As promised in a blog post from last year, I have decided to look at what’s going on in Africa and how the FinTech scene is developing. The reason behind choosing Africa is that as much as 80% of the continent is unbanked, which has led for an array of opportunities for FinTech firms to seize market share.
So why is FinTech proving a success in Africa?
Firstly, 90% of retail payments are made using cash. Compare that with Europe and the difference is staggering; more than 50% of the payments are electronic in a majority of European countries.
The sheer lack of electronic transaction infrastructure has meant that FinTech in Africa has created an opportunity to provide financial services and products to millions of people who haven’t had access to a bank account.
The FinTech services will differ compared to those that operate in Europe and will help drive innovation in Africa. Most importantly, however, they will create sustainable economic growth from all parts of the continent.
In addition, mobile will play a huge role in the African FinTech scene. Africa is one continent in particular that, to some extent, has skipped a generation of payment methods and gone straight to mobile payments. So why is this the case? As mentioned previously, the percentage of people who do not have a bank account is very high. It’s therefore imperative for African FinTech companies to create products that receive payments from a simple swipe.
African FinTech giant M-Pesa, who originate from Kenya, have done this. Their product has helped individuals to send and receive money in remote areas where the nearest bank is quite some distance away.
A huge downside for Africa is that a lot established FinTech companies that hail from Europe, for example, tend to ignore African countries because the amount of innovation required is huge. It’s a lot harder to create a FinTech presence in Africa, where infrastructure is non-existent, versus a European country where FinTech companies can use their existing providers and build a user-friendly interface with ease.
However, I would say that is starting to change. Last month, Mauritius held a conference on financial technology in partnership with the British High Commission in a bid to learn and replicate the UK’s successes in the sector.
The British High Commissioner to Mauritius, Jonathan Drew, mentioned in a recent article that the UK can teach important lessons to Mauritius on how to exploit FinTech for the growth of its financial industry.
The main aim of the conference was to look into the development of Mauritius as a major FinTech hub for Sub-Saharan Africa.
It’s fair to say that Africa is not on the same level as continents such as Europe when it comes to FinTech. However, Africa is definitely at a unique point in time. It’s able to grab opportunities more than any other continent because of the rapid growth of digital connections, and because of its youth (from having a younger generation compared with other parts of the world, which makes them more likely to be tech savvy).
It’s worth noting that a significant barrier for many African FinTech startups has been funding. Nonetheless, it is a barrier that can be overcome with persistence and intelligent relations with institutions in other continents.
I’ll be keeping a close eye on how things continue to develop for FinTech in Africa. It promises to be a fascinating study into how technology can surpass infrastructure limitations, which may prove hugely informative for other markets as FinTech, and other aspects of Technology, continue to grow.