The Rise of the Fintech Sector in Africa

Fintech is booming in Africa. Africa's fintech industry thrives despite political and economic challenges and a global pandemic.

FREMONT, CA: Financial technology has revolutionized the global financial sector and radically altered how we store, invest, transfer, and borrow money. Fintech, as it is now popularly known, is a business application, process, or model enabled by a combination of technological, business, and financial innovation.

Many advancements in information and communication technologies (ICTs) have led to the ongoing development and enhancement of fintech on a global scale. The growth trajectory of fintech has exhibited a pattern of first enabling the accessibility of different services in the financial value chain and then designing solid, secure systems that will allow their safe use. In the African continent, the fintech industry continues to expand exceptionally rapidly. This article briefly analyzes the role of fintech in Africa as a driver of economic growth and development and a tool to promote financial inclusion.

Africa's FinTech

Mobile money has become the most popular and widespread financial technology in Africa and is now utilized in around 40 African nations. By December 2020, approximately two-thirds of mobile money transactions were driven by Sub-Saharan African consumers, with a total transaction value of nearly $490 billion. However, East Africa has remained at the forefront of the development and application of financial technology. Mobile money has expanded because there are no banks or ATMs in the region, making it difficult, if not impossible, to transfer money and pay bills.

East Africa has devised a novel method for facilitating money transactions. The area favors a telecom-led regulatory paradigm in which each country has a single principal service provider, guaranteeing that the provider has a substantial market share and can provide an array of services. Safaricom is the largest provider in Kenya, whereas Vodacom has the largest market share in Tanzania. This single-provider approach has helped reduce compatibility and interoperability difficulties, bolstered by national identity systems that facilitate secure transactions. Fintech can extend beyond traditional payment methods and support financial inclusion and the expansion of other development sectors due to these factors. In general, however, the technical infrastructure in the African region needs to be strengthened; the availability of uninterrupted electricity remains a problem in multiple locations, internet penetration is still relatively low, and high entry barriers in the telecommunications industry have created highly concentrated industries. These constraints have hampered the expansion potential of services offered by ICT.