Africa: A region of Fintech and Mobile money opportunities
Sub-Saharan Africa is a global leader when it comes to mobile money and fintech technology
Mobile money over the years has become an inevitable part of Africa’s financial services landscape. In the past ten years or more, mobile network operators have dominated the mobile money industry in the entire continent. In addition to that, FinTechs have also laid a strong foundation in the market which has caused many banks operating in the region to compete aggressively for the mobile banking customer. So, the reasons for the assertion that the African region is full of opportunities for fintech and mobile money opportunities will be provided below.
Africa is the global leader in mobile money
The GSMA reveals that more than half of a total 282 mobile money services operating around the world are located in the African region. Sub-Saharan Africa alone has a total of a 100 million mobile money accounts which is more than South Asia which has the second largest in terms of mobile money with about 40 million active users. Mobile financial services (MFS) cover the entire spectrum of financial services right from current accounts and payments to investments, savings, insurance and loans. Whereas, mobile money is just a subset of mobile financial services provided by telco companies that enable users to receive, send, and store money with the use of their mobile phones. Last year, telecommunication giants in Nigeria, MTN and Airtel rolled mobile financial services after getting licenses from the Central Bank of Nigeria. This expanded the mobile money services in Nigeria.
Safaricom’s initial M-Pesa offering played a crucial role in enabling small businesses and consumers had access to banking service to send and receive money in a quick and secure manner at great distances. Today however, mobile finance management services have included a wide array of financial services like insurance, credit, international remittance and M-Pesa which has less than a quarter of total mobile financial services users in Africa. In the past years, mobile money penetration has increased by more than 30 per cent annually. Moreover, the margins on payments in Africa are also the highest in the entire world with approximately two per cent of the transaction value.
The growth of FinTech is attributed to the rapid decline in the cost of mobile phones in the past years.
This increase affordability of mobile phones has created a boom in the mobile money market. By the year 2021, more than 634 million people which is 52 percent of the entire population in Africa will have a mobile phone subscription.
Africa’s diversified market of mobile money providers
Africa’s mobile money market has expanded, diversified, and matured in the few past years. Now, all the mobile money providers can fall into one of the below four types.
MNO-dominant
In this type, the MNO is responsible for most of the steps in the value chain that includes the physical agent network, telco network, and payments issuing and processing. In this, a bank acts as a deposit holder. M-Pesa and MTN are two of the most successful names in this category.
MNO-led partnerships
In this type, an MNO gets the support from a banking partner for providing products that are beyond payments like deposits and consumer loans. M-Shwari in Kenya is one of the examples in which there’s a partnership between CBA (mid-sized Kenyan bank) and Safaricom (Leading telco company in Kenya).
Bank-led partnerships with MNOs
Equitel is an example of this model which is a partnership between Airtel and Equity Bank. It has over two million customers in Kenya. Equitel offers its customers to send money from their bank account to any account in Kenya. Moreover, it allows banking services like taking out loans and maintaining deposits. Apart from banking, Equitel also offers airline ticket purchase.
FinTech solutions
Paga in Nigeria that has grown its customer base by 81 per cent annually is the best example of a FinTech solution. This company allows customers to send money through their phones. It also allows them to pay for all the online purchases on merchant websites.
Tech startup boom
Africa arguably has proven to be the best place for FinTech startups and rapidly increasing internet penetration is one of the main reasons for it. Internet penetration in Africa was just 13.5 percent in the year 2011but has increased to 39.3 percent by the end of the year 2019. Although this number is way below the world average but it’s also important to notice that the number of internet users grew at a whopping 3600 percent between 2000 and 2012.
The immense growth of internet users has boosted African entrepreneurship with African startups growing by a massive 32 percent with the funding of more than 70 percent. Investigation reveals that the total funding for African startups touched the $1 billion mark in 2018. This figure shows that FinTech companies in Africa have massively benefitted from foreign direct investment. These numbers are now also attracting companies all over the world who now see Africa as a paradise for FinTech startups. Last year, Stripe, a United States FinTech Company acquired Paytech, a leading FinTech company in Nigeria for $200 million.
How is FinTech changing lives in Africa?
M-Pesa laid the foundation for the transformation of FinTech in Africa in 2007. Little wonder, M-Pesa has emerged as the most successful FinTech firm in Africa. It has revolutionized mobile transactions in Africa from Kenya and other East African countries, central Africa and West Africa as well. Africa has the highest number of unbanked people in the world which makes it extremely difficult to access banking services and not only that, these people carry huge amount of cash with them. In such a scenario, FinTech provides an alternative as it empowers many such vulnerable people.
Individuals are not the only ones positively affected by the FinTech revolution, but also whole communities who lacked the access to basic banking facilities like having a bank account, sending & receiving money, making payments for essentials like water, electricity, etc., and starting their own new business. Cashless society which is prevalent in modern societies in the developed world is also provided for thus preventing traders and businesses men and women from the risk of robbery.
In Africa, FinTech has lifted an estimated number of 200, 000 households from poverty according to a study and it has also empowered women to pander toward business instead of farming. Africa nations have also benefitted immensely from the FinTech revolution, Nigeria for instance. Financial services in Nigeria have been widened by the availability of mobile money services in all nooks and crannies of major cities in Nigeria. Nigerians don’t need to patronise banks or automated trading machines which might not be within their locality again with the availability of mobile money kiosks. Aside from that, telcos in Nigeria now also rolled out their financial service and this has helped expand the financial sector of the Nigerian economy. Kenya’s Central Bank recently reported their citizens have moved as much as half of the country’s GDP via their mobile phones in the year 2018. M-Pesa now processes more than 1.7 billion transactions annually which is more than 50 percent of Kenya’s GDP value. It should also be noted that M-Pesa revolution has empowered many tens of millions of African people which also includes some of the world’s poorest communities.
The FinTech story of Africa is one of the greatest tech-success stories that you’ll ever find across the world. How this story will shape in future is a fascinating question which only time can answer. However, one thing is for sure that it has massive potential in Africa. And in the coming years, we might have many other FinTech companies emerging.
Article written by John Bamidele, founder of gbc.ng, a leading digital news portal on gaming in Africa. Well versed and experienced in Africa gaming, John has been a journalist for two decades working in Print and electronic media, writing on Sport, Marketing, Marketing Communication, Tourism and Politics.
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