Can Fintech Lead A Digital Revolution In Africa

Due to the onset of Coronavirus, many businesses have been quick to offer their services virtually and remotely. While this is a testament to human resilience and proactivity, we must not forget that it is also due to innovations in technology over the past decade. One example of such innovative technology is fintech – short for financial technology – which encompasses everything from digibanks to crowdfunding. But what exactly is fintech, and how can it help African economies both cope with the crisis and its aftermath?

As briefly mentioned earlier, fintech is an industry that encompasses the technology used in the financial sector. These technologies come in a range of types and include blockchain technology, digital banking, crowdfunding and mobile payments, which is the focus of this article. Mobile payments is one of the most popular forms of fintech, with Statista noting that it surpasses $1 trillion in global revenue as of 2019. Examples of such payments are apps such as Venmo, Paypal, and Apple Pay as well as mobile money services, a popular option in sub-Saharan Africa which accounts for 48.4% of the active global mobile money users, according to Techpoint Africa. Fintech has an undeniable draw because it facilitates payments between individuals who often don’t need to go through bureaucracy involved in opening a bank account. In fact, with most mobile money companies in Africa also serving as telephone providers, many customers get access to these services as an extension of their mobile plans.

This means, according to Quartz Africa, that in the race to capture the remaining 57% of African adults still not included in any financial institutions, mobile money companies are truly ahead of traditional banks. Not to say that banks themselves are not jumping into the fintech bandwagon as seen by the rise in popularity of banking apps and other digital services. However, the fact that one still needs a traditional bank account to use these digital services offered by banks is a potential downside.

Looking at fintech through Covid-19-tainted glasses, it is easy to get very excited and ahead of ourselves. In a world where the WHO has effectively endorsed fintech by proposing cashless transactions in lieu of the use of hard currency, we need to exercise caution. I do agree with Arundhati Roy in her description of the Coronavirus pandemic as a portal through which we have the chance to re-imagine and reconstruct the world anew. Truly our societies will most likely not be the same after the pandemic is over, but expecting a drastic, solely-positive aftermath is not only unrealistic but dangerous. The rise that many anticipate, or pray for, might not necessarily happen and fintech, while innovative and promising, does have its setbacks and challenges.

As Ken Njogore wrote, this crisis can actually be the catalyst for digital change that Africa needs but if it is definitively to be that catalyst, then we need to take the following factors into consideration. 

When M-pesa entered the mobile market in Kenya, no one batted an eyelid. It was simply a small company trying to make some profits by offering financial services. When, about six years later, 40% of the nation’s GDP, according to Forbes, was being transacted through the platform banks became alarmed. Soon after, they began to campaign for increased regulations against the mobile money market. Sometimes, the opposite occurs; rather than new regulations monitoring the rise of these platforms, old regulations fail to keep up with innovations in technology and so stunt the growth of the sector. According to the Nigerian law firm Aluko and Oyebode, Nigeria’s financial regulatory framework is still highly dependent on legislation passed during the third industrial revolution to regulate traditional financial players. Therefore, applying them to the expanding, amorphous new world of fintech is highly problematic.

Similarly problematic and contentious are the issues of cyber-security and risk. According to CurrencyCloud, the reason some banks actually campaign against fintech companies is because of how risky and dangerous it can be to support them. While mobile banking and fintech does open up new opportunities for people to save and spend money, it also gives a chance for new sophisticated, subtler financial crimes to be committed. Over the years, M-Pesa has been the target of various fraudulent scams costing many Kenyans large chunks of their savings. According to the BBC, some like Stanley Wanjiku lost $18 000 in one fell swoop! Even as of 2020, hackers and fraudsters have found ways to use M-Pesa’s parent company, Safaricom’s official number in order to scam people out of their life savings. With these frequent attempts by cyber-criminals to access the sensitive data and financial information of customers, fintech companies need to find new ways to protect their clients or else people will lose faith in the industry as a whole.

Obviously there is a lot of enthusiasm surrounding fintech firms, and rightly so. It is truly a promising industry that can transform economies and provide crucial services to people left out by traditional financial firms. The rise of digibanks such as Nigeria’s Kuda and Zambia’s Zazu, recently generating a combined $3 million in funding according to Disrupt Africa and TechCrunch, shows that Africa is ready to back the fintech industry in a big way. Because of the industry, money can still be transferred during the crisis, ensuring that most people at least won’t have their lives come to a full stop. The potential post-pandemic, digital revolution remains to be seen – but if we are to use this pandemic as a gateway, a portal to a prosperous Africa with a thriving digital economy, then we have to find ways to clear the hurdles that lie staunchly on the industry’s path.

Zoe Mebude-Steves
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