Financial inclusion is a major economic and social issue worldwide. Digital is increasingly used as a lever, particularly through financial technologies. These are experiencing significant development and Africa is not left out of this dynamic. How is an African Financial Tech ecosystem created? Who are its players, what is its market and what are the challenges facing this ecosystem?
Digital in Africa: a market with high potential
A widespread enthusiasm for information and communication technologies
Before discussing inclusion and financial technologies, it is appropriate to dwell very quickly on the African context. One of the great riches of Africa is undoubtedly the youth of its population. Indeed, around 60% of the continent’s population is under the age of 24 and most young Africans are highly interested in digital technologies. In general, in 2021, 83% of Africans subscribed to mobile phones and 33% regularly used the Internet.
These figures, which highlight the enthusiasm of Africans for these technologies, also reveal that some 67% of people remain offline, the majority of whom live in rural areas (15% connected against 50% in urban areas). Those who remain on the margins of the Internet do not have access to it due to multiple obstacles, including the high cost of communications, the lack of coverage and the lack of skills necessary to use the technological tools.
Between reverse innovation and Jugaad
Remarkably, the deployment of digital in Africa is highlighting a kind of “reverse innovation” – in other words, cases where products and services are first designed in developing countries before returning, with adjustments, to developed nations.
The example of “mobile money” is emblematic with, in particular, the development of M-Pesa in Kenya. Created in 2007, M-Pesa is an electronic payment service that allows holders of a mobile phone number to access a wide range of financial services otherwise reserved for holders of a bank account, from their own telephone. mobile. The Kenyan solution to mobile money is now used in ten countries, including India and Romania.
Alongside reverse innovations, another characteristic of Africa is the Jugaad, that is to say a permanent search for sobriety and frugality in the implementation of technologies. We are thus witnessing crafts, recovery and other arts of making that make it possible to adapt to this particular context. Africa is therefore a huge project, a melting pot of talent, creativity and innovation. This is, moreover, one of the reasons which have prompted the large international companies to set up research centers in Africa (IBM in Nigeria, Google in Ghanaetc.).
Digital at the heart of financial inclusion
Technologies that compensate for structural shortcomings
Financial inclusion refers to the possibility for individuals and businesses to access a range of financial products and services that are affordable, useful, adapted to their needs and offered by reliable and responsible providers. . But Africa suffers from a very weak banking system. It is on this ground that emerges the African Fintech (“Financial Technology” or “financial technology”), by proposing solutions which make it possible to exceed the limits of the traditional financial systems.
It goes beyond towns to reach rural populations, offers people suitable means of payment, banking services such as loans, insurance, discounts; it facilitates payments, money transfers, etc. The success of fintech companies is also driven by increased smartphone ownership, lower internet costs and expanded network coverage.
Measures in favor of the use of financial technologies
The use of financial technology, particularly mobile money, has become increasingly widespread in a number of African Union member states.
In Africa, payment for electronic transactions is essentially made in cash on delivery, in particular due to the low level of banking in the economies, the unequal development of electronic money between countries, and poor adherence to pre-delivery payment, which often results from a lack of online buyer confidence.
In order to resolve transaction difficulties between States, the African Union has set up a Pan-African Payment and Settlement System (PAPSS) which allows money to circulate efficiently and securely between African countries. Digital regional payment systems have also sprung up to reduce the cost and time associated with cross-border trade. This is the case of the Regional Payment and Settlement System for LIKE THIS (Common Market for Eastern and Southern Africa) and the Integrated Regional Electronic Settlement System for SADC (Southern African Development Community).
The rise of fintechs in Africa
A growing market
FinTech covers various fields. They range from mobile payment to crowdfunding, including savings management, insurance and credit, online financial advice, neo-banking and cryptocurrency. It must be said that FinTech is one of the engines of African technological growth. It represents $3.2 billion or 63% of financing. The five African companies that became unicorns in 2021 are all butAndelaFintech companies (Flutterwave, Opay, wave, Chipper Cash).
In 2020, there were 674 FinTech companies active in Africa, of which around 80% were national in origin. The payments sector dominates the African FinTech arena, with 45% of deals and 24% of total venture capital. According to the 2018 edition of Africa’s Development Dynamics on Growth report, [CUA/OCDE]Africa would use mobile banks more than all other developing regions combined.
If the African market seems important, the realities differ depending on the country. We note for example that in 2020, more than 40% of the population has an active mobile money account in Benin, Burkina Faso and Côte d’Ivoire, corresponding for each of these three countries to a volume of currency transactions more than 40% of their national GDP. Conversely, less than 10% of the population has an active mobile money account in Guinea Bissau and Niger, for a volume of electronic transactions that represents less than 5% of GDP.
Sustained growth expected in the coming years
If the development of African FinTech is a reality, we cannot forget to point out some weaknesses, including the lack of real interoperability between platforms, the low rate of banking, the weakness of identification systems, and the size further reduced by Fintech companies.
However, despite its weaknesses, there is already a real dynamic with strong impacts on the African economy. McKinsey’s analysis estimates that the financial services market in Africa could grow by around 10% per year, reaching around $230 billion in revenue by 2025.
For a more detailed analysis of these issues, read “African Economy 2023”published by La Découverte in January 2023.
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The place of digital in the financial sector in Africa
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