Africa is home to approximately 1.4 billion people and more than half of these citizens do not have a bank account. As a result, the African fintech sector is one of the world’s fastest-growing, attracting telcos and multinational corporations. Almost every citizen has a cell phone and a SIM card, so the opportunity to provide digital wallets for mobile money is enormous.
The rise of fintech and mobile money in Africa is being fueled by the ability to provide financial freedom to the unbanked. Telcos and fintech companies can reach citizens in ways that banks cannot. South Africa, Nigeria, Egypt, Kenya and Ghana are currently the top five countries for fintech investment. These are multibillion-dollar industries that are still rapidly expanding.
What can we expect in the future from Africa’s fintech market? Financial freedom and digital innovation are undoubtedly important factors that will improve the lives and economies of Africans and their countries, but fintech will continue to evolve into an industry that we cannot comprehend today. Many countries still lack fintech laws and regulations, which can stymie foreign investment, but this hasn’t stopped companies from entering the race.
Growth opportunities for fintech in Africa
Fintech funding and deal sizes are currently smaller in Africa than in the rest of the world. Seed cheque sizes in Africa’s top three markets range between $3 million and $10 million. This is because Africa is a ‘frontier market’ with fewer regulations and structures. However, the market is the fastest growing in the world, indicating that investment is increasing.
The continent is far too large and profitable to ignore. The smartphone, telecommunications and internet connectivity industries are rapidly expanding. Furthermore, a young, tech-savvy population creates an almost ideal environment for fintech adoption and digital banking solutions.
Fintech is assisting small businesses and entrepreneurs to reach a young and unbanked population. SMEs generate more than 70% of Africa’s gross domestic product (GDP). These small businesses require funding and a dependable means of transacting, particularly in remote areas of Africa. The fintech sector is bringing financial services to millions of businesses, where cash is still used in 90% of transactions.
Nigeria, South Africa and Egypt are the continent’s three largest economies, accounting for 46% of total African GDP. Finch alone can provide financial access to 440 million people and nearly half of the continent’s wealth in these three countries. However, there are barriers to widespread adoption of fintech services and mobile wallets.
Current challenges to overcome
There are four official languages spoken in Africa’s top 11 markets: English, Arabic, French and Swahili. A linguistic understanding of the apps and services provided is required for mass adoption. Since Africa has nearly 2000 distinct languages, fintech providers must provide solutions to linguistic barriers if they are to allow for easier product management and scalability.
Literacy levels also influence fintech adoption and financial inclusion. South Africa has the continent’s highest literacy rate, with 94.4% of South Africans over the age of 15 being able to read and write. This is one of the reasons why the country was among the first to establish a fintech ecosystem. According to research, there is a clear link between literacy and technology adoption, both generally and for financial services.
Another issue to address is the rate of internet penetration. Mobile wallets and fintech services are rendered useless in the absence of reliable internet access. Only four African countries have internet penetration rates higher than the global average – Morocco, Egypt, South Africa and Tunisia all outperform the global average of 62.5%.
Only half of Nigerians have internet access, which means that 49% of the country’s population is out of reach for fintech providers. This is why financial technology requires connectivity and infrastructure. Internet service providers and fintechs should work together to reach unbanked and underserved rural communities.
Similarly, many African countries are concerned about data prices. Smartphones are required for accessing fintech apps, but if data is prohibitively expensive, citizens are less likely to use these technologies. Many telcos provide their own fintech services, so they must ensure that data prices are reasonable – otherwise, they are shooting themselves in the foot.
The recent growth of mobile money
Africa accounts for half of all registered and active mobile money accounts worldwide. These represent approximately 30 billion transactions worth $500 billion. Sub-Saharan Africa accounts for 64% of all global mobile money transactions. Mobile money, according to the World Bank, plays a critical role in reducing poverty and lowering transaction costs.
Many Africans live and work in countries other than their own, relying on mobile money services to send money home to their families. These services are less expensive and have lower transaction fees than traditional banking and cross-border payment systems such as Western Union. Fintech and mobile money have become essential financial resources for a large portion of Africa’s diaspora.
This trend is likely to continue in the future as people look for more cost-effective ways to support their loved ones across borders. Mobile money services are also more convenient and reliable than banks and money exchangers, making them more appealing solutions.
What to expect in the next 10 years
Over the next decade, African fintechs will begin to offer more tailored solutions to niche population segments, such as farmers. These technology firms are more agile and cost-effective than traditional financial institutions, which are hampered by legacy technologies and outdated business models. This puts fintechs in a better position to reach Africa’s unbanked and underserved populations.
The traditional approach to achieving financial inclusion was to teach underserved communities about finance. Financial institutions must now educate themselves about their target markets and how to seamlessly integrate their services into the lives of Africans. With interesting business models and innovative offerings, new customer-centric fintechs are making waves in the sector.
Another trend we can expect to see is investments in the fintech sector focused on system development and integration rather than inclusivity. As opposed to its current vertical nature, financial services will become a more horizontally integrated foundation for the underlying infrastructure of all sectors. The next 10 years will be defined by the incorporation of financial services into everyday economic transactions.
Several factors, such as rising mobile phone penetration, rising internet access rates and rising demand for digital financial services, are already driving fintech adoption in Africa. Fintech firms across the continent are leveraging mobile technology to provide innovative solutions to underserved populations. Working with a reliable fintech software provider will be key in establishing a successful and profitable venture for telcos and financial services providers.
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