Africa is in a constant battle against its colossal geographic scale, political unrest, and lack of legacy infrastructure, creating a host of region-unique challenges, including the delivery of cross-border trade, the development of modern technology infrastructure and the provision of basic financial services to remote populations. On a continent that must live with some of the world’s harshest conditions, technology is beginning to put influence in the hands of ordinary citizens.
Financial technology (fintech) startups in Africa have historically set their sights on mobile-banking (m-banking) solutions for the massive unbanked populations in the region. Development-finance organisation, Financial Sector Deepening Africa, has forecast that fintech will add $40 billion to sub-Saharan Africa’s output by 2022, and it is clear that m-banking services continue to lead this charge.
A discussion of the history of African fintech would be incomplete without a mention of Safaricom’s M-Pesa service, perhaps the most famed and successful m-banking solution in the continent. The service allows users to deposit, withdraw and transfer money and pay for goods and services with a mobile device. M-Pesa is used by 88 per cent of Safaricom’s 30 million customers, and the service has become critical to Kenya’s economy, inspiring several other sub-Saharan countries to follow suit in the process.
African m-banking solutions have also addressed unique financial issues experienced by unbanked or underbanked populations. In a country that has felt the devastating effects of hyperinflation, Zimbabwe’s Eco Cash has proved a fitting stand-in for the lack of a functional local fiat currency. It has enabled a functional way to transfer value and make payments within Zimbabwe, and now serves more than 6.7 million people.
Beyond the Bank
With a foundation of successful m-banking initiatives, emerging African fintech has the potential to disrupt several industries beyond m-banking, according to Dotun Olowoporoku, designation partner at Lagos-based seed fund, Ventures Platform. “Fintech is not confined to mobile banking in Africa,” he says. “It is clear why banking is perceived as the major industry for fintech because M-Pesa was the poster child for it. There are loads of other services that can be applied to beyond mobile banking, like microinsurance.”
Alexandre Allegue, chairman and co-founder of Pawame, believes that his UAE-based startup is a disruptor that already falls into this category. Pawame distributes, finances and provides after-sales service for solar home systems in Africa - providing access to both energy and credit - and is already providing electricity to more than 30,000 people in Kenya. Based on micro-finance principles, Pawame spreads the high costs of solar energy over time, allowing payments via mobile phone. Allegue believes some of Africa’s infrastructure shortcomings are now being turned on their head.
“Infrastructures in Africa strongly rely on government spending, which is often insufficient, very slow, and rarely achieves a return on investment,” he says. “The leapfrog in the telecoms sector, from poor telecom landline infrastructures to a gigantic boom of GSM telecom towers directly led by the private sector, was a complete success. We are seeing the same leapfrog in the power sector, where transmission and distribution networks are struggling to reach scattered consumers, making distributed solar energy and fintech more viable solutions.”
George Gordon, director of Africa Master Blockchain Company, which is set to launch the digital currency AfriUnion Coin – a “digital Euro” for Africa – in South Africa next year, believes the continent has been crying out for the ways that fintech can eliminate troublesome and expensive third parties.
“Fintech provides what the African economy has wanted all along – greater purchasing power and more money that isn’t taken up by fees or other nonsense,” he says. “Although fintech and blockchain are seen as highly developed technology that should only be workable in first-world countries, the reality is that they make the most impact in developing countries.”
Gordon also believes that the transparency provided by these technologies could decentralise political and economic power, handing greater influence back to consumers, increasing political and financial equality in the process.
“Fintech provides a freedom that has never been available to the public,” he says. “It takes control away from legacy institutions that have had a monopoly and a complete reign for decades and gives that control and freedom of choice back to the people. It will force these institutions to adapt and change with the environment.”
Allegue agrees that Fintech has the power to affect political systems, and believes that it will have a broader impact on Africa’s technology industry.
“Fintech innovations can be completely disruptive in the deployment of technologies in Africa,” he says. “Africa has the advantage of being a greenfield territory, where the implementation of new technologies must be easier than markets such as Europe, where resistance to change is frequently a handicap. A good example is the adoption of blockchain technologies for elections, which is inexistent in most of the world, but is currently being studied by several countries in Africa, including Kenya.”
Unlocking Global Potential
Fintech’s potential impact in increasing local and foreign trade, as well as consumer spending, is significant. The development of platforms that can tap into consumer payment habits is set to be hugely disruptive, according to Gordon. “Fintech allows each African country to fully unlock its already-massive liquidity,” he says. “This mainly occurs peer-to-peer through cash and will allow more purchasing power for the individual without having to worry about physical location, accessibility to brick and mortar structures and high transaction fees. It also unlocks cross-border trade easily and can unite the continent in a similar fashion as the European Union for trade. Most importantly, however, it allows the flow of money across the continent in the form of investments and remittances without having physical money leave the country.”
Olowoporoku believes that Africa’s strongest economies are already ripe to be disrupted by fintech, and that a selection of other nations won’t be far behind due to a range of their strengths.
“Nigeria, Kenya, South Africa and Rwanda come to mind in terms of those that have the biggest potential to really make the most out of fintech,” he says. “In West Africa there are also a few countries with potential - the likes of Ghana, Senegal and Cote D’Ivoire. All these countries have populations that can support growth, they have talent that can deliver solutions, and they all have the potential to introduce the right regulations.”