Financial Technology has become a transformational force, with much more significant impact in Africa, because of the continent’s huge infrastructural constraints in the mobilization, allocation, and consumption of financial resources.
This challenge coupled with the fact that a large percentage of Africa’s population is financially excluded, has made the continent ripe with opportunities for fintech companies.
In the past decade, there have been talks around financial inclusion for the unbanked, a crisis traditional institutions have been unable to solve, as a result of the high cost of operating branches in every nook and cranny of the continent. The former VP for African Development Bank had stated that; “For sustained and inclusive development to thrive, a great deal of innovation and thinking is needed to ensure that appropriate financial services and instruments are put in place for the benefit of the poor and other vulnerable groups”. Fintech founders, understanding that the cost to overcome those constraints are huge, have come to leverage on the most viable means of leapfrogging this challenge, technology. The rise in fintech companies have come around the right time, a time where telecommunications companies and Internet service providers have rolled out huge infrastructure to connect Africans with one another, Africa to the world and the world to Africa.
In the past decade, mobile internet connectivity has become relatively strong, depending on the country being considered. Mobile Internet which has become a pivotal tool for the acceleration of fintech growth is becoming one of the most widely used methods of connectivity worldwide. At the very core of mobile internet usage, is the rise in the use of smartphones. Mobility, ease of use, advanced technology amongst others have made smartphones the epic Centre of technology revolution within and outside Africa. Mobile phone users can access almost anything from social media platforms like Twitter & Instagram, to music streaming platforms like Spotify and Apple music, and now more than ever, financial products. While listening to music on your Spotify app and at the same time scrolling through twitter, one can access quick loans, save money, make withdrawals, payments and even invest in stocks outside Nigeria.
Despite the benefits that Internet connectivity can provide, access to mobile Internet and smartphones varies across Africa. The World Bank and African Development Bank estimate that there are some 650 million mobile phone users in Africa, a continent with a population of over 1.3 billion people. As the African population is projected to double by 2050, increase in smartphone penetration will help drive access to various financial products and services, thereby closing the financial inclusion gap and invariably engender fintech growth on the continent. According to GSMA’s report termed “The Mobile Economy Sub-Saharan Africa 2020”, “The mobile market in the region will reach several important milestones over the next five years: half a billion mobile subscribers in 2021, 1 billion mobile connections in 2024 and 50% subscriber penetration by 2025”. These achievements will be underpinned by operators continued investment in network infrastructure.
Asides the deployment of reliable internet across Africa, another key consideration is the cost of purchasing an internet enabled mobile phone. The cost of a brand-new high end mobile phone may be a high budget acquisition for the Vulcanizer on the streets of Obalende or the average truck driver in Kigali. A taxi driver in Accra who’s looking to save $20 – $50 a month using a fintech app, will most likely not go on acquiring a mobile phone of about $500 – $1000. Thankfully, there are more affordable internet enabled mobile phones which cost roughly $30. Mobile Phone producers are also seeking to produce more affordable phones beneficial to the low-income earners. For example, in July 2021, itel, a mobile phone manufacturer announced the budget 3G smartphone “itel A17” with an average cost of about $28. The rise in the acquisition of what is popularly called “London Used” phones, which are mobile phones used in more developed countries and resold at secondhand value in less developed countries, has provided more options for low-income earners. However, for a continent where a large number of people live under $2 a day, the journey to ensuring every African can use the products offered by a Fintech company is still a long one.
As smartphone adoption continues to rise rapidly in the region, reaching 50% of total connections in 2020, as cheaper devices have become available, there is the issue surrounding illiteracy in the use of these phones. This may not be a mainstream topical issue, but there are parts of Africa, where people are not knowledgeable enough to operate a smartphone. There will be need for concerted efforts on the part of mobile phone manufacturers alongside the local authorities and educational bodies in such areas. The goal will be to ensure people in their local languages can still operate a smartphone and ultimately learn how to access financial products in their languages. The education of these category of people stated above with respect to financial products lies squarely in the hands of fintech companies.
Mobile phone penetration is skyrocketing throughout Sub-Saharan Africa, and the drive towards proliferation of apps and enterprises, to help underserved communities in Africa access financial products and services, have made the fintech industry ripe with opportunities. As mobile phone technology becomes more widespread and less expensive, more sub-Saharan African citizens will have access to technology that was previously inaccessible. This will have a ripple effect on the revenue and growth of fintech companies, as it will increase the size of their serviceable market. The Fintech Association of Nigeria estimates that by increasing smartphone penetration, revenue in the Fintech space will reach $543 million by 2022.
There are high hopes that smartphone penetration in Africa remains bullish, and the revolution in the way Africans interact is much anticipated. The ability to ensure the pepper trader in an underserved community can take a loan right from the comfort of her store and then use the loan gotten to pay for the delivery of more produce all on her phone, will have such a phenomenal impact on the African economy on the large scale.
The vision is to see the Hawker on the streets of Lagos, set up a daily withdrawal target on his phone with a goal to paying his school fees at a future date. We are anticipating a time when a 100-level student in an African University takes a part of his/her monthly allowance and from the convenience of their hostel acquire shares in Apple, Microsoft and other blue-chip companies outside Africa. Without a doubt, smartphone penetration will play a key role in the growth the Fintech industry across Africa and globally.
Mobolaji Oriola, a Harvard Business School Alumnus is a Partner at Allen & Brooks, a full-service Law firm in the heart of Victoria Island, Lagos.