With significant investments pouring in and the sector expanding significantly, African fintech is on the rise. African fintech raised nearly $5 billion in 2021, illustrating the sector’s potential to have a significant impact on the continent’s economy. Fintech, or financial technology, is a rapidly growing sector of the economy that uses technology to offer consumers and businesses financial services like payments, lending, and insurance.
The potential of African fintech to promote financial inclusion is one of its most important effects. Many people need access to formal financial services across the continent, which can restrict their capacity to save, invest, and engage in the larger economy. Fintech, on the other hand, is utilising technology to get around some obstacles to financial inclusion. For instance, despite not having a bank account, mobile money platforms like M-Pesa in Kenya and MTN Mobile Money in Ghana have made it possible for millions of people to access financial services for the first time. The economy has benefited from this, allowing people to save and invest money more wisely and fostering the expansion of small businesses.
In Africa, fintech investment is dominated by mobile money. Mobile money has revolutionised how financial services are accessed and provided, especially for those who were previously underserved by traditional banking, with over 350 million accounts spread across the continent. Without taking into account South Africa, the continent’s largest and most developed market, McKinsey predicts that the continent’s financial services market, which currently generates about $230 billion in annual revenues, could grow at a rate of about 10% by 2025. Investors who view fintech as a solution to some of the continent’s most urgent financial problems have become interested in this growth potential. Without a bank account, mobile money enables users to transfer money and make payments using their phones. This has aided in closing the financial gap between the vast majority of unbanked Africans and the formal financial system. According to a McKinsey estimate, sub-Saharan Africa has over 400 million adult unbanked residents. Fintech companies are able to reach these underserved populations and promote financial inclusion by offering easily accessible and reasonably priced financial services.
The young talent on the continent is one of the main forces behind the fintech boom there. Fintech investors are placing bets that the region’s most urgent financial issues can be solved faster by young African talent than by legacy institutions. African fintech companies have developed solutions that address the particular needs of their target consumers by combining technology with a thorough understanding of regional markets. A growing number of people owning smartphones, a young, tech-savvy population, and government support for digital innovation are predicted to fuel this growth. Fintech businesses are well-positioned to benefit from these trends and stimulate regional economic growth.
By incorporating financing tools that reflect the reality of African economies dominated by the informal sector, fintech has the potential to transform the continent’s financial systems. The majority of transactions are made in cash in the informal sector, which makes up a sizeable portion of the economy in many African nations. For traditional financial institutions, who frequently require assistance to access and serve these markets, this poses a significant challenge. Fintech has been able to close this gap and offer financial services to previously underserved populations thanks to its focus on mobile and digital solutions.
Beyond the continent’s tech hubs of Kenya and Nigeria, fintech is expanding across the continent. Other nations, such as Ghana, Rwanda, and Tanzania, are also seeing significant growth in the fintech industry. African fintech ecosystem grew by 60% in the five years prior to 2019, and the continent’s tech startups raised $350 million in the first quarter of 2020, an increase of 16% from 2019.
African fintech not only offers financial services to the unbanked but also opportunities for the SMBs (small and medium-sized businesses) in the region. SMBs can quickly and easily access financing thanks to the digital lending platforms provided by many fintech companies. This is crucial in a region where many businesses may find it difficult to grow due to access to credit. Alternative data sources are frequently used by fintech lending platforms to evaluate creditworthiness, which can help them overcome some of the drawbacks of regional traditional credit scoring systems.
Fintech firms are also promoting innovation in other facets of the financial industry, including investment and insurance. For instance, some fintech businesses use mobile technology to offer low-income people who might need access to traditional insurance products microinsurance products. Blockchain technology is used by other fintech firms to offer transparent and safe investment opportunities to both individuals and small and medium-sized businesses.
Despite recent significant growth in African fintech, problems still need to be solved. Uncertainty in the regulatory environment is one of the biggest problems because fintech services must be governed clearly in many African nations. Due to this, it may be challenging for fintech businesses to function and for investors to understand the regulatory environment. Since many fintech services depend on gathering and storing sensitive personal data, there are also worries about data privacy and security. The potential for African fintech to promote financial inclusion and economic growth is still substantial. Fintech is creating new opportunities for people and businesses all over the continent by using technology to get around some of the historical obstacles to financial services. However, for policymakers to fully realise this potential, fintech regulation must be more consistent and clear, and the industry must keep innovating and gaining the trust of both investors and customers. With the right assistance, African fintech could play a significant role in promoting financial inclusion and economic growth for years.
Finally, by providing accessible and affordable financial services to underserved populations, stimulating financial sector innovation, and opening doors for small and medium-sized businesses, African fintech has a significant economic impact on the region. But there are still issues to be resolved, particularly in the areas of regulation and data privacy. African fintech have the potential to continue driving economic growth and financial inclusion in the region with the right policies and support.
