Fintech: the solution for the great divide in Africa
One of the greatest challenges facing Africa today is that too few people have access to financial services. It is estimated that only 20% of the African people are among them. Low levels of financial inclusion and financial literacy, poor or outdated telecommunications and banking infrastructure, security risks and concerns regarding system resilience and inconsistent regulatory approaches are some of the massive problems the region faces and have led to this result.
Does this mean that African people are in no need of financial transactions? The reality is far different as huge amounts of money are being transferred across the continent through alternative channels. For example, the International Fund of Agriculture Developments estimated that around ¾ of US$40 billion worth of remittances, that flow into and across the continent, are being transferred through these channels (Payment Developments in Africa| Volume 2, KPMG).
As KPMG’s report noted this is clearly an example which shows that “demand for financial services outstrips supply, a situation that creates significant opportunities for financial organizations, banks or not”. Fintech companies have addressed the demand starting from the rural areas of the region, where financial services are too expensive because of the lack of infrastructure and high cost of delivering services. It is estimated that at the end of 2016, only in Sub-Saharan Africa there were 277 million mobile money accounts (GSMA State of the Industry Report, Mobile Money). In comparison, in US, the country which is considered the most technology advanced market of the world, there are around 60 million such accounts.
The window of opportunity remains as penetration of mobile phones is still rising in the region. According to the latest numbers (July 2016) there are more than half a billion Africans, who own a mobile phone and we must not forget that the total population of Africa exceeds one billion.
Analysts of KPMG predict that in the near future we will see more partnerships between banks and Fintechs, suggesting that this could help the region to solve financial inclusion’s challenges. At the same time, if governments really want to provide a more efficient environment they should create a more flexible regulation for such solutions. “A well balanced framework that not only protects the safety and security of the National Payments System but also encourages innovation and new payment mechanisms”.
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