Since the emergence of fintech in the 21st century, there has been a shift from its conventional use in the structured financial system to a well-defined consumer-based orientation. Financial technology is a new technology that upgrades and enhances the delivery of financial services. It helps businesses and customers process their financial operations through the use of specialized software on computers, tabs, smartphones and even phones that are not internet-based. This is seen with M-pesa in Kenya, where money transfers are made via text message. Fintech now encompasses a wide range of economic sectors, including education, investment management, and retail banking.
The role of fintech also include the absorption of large unbanked population. Fintech also contributes to aiding cashless economy. According to the Bloomberg estimate, fintech to contribute $150 billion to Africa’s GDP in 2022. In some African markets, fintech penetration exceeds world benchmarks, in recent time.
The fintech revenue hit between $4.5bn and $6bn in 2022 for Africa, and in sub-Saharan Africa, over 30% of the population is adopting fintech. This growth facilitated and increased financial technology investment in the region. Several fintech startups in South Africa, Nigeria, and Kenya are implementing frontier financial innovative ideas. This, has resulted in great success so far. Examples include Jumia pay, flutterwave, google pay, Opay, paga, M-pesa, Momo, yellow card financial, paystack, crypto currencies and many more. Companies in fintech leverage on series of factors such as expansion in network coverage, growth in smartphone users, and fast urbanization.
Some African Countries and the Fintech Sector
Fintech is the new trend in the Nigerian financial system. The sector is regulated in Nigeria by the Central Bank of Nigeria and other government commissions and corporations. Like in other African countries, fintech companies are numerous and new start-ups are still springing up. A few of the notable ones are Remita, Piggyvest, Paga, and Momo Agent. In the year 2022, fintech accounted for $439m. And it is projected to increase by 23.69% in the year 2022 because over one-fourth of the 216million Nigerian population is still unbanked. The World Bank enlisted Nigeria as one of the countries with the highest number of unbanked populations. In Nigeria, Remita is the pioneer of fintech companies. Its platform allows NGOs, educational institutions, and small and medium enterprises, amongst others, to make and receive electronic payments. Recently, Remita proposed a new payment innovation called e-Naira ecommerce. The primary focus is to reduce transaction processing time and enhance transaction security. Piggyvest is a rebrand of piggybank.ng. Its uniqueness in Nigeria’s fintech is the opportunity the subscribers have to save in bits as it may be convenient either weekly or monthly.
Mobile money (momo) is a product of MTN launched in the fintech space to increase the number of the banked population, especially in rural regions. It offers and scales basic financial services. Its active fintech subscribers increased by 87%, with 2.4m active momo users out of 4.2m registered. Its revenue increased by 27.8% in the second half of 2022 compared to the corresponding period in 2021.
Kenya is a country that is widely known for innovation in the fintech industry. Its innovative response to the local market's demand helped penetration and expansion. There is a massive mobile invasion, with the total number of active sim users to the entire population by 100%, and almost half of them using smartphones. In terms of coverage and performance, non-bank mobile money is the most used mode of payment, even more than banks’ mobile payment applications. The outcome of the survey by Bernards (2022) suggest that fintech services in Kenya followed a pattern that can be seen as the fintech boom.
Safaricom's M-pesa is an innovation of Safaricom. Its edge over other competitors (Airtel and Telcom) is that it makes financial services dynamic, accessible, and affordable to everyone that has a mobile phone. Money transfers can be made through text messages. A large population of Kenyans and over 50% of rural dwellers were captured. M-pesa kiosks can be seen in every corner of each area. This increased Kenya’s informal sector’s financial inclusion as M-pesa accounts for close to 70% of the fintech market share. Fintech accounts for about 87% of the country’s GDP, with an expected revenue growth rate of approximately 38% in the year 2023.
Opportunities in Fintech for Africa
The financial technology sector can absorb the large population of the informal and rural populations that are yet unbanked to the financial system. Kenya, where up to 82.9% of population of adult has access to at least one financial product through fintech, is a case in point. Fintech’s critical roles in banking the unbanked will support the acceleration of their financial inclusion and put the liquidity into investment. It will further bring ease to subscribers’ financial transactions.
In all regions of the world, increased investment is necessary as a catalyst for an economy to thrive. The increased capitalization of fintech industry in Africa will lead to more investment, output growth, and revenue expansion in the continent.
Note that cash is still a major dominator in African transactions. Fintech has the potential to eradicate cash dominance in the region. Many transactions in advanced countries of the world are sealed electronically. This enhances trade and makes it faster and more effective across the globe. Improved fintech has the prospect of expanding African trade within the region and globally.
Lending facilities with low or no interest rates is one of the advantages fintech has over structured financial systems. It has immensely supported small and largescale businesses. It can further help increase employment opportunities in Africa. Presently, the rural penetration channels engage human resources productively to reach the unbanked population.
The fintech sector has its shortcomings, such as a high rate of insecurity (data breach) and insufficient capital to fund investment, and penetrating the fraction of the population not yet captured by fintech industry. Nonetheless, the opportunities of financial technology still outweigh its drawbacks in Africa