🏛VWV Volumes #27: Analyst-in-Training Lara Gamaleldin on Fintech in Africa
The emergence of fintech in Africa, its benefits and challenges, and disruptors in the space.
In a world where technology is transforming every aspect of our lives, our finances are no exception. The emergence of fintech in Africa is reshaping how the continent manages and accesses its finances, removing obstacles, and putting financial services at the fingertips of millions.
Before we get into how this technology is disrupting the way Africans go about their lives, it’s important to answer the question:
What is Fintech?
Financial Technology (fintech) refers to technology that competes with traditional financial methods in delivering financial services. It has the capacity to enhance and automate financial services and is utilized to help companies and consumers better manage their financial operations, processes, and lives. It digitizes and optimizes smaller tasks such as paying bills and depositing checks, as well as more considerable ones like applying for loans and engaging in peer-to-peer lending. Over the past decade, fintech has decreased the unbanked population globally by 35%, enabling 1.2 billion unbanked people to gain access to financial services, according to the IFC.
The Rise of Fintech in Africa
Cash was no longer king when Covid-19 lockdowns limited peoples’ abilities to conduct cash transactions. The pandemic accelerated the growth of fintech in Africa as there was suddenly an overnight demand for services that were accessible to the masses— well-positioning the startups in the industry to fill the growing gap in the market. By quickly adapting to the times through offering extra informational services, reducing fees, revising criteria for loans, easing payment requirements, and gaining the attention/respect of policymakers, these startups allowed for a massive fintech boom to occur across the continent. While cash is still the preferred means of payment, Africa's domestic e-payment sector is anticipated to grow by 20% annually (compared to 7% globally) and will top $40 billion by 2025.
How Fintech is Benefitting the Continent
Without financial inclusion, economic development is unattainable. Using technology to reach and serve customers that have traditionally been excluded from the banking system has challenged less-developed financial infrastructures that exist across the continent. Millions of previously unbanked individuals have access to lines of credit for the first time through this technology, enabling them to fund their own small businesses and become more financially independent. They also obtained a newfound ability to store their money safely and transfer it without being subject to exorbitant fees and the ability to take out small, affordable loans to increase their revenue.
MNT Halan, Egypt’s first unicorn, is the country’s largest and fastest-growing lender to the unbanked. With an array of services that fall under the ‘Business & Consumer Lending’ category including microfinancing, payroll lending, and buy now pay later (BNPL) to ones under the “Digital Payments’ category, including peer-to-peer transfers, bill payments, and loan disbursement/collection, MNT-Halan is a one-stop shop. To date, they’ve served over 5 million customers and disbursed over $1.7 billion in loans.
Paystack is a Nigerian online payment processor that simplifies the process of African businesses accepting secure payments from both local and global buyers. Businesses that integrate Paystack give their customers the option to pay through many channels, including credit cards, bank transfers, Apple pay, Visa QR, and mobile money. They process over 50% of all online transactions in Nigeria, making them ideal partners for international tech companies looking to accept payments in the country.
Wave is a Stripe-backed mobile money startup serving Ivory Coast and Senegalese markets. Customers can make free deposits, withdrawals, and bill payments through the company's agent network, and only get charged a 1% fee when sending money. With over 10 million monthly users, Wave is commonly referred to as the ‘African PayPal’.
Despite its many benefits, the growth of fintech in Africa has not been without its challenges. Firstly, the lack of unification within the African market regarding financial regulation makes scaling startups extremely difficult. Expansion without systemization is a long, pricey, and arduous process. Secondly, the industry is hugely reliant on overseas capital; the majority of investors in African fintech companies are from the United States and are not African-focused. Local economies being reliant on a foreign currency means they are subject to sudden inflows and outflows of capital- leading to currency fluctuations and general instability
With the right policies and infrastructure in place, fintech can transform Africa's financial landscape and drive economic growth and development across the region. With the rise of blockchain technology, AI, and machine learning, all we can do is wait and see what new developments will arise in the industry and how they will affect African markets 🌍.
About the Author:
Lara Gamaleldin is a freshman from Cairo, Egypt intending to concentrate in Behavioral Decision Sciences and Urban Studies. In her free time, you can find her exploring Providence with friends, watching documentaries, or doing the Wordle.
Africa Fintech Rises to the Challenge, IFC https://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_corporate_site/news+and+events/news/african-fintech-rises-to-the-challenge
The Future of Fintech in Africa, Mastercard https://newsroom.mastercard.com/mea/files/2022/10/Mastercard-Future-of-Fintech-in-Africa_Final1.pdf
Fintech in Africa: The End of the Beginning, McKinsey https://www.mckinsey.com/industries/financial-services/our-insights/fintech-in-africa-the-end-of-the-beginning
Egyptian financial services provider MNT-Halan valued at $1B in $400M funding, TechCrunch