Mahmood Ahmadu is the chairman of Innovate 1 Pay, a Nigerian financial technology (fintech) company established in 2012, providing online payment solutions for retail and wholesale mobile remittances, mobile money, and currency card payments. The largest domestic service provider of this nature in its home country, the company has since spread its operations to 24 different nations.
A great advantage that emerging economies have, when they adopt breakthrough technologies, is the ability to pivot rapidly, and expand capabilities without having to worry about high volumes of existing systems and infrastructure becoming redundant. With game changing digital innovations entering the fray in recent years, it has become possible for such nations to leapfrog several generations in technology. And perhaps the best example of such exponential transformation can be seen in the African fintech industry.
In the past few years, Africa has witnessed the rise of a dynamic startup ecosystem, which is attracting huge amounts of venture capital. Tech hubs, with multiple new companies making a name for themselves with innovative solutions, have emerged in Nigeria, Kenya, and South Africa, with nations like Tanzania, Ghana, and Senegal close behind. In the case of fintech, the boom is also related to the sector filling a gap in services that traditional banking had not been able to address. In addition to delivering effective alternatives that have transformed the state of financial inclusion in the continent, a surge in internet and mobile penetration in Africa has lent further momentum to the industry.
The Global Findex Database 2017, the most recent version of the report which is the world’s most comprehensive record of payments, savings, borrowing and risk management, found that Africa was home to the largest unbanked and underbanked population in the world. Naturally, these circumstances present the ideal opportunity for fintech solution providers, to turn a challenge into an opportunity.
At the same time, the International Monetary Fund (IMF) has estimated that Africa has the largest informal economy of all continents. With so much commercial activity unreached by formal investment, lending and insurance services, the sheer scale of the opportunity should be obvious. The amount of venture capital available to African startups exceeded the $1 billion mark for the first time in 2018, and the bulk of these funds were captured by fintech companies. Nigeria, which is the both the most populated nation in Africa with 206 million inhabitants, as well as its largest economy, has been attracting – and generating – the largest amount of venture capital on the continent. In fact, many African fintech companies, both Nigerian and from other nations, have taken to making their mark in the Nigerian market, before they proceed to scale up operations elsewhere.
Markets like Africa, India and Brazil have had digital wallets and payment platforms operating successfully for well over a decade. So what does this tell us about the possibilities that fintech can unlock within the Middle East and North Africa (Mena) region? Well, the answer to that is a bit complex, given the cross section of economies that fall within the category.
For one thing, 2020 proved the contribution that fintech made to providing much needed resilience, as an alternative to traditional banking during a global crisis. African migrant workers, and those cut off from loved ones during lockdowns, used digital wallets and payment platforms extensively, to ensure that money got to their dependents. The large number of similar expatriate workers in the Mena region present a similar opportunity, given the huge volume of remittances that such individuals send to their home countries. For those in higher income brackets, services such as e-commerce and online insurance facilities – and many more emerging financial services – present an equally vibrant market, for entrepreneurs to address.
But, perhaps the most significant lesson to be learnt from the success of fintech in Africa, is that end users have overcome any reluctance they might have had to transfer money online – especially with regards to security concerns. According to a 2019 IMF policy paper on fintech in Sub-Saharan Africa, fintech is emerging as a major technological enabler in the region. It has transformed financial inclusion indices, and is serving as a catalyst for innovation in sectors as varied as agriculture and infrastructure.
Despite a huge subset of the mobile phones in this region being ‘feature phones’ – as opposed to smartphones – Sub-Saharan Africa now has in excess of 400 million registered mobile money accounts. One of the lessons to be learned here is that even those sections of humanity who live in the lesser developed regions of the world have overcome any security related reticence. But the truly impressive feat that operators within the Mena region can emulate is, the creativity involved in delivering services within technological limitations imposed by handsets that much of the world would now consider archaic. Fintech companies within the Mena region, with significantly more tech-endowed customers to target, can learn a lot from the resourcefulness with which fintech in Africa has developed solutions that can deliver services, even if the user does not have access to a device that can host apps.
We often limit the scope of the term ‘financial inclusion’. It should not be seen solely in terms of bringing financial services to the unbanked. On the contrary, the perspective we need to adopt should be about reaching the ‘unreached’, in more sophisticated categories of financial services. Can developers in Mena expand the reach of wealth management, online trading, travel insurance, and dozens of other specialized services, using app-based platforms? Nearly all of these services have debuted as app interfaces, but often with limited options. Can fintech in Mena take inspiration from its African counterparts, and develop true functionality and convenience, in high-end financial services – especially given their market has, on average, more advanced devices to leverage? The answer to that rhetorical question is an obvious and resounding yes!