FinTech in Africa: After Payments What Next?

The pandemic has intensified the role of digitization, banks cutting costs, with customers handling transactions on their phones. Banks and fintech companies are competing for market share, sometimes collaborating, and competing to recruit top talents. Many African consumers are unbanked, underbanked, and underserved. Lack of access to financial services, especially in rural areas, affordability, expensive internet, and issues of poor user experience, contribute to the frustrating experience. The continent's digitally savvy and young individuals are seeking a better consumer experience in financial services. Banks will likely not become technology companies, but technology companies can provide financial services. And to a large extent, this is what is driving the evolution in the fintech industry. FinTechs have swiftly taken advantage of the lapses in financial services, and are swiftly attracting young tech-savvy individuals, while also ramping up for global position faster than the banks.

Africa’s population is the youngest in the world and almost 60% of the continent's 1.4 billion population is under the age of 25. Young people are aware of the user experience their counterparts enjoy in developed countries. The plethora of e-commerce services in the continents are recognizing that payments remain an experience worth simplifying for greater adoption and retention of users.

Non cryptocurrency fintech

Some countries in the continent have enjoyed rapid adoption of mobile money due to regulatory and other sociopolitical factors.  Flutterwave, a payments company,  raised $170 million in Series C round in March. The company's CEO, Olugbenga Agboola, says the company is live in 20 African countries with an infrastructure reach in over 33 countries. The company says more than 290,000 businesses use its platform to carry out payments “in 150 currencies and multiple payment modes including local and international cards, mobile wallets, bank transfers, Barter by Flutterwave.” On the other hand, Wave recently raised $200M in Series A, which is going toward building financial infrastructure in Africa. A majority of Africa’s newly emerging “unicorns” – tech companies valued at over $1bn each – focus on payments.

There are fintech companies with an African focus including OPay, Wave, Paga and Paystack, Fawry, etc.

Investors from China to Silicon Valley have caught a huge slice in the African fintech market. Lagos (Nigeria), attracting the lion’s share of investments, has taken Nairobi’s (Kenya) crown as leader of Africa’s tech revolution. Nigeria has pulled in over $1bn in venture capital investment in the last two years. In October 2020, payments giant Stripe acquired Nigerian payments company Paystack for a reported $200m in cash and stock.

However, 95% of transactions are still in cash and there are many inefficient processes to improve. There is still room for improvements in payments.

Cryptocurrency

Another payment sector seeing rapid transformation is cross-border remittance. According to a World Bank report on remittance cost, Africa is the most expensive region to send money to, where sending $200 costs an average 8.2% in the fourth quarter of 2020.” Some African entrepreneurs have proceeded toward billing international clients in the cryptocurrency bitcoin, avoid currencies and banking altogether. Nigeria, for instance, is the top peer-to-peer bitcoin trading nation in Africa with $99 million in trade volumes in the first quarter of 2021.  The Bitcoin trading volume in Nigeria from 2020 soared to USD 400 million, and this is just 20 million behind Russia’s USD 420 million.

Read also Cross-border Payments: Forging a path to financial inclusion in Africa

Cryptocurrency though hard to understand and volatile, but many African currencies also offer unpredictable inflation, high transaction costs, unpredictable regulations, artificially high exchange, and sudden devaluation. The cryptocurrency space have attracted investors.

Yellow Card, now a Pan-African cryptocurrency exchange, with operations in 12 countries across the continent, has announced the raise of $15 million Series A funding

Mobile money

“It took 115 years for banks to provide their customers with 43 licensed commercial banks, 1,045 bank branches and 1,500 ATMS; in roughly 5 years, Safaricom has provided its customers with more than 30,000 M-PESA agents, where people can transform cash into e-money or e-money into cash.” – Money, Real Quick: The Story of M-PESA (2012)

Mobile money has transformed how millions of Sub-Saharan Africans access essential financial services.

We have seen underdeveloped economies leapfrog developing technology and goes straight to modern technology. For example, certian african countries skipped landlines, going straight to smartphones. This opened a plethora of opportunities, especially in mobile money. Some regions in Africa skipped banking and went straight to mobile money.
Crypto makes many banking systems irrelevant. What happens when many Africans have access to cheaper internet?

Access affordable 4G internet remains a concern in many African countries.

In the global remittance space, sending money to African still remains expensive. Many people have embraced crypto because it is more inexpensive for cross-border remittance.