The Future of Fintech is Africa

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The Future of Fintech is Africa

In May I attended Dotfinance 2016 in Nairobi, Kenya. A stellar roster of speakers, including Chris Skinner, Jim Marous and David Brear gave me a holistic overview of a market to which I'd recently been assigned, so I thought I'd share my findings here. 


Fintech may have arrived in South Africa, but East and West Africa are really leading the innovation charge. The entire continent is getting in on the Fintech fun with a unique competitive edge:

learning from and leapfrogging experiences from Europe, Asia and the Americas. 

Africa: a continent with many countries...

It may seem so basic that it borders on ridiculous, but you'd be surprised at how many people think Africa is a single country!  Even though common trends exist between countries and regions, regulatory, political or cultural differences can make or break the growth (or stagnation) of fintech in those areas. 

For instance, the banking sectors in a number of countries in sub-Saharan Africa (SSA) have shown relative growth in recent years thanks to substantial increases in economic activity
 and improved regulations. 

Let's zoom in on the trends in a few specific countries highlighted by Dotfinance:

NIGERIA  Flag for Nigeria on Apple iOS 9.3 KENYA Flag for Kenya on Apple iOS 9.3 TANZANIA Flag for Tanzania on Apple iOS 9.3
  • Dispersed mobile money ecosystem means mobile financial services rather than mobile money
  • Despite a fragmented market, Nigerian banks receive a huge government incentive to push financial inclusion.
  • 17 millions unbanked is a huge opportunity for FIs
  • Banks are becoming more than a utility; a place where you can do multiple things: "We might even drop the term 'Bank' from our name" said Uzoma Dozie CEO of Diamond Bank Nigeria.
  • Jeremy Awori, CEO of Barclays Kenya, stated that "Banks need to invest in tech and integrate mobile in their strategy to leverage financial inclusion."
  • Kenya has been an innovative mobile money market since 2006
  • mPesa = an example where banks and telcos collaborated successfully. 
  • Mobile banking platforms are key in Kenya, where smartphone penetration will be a gamechanger.
  • Banking in Kenya was exclusive, but FIs are realizing their lunch is missing.
  • Despite minimal innovation from banks, Tanzania is leading the way for interoperability, which is essential for digital banking success
  • 68 million Tanzanians are digitally educated 
  • Ronan Coulon, CEO of Tanzania Access Bank, on the next 5 years:
    • Financial inclusion will boost financial services.
    • Microfinance banking will increase

..and a booming economy

Africa is expected to be the second fastest growing continent within 10 years, behind emerging Asia, but ahead of the Middle East, with more than half of countries growing in excess of 5 % annually until 2025.

South Africa still leads the SSA 
pack in relation to the size of the banking industry when measured by total assets. Nigeria boasts the second largest banking sector in the SSA region, with total assets reaching roughly US$156bn in 2014, followed by Angola with total banking sector assets in the region of US$79bn. Turning to the growth performance, banking sector assets expanded at an impressive pace in countries like Ghana, Mozambique, Zambia and Malawi.

Interestingly, almost a third of the money invested in African startups was guzzled by new fintech firms, according to the latest research from Disrupt Africa.  

FinTech and African banks: competition or collaboration?

Collaboration seems the way forward, as FinTech moves into content and platform innovation. The reason is that each player needs what the other has, but has found difficult to emulate.

Banks needs to embrace digitalization and restore values like trust and knowledge. 


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Millions of Africans are unbanked, but now everybody can transact

In 16 African countries, mobile financial wallets outnumber bank accounts, however a large portion of the African population still doesn't use formal financial services. Banking penetration is only at 36% in some of the largest economies. 

The main reason for this is because of geographic challenges FIs have in reaching unbanked populations located in rural areas.  Although 50% have no access to branches, 80% have access to a phone, so mobile offerings are absolutely key in this market. 

Africa also represents the youngest population in the world, and a significant portion of its young generation will go on to start businesses of their own.

The SME banking opportunity

Winning a client relationship in Africa and delivering on the commitments made earns a bank a flow where business grows as the client grows; this is why getting business banking right in Africa is essential.

The SME customer is exactly where banks need to start when it comes to reimagining and upgrading the digital experience in small business banking.  

One Africa's most innovative banks, Commercial Bank of Africa, understands this - and consequently chose to integrate Business Financial Management into their digital banking offering. BFM is designed to help small-to-medium size business customers solve their business finance management needs, making bookkeeping and business accounting effortless.

Dotfinance takeways 

Financial technology is advancing at a furious pace in Africa, bringing solutions consumers want and need along with it. The problem for both banks and fintechs seems to be that consumers are running faster than they are. 

To mitigate this problem, African banks and Fintechs need to work together to "ride the wave", so to speak, and combine forces to do the following:

  • Leverage the huge market potential driven by financial inclusion and mobile penetration
  • Build joint ventures not only with fintech but also with telcos
  • Invest in opti-channel support, meaning to let the consumer decide what is the best channel for them to use and be there in their "moments of truth"  with real-time insights and rewards.
  • Leverage augmented reality to compete with new entrants
  • Integrate social channels within banking

Since the legacy infrastructure of the African bank is limited compared to banks in more mature markets, innovation can be implemented faster. As the new middle class rises with 30 to 50 million unbanked and needing easier and simpler access to financial services, the time is ripe for the African banks to innovate with the right FinTech partners. 

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Topics: Africa fintech, Commercial Bank of Africa, CBA

Author: Marco Esposito on Jul 12, 2016

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