The rapid growth of financial technology, or fintech, is mainly due to the industry’s adoption of innovative technologies in western countries. In order to continue this growth, it needs to expand, and Africa is the next step in the fintech domination of the world.
Africa is the new target for fintech
Africa is fast becoming a hub for fintech innovation, with a major concentration in Egypt, South Africa, and Nigeria. With almost 80 percent of the country being “unbanked”, it opens the door to fintech companies grabbing a huge share of the market.In the last year, more than 30 percent of all funding for African technology businesses went to fintech startups. And that does not look like it will go down through the coming years.
Cash is the leader in retail payments
There are several major reasons why fintech will be focusing on the African continent through 2017 and 2018. As well as the 80 percent who do not have bank accounts, almost 90 percent of the payments in retail stores are made in cash. In comparison to the EU, where more than half of the retail payments are electronic, this number is staggering. The lack of an infrastructure for making electronic payments means that fintech companies can provide services to millions of consumers who have not been able to access bank accounts or other financial services. With this breadth of opportunity, the fintech businesses could transform African economies, and bring the continent into the 21st century.
Smartphone ownership is on the increase
As most African countries have never had the traditional infrastructure for card payments – MasterCard and Visa are rare in most of the continent, except with tourists – the opportunity exists for the fintech companies to jump in and create a whole new infrastructure based on mobile payments solutions. Many of the African countries will be able to skip the card payment level and dive headlong into modern mobile payment services. Kenya has already done this, with their M-Pesa mobile payment option, and credit cards never made an impact in the country.
African countries are “first-world” in terms of mobile tech
Africa may be “third-world” when it comes to the economy and banking, but it is shoulder-to-shoulder with western countries in terms of mobile phone ownership. In this era, mobile phones are as commonplace in South Africa and Nigeria as they are in the United States and Europe. And while around 89 percent of adults in both countries have smartphones, less than 30 percent of those owners have ever used mobile payments. This leaves the countries wide open for the fintech companies to build up their own mobile payment solutions in African countries.
Most fintech companies tend to ignore third-world countries, as the amount of innovative technology required to “upgrade” them is immense and expensive. In a non-infrastructure country, it is harder to build a whole new infrastructure, and the companies tend to focus on developed countries where they only need to develop more “user-friendly” interfaces.
2016 was a big year in Africa for mobile payments
2016 saw a number of new developments and advances in technology and payment solutions regulations. It allowed more Africans than ever to use their mobile payment options to make safe and efficient payments for goods and services. This can only help the continent in reaching a more stable and sustainable form of economic growth. Africa has already taken to bitcoin in some regions, and the number of bitcoin transactions in 2016 was almost double that of the previous year. Bitcoin has been a major option for cross-border transactions in African countries. However, bitcoin is not the only option that made those cross-border payments easier. The renewed growth of the East African Community (EAC) has made it easier for the member states to make payments across different currencies and has had a major impact on the travel payments system. Multiple mobile wallets are also available for businesses to allow easier cross-border and inter-currency payments using digital currencies that can be used worldwide.
Cashless transactions are the key to financial security
Credit cards have never been popular in Africa, but MasterCard has developed a card that it has given to Kenya – the Huduma smart card – that means they can pay for state services and receive social security payments on, making the need for a bank account redundant. And with EMV becoming more common in retail stores, they can also pay for goods without the need to carry cash.
As can be seen in the first round of fintech solutions in African countries, there is no single strategy that will work in all countries. Every solution, from mobile payments to cross-border transfers, needs to be individually developed for the country in which it will be used. For example, the solutions in place in Kenya may not necessarily work in Ghana or Namibia. As long as the fintech companies understand this concept, they can make the solutions in Africa work, and develop this market opportunity, taking them one step closer to success.
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