintech in Africa.
It is indeed interesting to note that although Africa is behind more developed countries in tech and infrastructure development, it now leads the world in the usage of some of the most advanced fintech innovations. Today Sub Saharan Africa is a world leader in per capita mobile money transactions. It is also the fastest growing market for mobile fintech. The count of mobile money accounts has long overtaken the number of bank accounts in this region. The appeal of mobile banking is obvious. Banking in Africa is dominated by small, frequent low-value transactions. With limited formal banking infrastructure, a sizable percentage of Africans would have to spend time and incur cost to travel to banks. Mobile banking is instant and dispenses with the need to go to banks. It is also an optimum platform for frequent low-value transactions.
Initially mobile fintech in Africa was popularized as a convenient means of receiving remittances. Gradually mobile fintech providers responded to market demand and started to offer services such as peer to peer money transfers and digital payments. The option to do away with carrying cash for purchasing goods and services attracted an ever increasing number of users. Services such as utility bill payments were soon included.
However, this was only the beginning. With a rapidly growing market fintech service providers reached the critical mass to be able to offer more involved financial services including mobile credit, international money transfers, insurance related products and even investment instruments. In some African nations mobile fintech providers have partnered with governments and banks to offer loans to small business starters and savings solutions to households.
Even with the diversified range of mobile fintech services being offered in Africa, innovative market players feel that this is just a fraction of what is possible. There are certain pockets within Africa wherein digital data warehousing is being used for automation and control. When mobile fintech was expanding rapidly, unlike much of the rest of the world Africa was unencumbered with the challenge of migrating legacy systems to digital platforms. Most delays with transactions, payments and transfers in legacy mechanisms stem from the necessity of manual verifications and checks. Mobile fintech based platforms are fully digital and allow for some interesting functionalities, such as automated reporting and comprehensive real time updates. If all banking and regulatory institutions can agree to share a common digital platform it could greatly streamline regulation and control. Multiple industry sectors namely healthcare, infrastructure, energy and others currently suffer from debilitating inefficiencies which can be effectively addressed through the extended features of mobile fintech. This technology has the potential to democratize services, slash corruption, eliminate wasteful processes and facilitate the economic inclusion of all.
Policy, we find, is usually several steps behind innovation. Africa is no exception to this worldwide problem. Multiple regulatory challenges currently exist in the domain of mobile fintech in Africa. The larger issues include mitigation of cyber risk in a region with underdeveloped financial literacy, and guaranteeing security against activities such as money laundering and terrorism funding. Other challenges involve the cost and extent of regulation. Regulatory controls, while being robust should not be so overbearing as to suppress the enabling innovation. Neither should the corruption in the region manifest in the form of excessive cost of setting up and running the regulatory mechanism.
One of the larger issues to have limited the spread of mobile fintech in Africa is infrastructure. Not just internet penetration, but something as fundamental as the availability of electricity has remained a problem in many regions. Infrastructure development often requires foreign investment, which is intertwined with regulatory inadequacies and vested interests on part of multiple players.
Mobile fintech in Africa has revolutionized banking and has been instrumental in creating financial access and inclusion. If the regulatory and infrastructure challenges can be addressed, further development in this domain can proceed rapidly. Such development would have the potential to create decisive impacts related to efficiency, productivity, infrastructure, employment and progress in Africa.