5 fintech execs unpack financial inclusion in Africa

With innovative financial products and services in abundance, Africa still sees an enduring level of financial exclusion, believe five of South Africa’s leading fintech executives.

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.

Financial exclusion remains profound, with at least 66% of Africans without bank accounts. 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. Fintech solutions, if implemented efficiently, will accelerate serving the unbanked.

Venture capital strategist and investor Cora Fernandez says, “Fintech allows us to look at new data sources to assess people’s financial behaviours coupled with the advent of machine learning, to predict their financial behaviour. This should go a long way in increasing access to affordable (less punitive rates) credit to credit seeks who do not have traditional forms of asset security.”

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.

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.

Fintech as ‘risk mitigator’

Fintech decreases the costs borne by financial service businesses and allows them to pass this cost-saving on to the end consumer. Expanding access to finance starts with reducing the costs of digital transactions.

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.

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. The Mastercard and SASSA collaboration illustrates how innovation has catapulted partnerships, financial inclusion and brought a host of people into the financial market who have now moved into the main market.

“A mindset shift is needed, where product designers realise they don’t have to ‘go it alone’. Collaboration and partnerships can get us to the desired impact faster and more efficiently.  It’s important we find those relationships early,” believes Nicky Swartz, founder of Spoon Money.

Mobile money leapfrogs 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.

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.

The great fintech migration 

Financial services businesses operating call centres 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.

According to Michael Bowren, co-founder of Finch Technologies manual processes can result in prospective client drop-offs of up to 40%, human error and lengthy processing times.  “While plug-and-play 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.”

The fintech migration in Africa, remains a priority for investors, with the continent seeing $3.3bn in 2021 injected into fintech start-ups by the end of the year. 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.

“It is a common myth that Africa does not have the talent to service this astronomical growth in demand for fintech skills, specifically software engineering skills. South Africa specifically has some of the most skilled engineers in the world (just ask Amazon, setting up their global tech hub here),” adds Basie Kok, CTO of Lesaka Technologies.

“The trick is attracting said talent. Sadly many fintech’s focus on shareholder needs (especially in early stage), then staff, then customers.  Flipping this simple focus funnel the other way around can work wonders for talent attraction.”

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.

ALSO READ: Empower women entrepreneurs to shape tech development