By Semiu Olugbokiki
Financial technology has been the latest buzzword in the tech ecosystem over the past decade. While most people have heard of FinTech, few understand exactly what it entails. For those uninitiated, financial technology is basically digitized financial services that are designed to make transactions on finance more efficient and cost-effective. Fintech does this by creating tools that assist people or businesses with their day-to-day transactions using technology. It also provides a platform for a wide range of transactions especially in the face of an overstretched banking sector in developing countries.
Mobiles and other devices have changed the way people bank and spend their money. Mobile money powered by FinTech has been crucial to Africa’s growth. Fintech has been the main driver for financial inclusion in Africa. The adoption of Fintech services has helped boost the number of bank accounts opened across the continent with the high adoption areas having close to 80% of individuals using mobile money.
Kenya’s M-Pesa is a shining example of the potential mobile money possesses to the growth of the sector. Since launching in 2007, the startup has scaled to over 20 million users and billions in annual transactions leading Kenya to become one of the world’s leaders in terms of mobile money penetration.
In Nigeria, only 51% of adults have access to formal financial services. This percentage crops up to 64% when we consider informal financial services such as cooperatives, mobile money, and so on.
Financial technology has been instrumental in every sector of the world’s economy, but it has especially taken center stage in Africa. Analysts throughout the whole world have recently begun taking interest in the role of fintech in Africa’s future growth. Fintech startups are sprouting up all over the continent, and they are exponentially accelerating the financial inclusion of millions of individuals who wouldn’t otherwise have had access to financial services. Mckinsey reports that Nigeria now houses over 200 standalone fintech companies.
In a space of five years between 2014 and 2019, Nigeria’s growing fintech scene raised over $600 million in funding. In 2019 alone, Yabacon valley and other tech hubs across Nigeria attracted 25 percent ($122 million) of the $491.6 million raised by African tech startups; this was second only to Kenyan startups which attracted $149 million. The allure of exits of African Fintech startups such as the $200 million acquisition of Paystack by Stripe is turning heads and making sure there is no doubt about the growth of fintech in Africa.
If this is possible with Fintech, what other sectors are we overlooking? Savvy investors are on the hunt for the next billion-dollar industry in Africa. Healthtech, Agritech, Edutech? The possibilities are endless.
Recent data indicates that Africa could be home to twice as many middle-class consumers than previously estimated. A study from McKinsey Global Institute suggests that by 2030, more than half of Africans will be “middle class.” Yes, the continent with 54 nations is about to hit an inflection point for middle-class growth as households climb up the economic ladder in key countries like Nigeria, Ethiopia, Togo and Tanzania. In addition to that, there will be a rising class of consumers who won’t be classified as “upper-middle class,” yet they will have discretionary income beyond basic needs. This means increased purchasing power.
The heavy investments seen in fintech have opened up Africa to invest in other tech verticals such as 54gene (Healthtech, Nigeria) Cambridge Industries (Energy, Ethiopia), Sokowatch (B2B Commerce, Kenya), and many others while early tech companies like Jumia continue to expand continent-wide.
The growth of tech in Africa will continue to be an important factor in the growth of Africa’s economy. The increase in technology-driven startups in Africa has helped reduce poverty levels on the continent. They have been instrumental in effectuating economic growth and creating employment opportunities for the young African talent which had previously lacked employment opportunities.
The African Continental Free Trade Area (AfCFTA) designed to facilitate corporate growth will translate into better continent-wide collaboration and development. Countries should invest heavily in financial market infrastructures (FMIs). Powering infrastructure to support payments systems have been proven to be enablers of economic growth. Once a strong and secure FMIs is developed, cross-border trade within Africa and with the rest of the world becomes seamless. Pan-African players must grab the opportunities offered by the changing landscape and use them to their advantage.
Semiu Olugbokiki is a financial technology and payment expert with verifiable experience creating the infrastructure for scalable fintech solutions. He also holds a Bachelor’s degree from Greenwich University.
