Financial inclusion is a major economic and social issue worldwide. Digital technology is increasingly used as a lever, particularly through financial technologies. These technologies are undergoing significant development and Africa is not left out of this dynamic. How is an African financial tech ecosystem being created? Who are the players, what is the market and what are the challenges facing this ecosystem?
Digital in Africa: a market with high potential
A generalized craze for information and communication technologies
Before discussing inclusion and financial technologies, it is important to take a quick look at the African context. One of Africa’s greatest assets is undoubtedly the youth of its population. Indeed, about 60% of the continent’s population is under the age of 24 and most young Africans have a strong interest in digital technologies. Overall, by 2021, 83% of Africans were cell phone subscribers and 33% were regular Internet users.
These figures, which highlight the enthusiasm of Africans for these technologies, also reveal that some 67% of people remain offline, with a majority living in rural areas (15% connected versus 50% in urban areas). Those who remain on the bangs of the Internet lack access due to multiple barriers, including the high cost of communications, lack of coverage, and lack of skills to use technology tools.
Between reverse innovation and Jugaad
Remarkably, the deployment of digital technology in Africa is bringing to the forefront a kind of “reverse innovation” – in other words, cases where products and services are first developed in developing countries and then returned, with adjustments, to developed countries.
The example of “mobile money” is emblematic, with the development of M-Pesa in Kenya. Created in 2007, M-Pesa is an electronic payment service that allows holders of a cell phone number to access a wide range of financial services otherwise reserved for bank account holders, using their own cell phone. Kenya’s mobile money solution is now used in ten countries, including India and Romania.
In addition to reverse innovations, another characteristic of Africa is Jugaad, a constant search for sobriety and frugality in the implementation of technologies. We are thus witnessing DIY, recovery and other arts of doing that allow us to adapt to this particular context. Africa is therefore a huge construction site, a melting pot of talent, creativity and innovation. This is one of the reasons why large international companies have set up research centers in Africa (IBM in Nigeria, Google in Ghana, etc.).
Digital technology at the heart of financial inclusion
Technologies that compensate for structural deficiencies
Financial inclusion refers to the ability of individuals and businesses to access a range of financial products and services that are affordable, useful, tailored to their needs, and offered by reliable and responsible providers. Africa suffers from a very weak banking system. This is where African Fintech (Financial Technology) is emerging, offering solutions that overcome the limitations of traditional financial systems.
It goes beyond the cities to reach rural populations, offering people adapted payment methods, banking services such as loans, insurance, remittances; it facilitates payments, money transfers, etc. The success of fintech companies is also due to the increase in smartphone ownership, the decrease in internet costs and the expansion of network coverage.
Measures to promote the use of financial technology
The use of financial technology, particularly mobile money, has become increasingly widespread in a number of African Union member states.
In Africa, payment for electronic transactions is mostly made in cash on delivery (COD), partly due to the low level of banking in the economies, the uneven development of e-money across countries, and the low uptake of COD, which is often the result of a lack of confidence among online shoppers.
In order to address the difficulties of inter-state transactions, the African Union has established a Pan-African Payment and Settlement System (PAPSS) that allows money to flow efficiently and securely between African countries. Regional digital payment systems have also emerged to reduce the cost and time associated with cross-border trade. These include the Common Market for Eastern and Southern Africa (COMESA) Regional Payment and Settlement System and the Southern African Development Community (SADC) Integrated Regional Electronic Settlement System.
The rise of fintechs in Africa
A growing market
FinTech covers a variety of fields. They range from mobile payments to crowdfunding, savings management, insurance and credit, online financial advice, neo-banking and cryptocurrency. It must be said that FinTech is one of the drivers of African technological growth. It accounts for $3.2 billion or 63% of funding. The five African companies that became unicorns in 2021 are all, with the exception of Andela, Fintech companies (Flutterwave, Opay, Wave, Chipper Cash).
In 2020, there were 674 FinTech companies operating in Africa, about 80% of which were domestic. The payments sector dominates the African FinTech arena, accounting for 45% of deals and 24% of total venture capital. According to the 2018 edition of Africa’s Development Dynamics on Growth, [AUC/OECD], Africa is reportedly using mobile banking more than all other developing regions combined.
While the African market seems large, the realities differ from country to country. For example, in 2020, more than 40% of the population had an active mobile money account in Benin, Burkina Faso and Côte d’Ivoire, corresponding to a mobile money transaction volume of more than 40% of their national GDP. Conversely, less than 10 percent of the population has an active mobile money account in Guinea Bissau and Niger, with an electronic transaction volume of less than 5 percent of GDP.
Sustained growth expected in the coming years
While the development of African FinTech is a reality, we must not forget to point out a few weaknesses, including the lack of true interoperability between platforms, the low rate of banking, the weakness of identification systems, and the still small size of Fintech companies.
However, despite these weaknesses, there is already a real dynamic with strong impacts on the African economy. McKinsey’s analysis estimates that the financial services market in Africa could grow by about 10% per year, reaching about $230 billion in revenues by 2025.
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