Tayo Oviosu says that fintech in Africa looks very different from the West

By Tayo Oviosu, founder and CEO, Paga

AFRICA IS THE world’s second-largest and second most-populous continent, yet it remains more than a decade behind the rest of the world in financial services. Fully 57% of Africans do not have a bank account, plenty of them in the larger economies. In Nigeria, the continent’s most populous country, the figure is 60%; in Morocco, 71%; but in Kenya, thanks in part to the success of M-Pesa, a popular mobile-money service, it is 18%. Cash is still king in Africa, used in 90% of all transactions.

African banks have been trying to deal with the problems of access to finance and the use of cash but have not been successful at retail banking. This is primarily because of inefficient banking processes that do not make it easy for ordinary people to use them. In some countries, the regulatory requirements for banks make it expensive to serve African consumers with low earning power. GDP per person in Africa is the weakest of any continent. This is where fintechs have stepped in with innovative approaches that can serve a mass consumer base at lower cost.

It is still early days for fintech in Africa, but the signs are good. The middle class is expanding, and the needs of consumers are increasing. They want alternative ways to pay conveniently, to access loans for everything from rent or home purchases to cars, and to increase their wealth. Small and medium-sized enterprises (SMEs), the lifeblood of any economy, want to digitise their businesses and are looking beyond traditional banks for the finance they need to grow.

Cash is still king in Africa, used in 90% of all transactions

Fintech in Africa has a different flavour from that in the West, as market dynamics differ. In today’s Africa, smartphone penetration remains low (just 37% in Nigeria), data costs are high (1Gb of mobile data costs as much as $1.82 in Nigeria, compared with $0.12 in Italy), and there are still significant numbers who are not online. Data from the International Telecommunication Union suggest that approximately 75% of sub-Saharan Africa still does not have access to or use the internet. To succeed, companies must implement a hybrid online-offline business model that meets customers wherever they are.

The early fintech companies in Africa focused on essential financial services and had to build their own infrastructure, as none existed. This included digital wallets that work with or without mobile data; connectivity to banks and companies to allow for seamless money transfers and bill payments; and a physical retail distribution network that relies on local shopkeepers to give people access to financial services at neighbourhood stores.

Companies such as Fawry, Interswitch, M-Pesa, MTN, Orange, Paga and Wave led the way. These firms have successfully transformed the economies in which they operate. They have demonstrated the gains to be had in financial inclusion, economic growth and job creation. They have also built the financial-services foundation upon which these same companies and newer entrants will deliver the next generation of more advanced offerings.

Some estimates put the number of fintech companies in Africa at over 2,500, providing online payments, in-person point-of-sale payments, retail lending, wealth management, insurance, open banking and cryptocurrency services. McKinsey, a consultancy, estimates that the total revenue of fintechs in 2020 was $4bn-6bn. The GSM Association, an industry body, estimates there are 621m mobile-money accounts in Africa. Overall, the mobile economy has created more than 300,000 jobs directly, and 1.1m indirectly, across the continent.

In 2023 we will see more significant partnerships between fintechs, accelerating offerings to consumers and SMEs. Startups will focus on smaller, more niche, opportunities that build upon the infrastructure already created. For example, a company such as Doroki or Yoco, looking to emulate Square, a small-business payments platform, does not need to reinvent the wheel on core payments infrastructure, but can instead use the digital pipes laid by other businesses. This way, resources can be focused on the needs of the SMEs being served.

The same is true for companies providing a variety of consumer opportunities. As we have seen in Asia and Latin America, there will be an explosion of startups that build upon the fintech infrastructure created over the past few years in Africa. This will help create more jobs and accelerate economic growth. An exciting future, built on the transformative impact of fintech, awaits Africa.■

Tayo Oviosu, founder and CEO, Paga

This article appeared in the Finance section of the print edition of The World Ahead 2023 under the headline “Challenging King Cash”