With innovative financial products and services in abundance, Africa still sees an enduring level of financial exclusion. These innovations paired with mobile phone penetration being on the rise on the continent with 80% of men and 69% of women in Sub-Saharan Africa owning a device – it’s surprising that financial access has not yet become the norm.
So how are corporates, executives and fintech companies driving this goal in Africa? With a strong belief that financial inclusion should be a compass directing fintech efforts and product development throughout Africa.
Financial exclusion – which refers to a lack of access to formal, affordable financial products and services – remains profound, with at least 66% of Africans without bank accounts. It’s evident that financial inclusion efforts need to be focused on where the majority operate, considering there is often a lack of financial knowledge and geographical isolation. In Sub-Saharan Africa, around 62% of unbanked adults in the region are rural dwellers, while 31% consider the distance a barrier to entering the formal banking system.
A lack of innovation is not the key instigator of financial exclusion. But rather an inefficient pipeline between enterprises that have developed a solid financial product and the consumers that stand to benefit from it.
Finch Technologies recently hosted an event on powering financial access in Africa with an intention to ignite the conversation and highlight core issues and barriers to achieving financial inclusion. The panel discussion included insights from Basie Kok (Chief Technical Officer of Lesaka Technologies Group, Cora Fernandez (Venture capital strategist and investor), Nicky Swartz (Founder of Spoon Money), Melissa Wienand (Global Key Account Manager at Transunion), Michael Bowren (Co-Founder of Finch Technologies), and the host Antony Ball (Chairman of Venture Capital Partners).
Each panellist brought their own wealth of knowledge to the table, having decades of experience in the financial industry. The big emphasis on the quest to power financial access in Africa included digital infrastructure and technology development; the rise of mobile payment companies; and cost-saving initiatives by Fintech companies. The panellists took a deeper look into the realm of financial inclusion, here are a few of the topics discussed.
Fintech – a risk mitigator
Fintech decreases the costs borne by financial service businesses and allows them to pass this cost-saving on to the end consumer. The World Bank outlined in its Global Findex Database report for 2021 that the share of adults making or receiving digital payments in developing economies grew from 35% in 2014 to 57% in 2021, adding that mobile money has become an important enabler of financial inclusion in Sub-Saharan Africa.
“Expanding…access to finance, reducing the cost of digital transactions, and channelling wage payments and social transfers through accounts will be critically important to mitigate the reversals in development from the ongoing turbulence,” the bank states.
Public-private partnerships between government institutions and fintech businesses have made significant progress in enhancing financial inclusion and assisting with payments and transactions involving parastatals.
In March 2012, a collaboration between established payment innovator MasterCard and the South African Social Security Agency (SASSA) saw the introduction of a new biometric grant payment disbursement system to minimise fraudulent grant applications and collections and reduce grant administration costs by distributing all grant payments electronically. Since this has been initiated, the program has been opened up to the broader market where a large number of these beneficiaries now have their own accounts at the big 5 banks.
As part of the SASSA re-registration process, each recipient has a linked bank account into which recipients can deposit funds into their bank account via electronic funds transfer (EFT) or third-party bank transfer. For many grant beneficiaries, this was the first time they have held a bank account in their own name.
Within a year of launching, 22-million social grant beneficiaries had re-registered onto the new system and were utilising the additional features. This project is a prime example of innovation that has catapulted financial inclusion and brought a host of people into the financial market who have now moved into the main market.
Mobile money – a prime example of leapfrogging the market
Mobile money systems have become an important driver of financial inclusion in Sub-Saharan Africa (particularly for women) as an enabler of account ownership and payments, saving, and borrowing.
The World Bank reports that 33% of adults in Sub-Saharan Africa had a mobile money account in 2021 – the largest share of any region in the world and more than three times larger than the 10% global average of mobile money account ownership.
“Mobile money accounts have also become an important method to save in Sub-Saharan Africa, where 39% of mobile money account holders used one to save,” states the report.
In Kenya, mobile money offering M-Pesa has seen spectacular success. The service, which was launched in 2017, first allowed users to send and receive money via SMS and has since been expanded to offer other financial services such as access to savings and credit. M-Pesa is used by at least one person in 96% of Kenyan households, allowing them to deposit and withdraw money from their accounts through a network of local agents.
This Kenyan market example demonstrates how mobile money has succeeded in leapfrogging other fintech services in emerging markets: In 2014 there were 110 000 mobile money agents in the country, but only 2 600 Automated Teller Machines.
The impressive uptake of mobile money systems in Africa continues to put pressure on traditional legacy banking systems, forcing the formal banking market to innovate as users demand cheaper, more flexible and more widely accessible financial services.
While mobile money systems have undoubtedly increased financial inclusion, recent research by the United Nations Capital Development Fund suggests that further fintech intervention will be required to create meaningful, long-term personal wealth sovereignty on the continent.
Over the last ten years, between 73% and 81% of customers that were registered for mobile money did not make a single monthly transaction.
“This seems to counterpoint assumptions that mobile money, on its own, alleviates poverty, transforms lives, or is a solution to a commonly held problem for most people. It is likely only a component of solutions that strive to improve market efficiency and resilience in informal cash-based economies,” states the UNCDF.
The great Fintech migration
Financial services businesses operating call centers and managing brick-and-mortar premises are liable for costly associated expenses that can be mitigated through the introduction of supportive fintech that digitizes manual infrastructure. Additionally, manual processes can result in prospective client drop-offs of up to 40%, human error and lengthy processing times.
While plug-and-play and bespoke options are available, not every business requires a reinvention of the technology stack, and a variety of existing white-label fintech options serve those looking for standardised solutions.
Customer-centric fintech further allows businesses to pass on the cost saving to the client by eliminating laborious multi-channel onboarding and application processes at significant operational cost and proving access to a multitude of services or solutions at a single digital location.
The fintech migration in Africa, remains a priority for investors, with the continent seeing $3.3bn in 2021 injected into fintech startups by the end of the year. The average deal size more than doubled on 2020 figures, increasing from over $1,7 million to $3,8 million in 2021, Disrupt Africa outlines in its African Tech Funding Report 2021.
The biggest deals of the year were Nigerian fintech startup Flutterwave (US$170 million), Egyptian fintech company MNT-Halan (US$120 million), Nigerian retail-tech startup TradeDepot, South African fintech Yoco (US$83 million), Nigerian digital bank Kuda (US$80 million), and Nigerian mobility fintech Moove (US$63.2 million), reports Disrupt Africa.
Several development funding facilities have also emerged in response to fintech growth, with the likes of the African Development Bank’s Africa Digital Financial Inclusion Facility working to address systemic barriers to the growth and uptake of digital financial services ‘by making strategic and catalytic investments in the ecosystem throughout Africa”.
Funding for African fintech’s is likely to accelerate further in 2022, with Nigeria, South Africa, Kenya, and Egypt likely to attract the lion’s share of funding in 2022.
In terms of the most in-demand financial services, the digital payments space has posted remarkable growth in Africa in recent years and has attracted novel and innovative fintech payments solutions. Adults making or receiving digital payments now outpace account ownership, with the number of adults making or receiving digital payments in developing economies growing from 35% in 2014 to 57% in 2021, bolstered largely by the impact of Covid-19.
Looking at the mobile payment sector innovations in Africa, it is clear there are overwhelming opportunities for improving financial access and inclusion. Fintech companies that have the resources and are willing to innovate will provide these industries with very relevant payment solutions. To create these efficient Fintech pipelines between enterprises, partnership growth needs to be a priority as this will be a key driver in building financial products that consumers can and will benefit from.