The Rise of FinTech in Africa
According to the UN Report, Africa has the world’s fastest-growing population, and it is said that over 50% of global population growth by 2050 will come from the African continent. Africa also has the world’s fastest-growing middle class, again according to the UN, the middle-class population of the region will reach 1.1 billion, representing 42% of the total population, by the year 2060. Furthermore, around 65% of the population is under 35, a demographic that is more inclined to be tech-savvy as they adopt more new technologies and services.
This past decade Africa has witnessed the remarkable journey of FinTech services to Africa, from remittances, digital lending, mobile payments, and mobile banking. These financial services have been widely used by Africans, making this one of the fastest-growing banking and payments markets globally.
With that being said, it is a no-brainer that Africa has become an established leader in the adoption of FinTech services. Some of the key factors that led to Africa embracing this technological change stemmed from the following.
The need to send money back home has been a great contributor to spearheading Fintech Services. Remittances have become a critical source of income for developing countries. The Group Head of World Bank, David Malpass “Remittances help families afford food, healthcare, and basic needs. As the World Bank Group implements fast, broad action to support countries, we are working to keep remittance channels open and safeguard the poorest communities’ access to these most basic needs.” Now with the rise of Peer-to-Peer payments in the African region, has significantly reduced the cost of remittances.
The majority of Africa’s population remains unbanked through the conventional banking system. Besides the African market being unappealing to banks due to low-income earners. Multiple countries do not have easy access to physical banks, or means to reaching banks through limited and the lack of reliable transport, due to the limited transportation infrastructure, which has largely contributed to Africa’s unbanked population. To put it in perspective, there are 4.5 banks per 100,000 people, according to The World Bank.
According to recent data, mobile penetration in the continent has exceeded 80% and internet penetration is near 36%. It is no wonder that mobile banking and mobile payments have been on a steady rise in the African region. At the same time, due to the broad lack of bank access, mobile carriers are strategically partnering with financial institutions and driving mobile payments growth in multiple African markets.
And lastly, access to credit is still very limited throughout the African continent. The lack of high-income levels and limited or no credit history has lead to FinTech companies getting more innovative and making use of alternative data, such as social media, utility bill payments, and increasingly available digital financial data they are now able to determine creditworthiness for more unbanked Africans. Additionally, the rise of peer-to-peer transactions has truly played a detrimental role in improving credit access to unbanked individuals.
No doubt, FinTech had been on the rise in the African continent over the past decade, with expected growth and notable innovation that will meet the huge demand. I suppose the only question is, what’s next…