Fintech boosts financial inclusion in Africa

Published: March 5, 2018

As disruptive technology becomes more widespread, ever more Africans are embracing mobile banking services. According to Dr Edward George of Ecobank, we will soon reach a tipping point of mass adoption.  

Financial inclusion rates across Africa are growing rapidly. While only 28% of Africans have a bank account, the overall inclusion rate stands at 34%. This growth is almost entirely attributable to the rise of mobile banking services, with around 100 million Africans using e-wallets. 

According to Dr Edward George, head of group research and the UK representative office at Ecobank, as ever more mobile products are offered – not just by banks but by telcos and fintech companies too – we can expect to see the level of financial inclusion rising dramatically. 

“With the pay-as-you-go model, it’s proven possible to give nearly everyone in Africa a mobile phone, and the technology is getting better all the time,” he tells EMEA Finance. “Most phones can connect to the internet, most have a touchscreen, and some have simple applications like Facebook and WhatsApp. The logical thing is that this is how you deliver financial services.” 

George spoke on these topics at 2018 Africa Tech summit, which took place in Kigali, Rwanda in February. In his keynote address, he outlined the ways that fintech innovations are disrupting the African banking landscape. 

“When you look at fintechs and banks, the reality is that each has advantages and neither is dominant,” he explains. “We’ve found numerous examples of fintechs we can work with where there’s a mutual value share. Africans are hugely unserved – there is so much unmet demand there, and that leaves plenty of space for all the banks and dozens of new fintechs.” 

As the leading independent pan-African banking group, spread across 33 countries in Africa, Ecobank regards itself as a key player in the continent’s movement towards digital. 

Last year, it launched its Ecobank Fintech Challenge, which sought to find Africa’s top fintech innovators. Twenty finalists were selected from a pool of more than 800 entrants, and have gone on to receive support and startup funding. The idea is not just to nurture fintech companies but to enter into productive partnerships.

Where there is a will…{mprestriction ids=“*”}
Some of the innovators in this space focus on clearing a single blockage in the system. For instance, Ecobank’s challenge winner was the Nigerian startup IroFit, which wished to solve the problem of patchy internet service at point of sale machines. Their innovation, ZirooPay, enables users to make credit card payments over their mobile network even when the internet is down. 

“Essentially you insert your card and make the payment, and the details are sent by encrypted text – as far as you’re concerned you don’t care whether the system’s up or down,” says George. “IroFit has been so successful that they’re actually disrupting us, and now their technology is being incorporated into our app.”

On a similar note, the French fintech company TagPay (not associated with Ecobank’s challenge) wished to open up digital banking to everyone with a mobile phone. Figuring that there was only one thing that every phone had in common – namely sound – they developed a means of using encrypted sounds to make mobile payments. 

Other innovators are providing solutions based around distributed power. For instance, M-KOPA Solar, founded by one of the creators of M-Pesa (the successful mobile-phone based financial service launched in East Africa in 2007), enables households to build up a credit rating via purchase of a solar unit. 

“These power companies are revolutionary because they’re taking someone who’s un-bankable in the traditional sense, and after one year they’ve given them a credit history as well as a means of powering devices,” says George. “So far they’ve done this for half a million households without a single penny of development money.” 

As these kinds of services gather steam, George feels that mobile banking is about to reach a tipping point of mass adoption. Ecobank hopes to have 100 million customers transacting on its digital platforms by 2020, up from around 13 million at the moment. With its onboarding rates starting to pick up speed, it seems possible that the bank is poised to enter a period of exponential growth. 

Mind over matter
“Once we get the certain number of millions of Africans on the platform, that will hugely increase the numbers of others, and in terms of what you can do next it’s mind-blowing,” he says. “As soon as someone is digitally connected to an account, you can crunch the data of their transactions and immediately start lending to them” 

For the time being, however, certain barriers to adoption remain in place. While some of these have to do with regulation, investment and infrastructure, George feels that the principal obstacles are psychological. 

“Mindset is the biggest challenge that many of these technical innovators are facing,” he says. “If you look at M-Pesa, which is now an enormous success in Kenya, it wasn’t a walk in the park – the company spent years trying to sensitise the population and make them believe that mobile money is real. So as more and more Africans become persuaded that they can use the mobile as a means of transacting, that’s what’s changing everything.”

He feels that the best way of persuading potential customers is to demonstrate the tech in person. 

“Out approach is different in each of our 33 markets, but the bottom line is that we get in front of the person, explain to them the benefits and show them how to use it,” he says. “Eventually you have people who become your ambassadors, and you move from the initial adopters to this point where everyone else has no choice but to join.”

With the World Bank’s 2017 Global Findex report set to launch later this year, we will soon have up-to-date data about financial inclusion rates in Africa. The 2014 report highlighted that 12% of adults in Sub-Saharan Africa had mobile money accounts a much higher figure than the global figure of only 1%. The fresh data will certainly bring further clarity about the impact disruptive technologies are making. {/mprestriction}