Most people associate innovation in finance with nations like Singapore, Japan, and China. In fact, many of these Asian nations are becoming increasingly “cashless” societies, with many, or most, people using mobile apps to make everyday purchases. But, if you consider that necessity is the mother of invention, few regions are as ripe for innovation as the continent of Africa.
What makes Africa such fertile ground for fintech? First, Lack of development across the region has left large gaps in the market. This allows local markets to leapfrog technology in their development efforts, bypassing all of the older, redundant stages of development. Instead of bank branches and ATMs, online banking and mobile money solutions are providing the people access to financial services in locations where traditional banks have failed to reach.
Investors are taking notice of this opportunity. In 2017, fintech accounted for a third of all funding raised by startups across the Aftican continent. In many ways, the scale of the need is a major factor in what is driving investors to support fintech startups. In the process, Fintech in Africa isn’t disrupting existing systems, it is providing essential services to underserved communities. By focusing on giving more people access to financial services African innovators are reshaping the financial sector for the whole continent. The most widespread of these innovations is the rise of mobile money over the last ten years.
Currently, there are more mobile money accounts than bank accounts across the continent. The rise of mobile money platforms such as Kenya’s M-Pesa has made Africa a global leader in mobile money adoption and innovation. Close to 10 percent of Subsaharan Africa’s GDP in transactions are mobile money transactions. This compares to roughly 7 percent in Asia and less than 2 percent elsewhere. Most users, often poor people and those who lack access to traditional banks, rely on mobile money to access the wider economy.
Using mobile money services, people on the African continent can send and receive money both domestically and internationally. Many of these users pay bills, purchase goods and services, buy insurance, open savings accounts, receive their pay, and invest using mobile money solutions.
However, there are challenges to growing fintech in Africa. The primary challenge is the lack of infrastructure. Governments need to be more committed to developing an infrastructure that supports digital inclusion. A second challenge is creating the necessary policies for regulating the industry. Having said that, the future of fintech in Africa is promising and we should all take notice.