Fintech in Africa is generating a lot of buzz this year and attracting a lot of attention from investors. Part of a global wave of innovation to shape the changing banking needs of the digital consumer, Africa is widely regarded as a hotbed for Fintech innovation.
Since the way people bank and go about their financial lives in Africa is fundamentally different from other parts of the world, the way people innovate needs to be different too. And the standout successes of Fintech in Africa has been needs-driven.
That’s because, in a recent study, the World Bank found that only 34% of Sub-Saharan Africans have a financial account. And with the youngest population in the world, and a penetration rate of 41% in unique mobile subscriptions, it is not surprising that Africa’s “unbanked” are driving Fintech innovation.
As African Fintech startups successfully garner funding due to their necessity, it is not surprising to see many investors looking for ways to help fund these services and projects. Here are some Fintech innovations that are currently driving the Fintech industry in Africa:
Since traditional bank infrastructures are weak in Africa, particularly in rural areas, mobile money is becoming the root to driving African Fintech innovation.
Mobile money enables Africans to move from a solely cash-based society to an affordable and obtainable electronic alternative. These innovations allow Africans to upload cash balances to their mobile account, complete payments to third parties, send funds via a peer-to-peer transfer, and much more – all using simple SMS technology.
PAYMENT SECURITY AUTHENTICATION
Many in Africa are still wary of using mobile money, due to their security fears. Thus, as mobile money & digital payment options continue to develop, innovations in building advanced technologies to protect these Fintech applications continue to grow.
Some new technologies offer biometric authentication technologies, based on the voice or smart sensors found on the phone – while others offer a two-way, real time communication channel between financial institutions and customers. Communications are safeguarded by encryption, preventing “man-in-the-middle” or other fraud attacks, ensuring secured transactions between both parties.
Building off of mobile money success, additional advanced mobile payment options have been introduced in Africa in the last decade. From eWallets to QR codes, the Fintech community offers a variety of financial tools to Africa’s unbanked.
Mobile payment apps can accept payments via QR code, allow simple and quick payment between merchants and the customer. While eWallets allow customers to upload their preferred payment methods to their mobile phone, and simply wave or tap their NFC-enabled phone at the register, in a hassle-free way to pay.
And lastly, digital currencies (or cryptocurrencies) are also taking off in Africa. Since they are practically impossible to counterfeit, and independent of government interference, digital currencies offer a secure method for peer-to-peer transactions.
Bitcoin and other digital currencies hold much promise for Africa, as they are less given to volatile exchange rates and are gaining popularity by merchants as well.
Overall, Africans have experienced a lack of financial inclusion for generations. As more companies race to capture the “unbanked” in Africa, more and more fintech opportunities are bound to emerge.
The need for alternative payment methods and security to cater to the unbanked population is finally driving the rapid development of Fintech technologies on the continent, opening the door for the bright future of African financial inclusion. And while it’s clear that traditional banks are trying to own the fintech space locally, the most obvious sign is that most investments are being poured into their innovation hubs and incubators.