Given financial technology is about smart, innovative, flexible start-ups looking to eat away at traditional financial firms’ intermediary roles, it is not surprising that Africa, with its woefully inefficient banks and sclerotic infrastructure, is feeling the full force of the fintech wave.
According to industry players, there is a hive of fintech activity now in most major capitals of Sub-Saharan Africa.
Kenya has been probably the most successful centre for fintech ventures, starting with Kopo Kopo in 2012, which was Africa’s first major fintech iteration of a vanilla mobile payments business, and which received Silicon Valley investment from Javelin Venture Partners. Kenya now has at least 38 fintech companies operating out of Nairobi.
One of the continent’s first hubs was iHub in Nairobi, launched in 2010, which has an incubation arm focused on mobile technology, called m:lab. However, as The Economist notes in a recent piece about the difficulty in developing incubators in Africa, “m:lab, like many of its kind, is not a real incubator: it was founded with grant support from the World Bank and takes fees from, but not equity in, the companies that it nurtures.”
BitPesa, a universal payment and trading platform for Africa, was also started in Nairobi in 2013, and has since expanded rapidly across the region into Uganda, Tanzania, the DRC and Nigeria – “making us well connected to partners across the industry”, says Elizabeth Rossiello, co-founder and CEO of BitPesa.
As the African economic powerhouse, South Africa has a large fintech scene in its main cities of Cape Town and Johannesburg, where there are professional venture capital and early-stage investors. The Cape Town-based Zoona, one Africa’s fastest growing startups, processed $200mn in transactions last year and talks of reaching 1bn customers.
Lagos in Nigeria has also emerged as a new centre for fintech in the last few years, while Accra, Abidjan, Dakar and even Kampala are starting to make waves, say industry players.
It’s not just the private sector, either. In March, the Kenyan government became the first to carry out the first mobile-only government bond auction targeting retail investors over its M-Akiba platform. The $1.5mn issue of 3-year bonds, open to all mobile users registered with mobile operators Safaricom and Airtel, pays investors a tax-free interest of 10% and was all snapped up in just a few days. Other African governments, looking for ways to diversify financing sources and tap the growing savings of citizens, are expected to follow suit.
Building the financial sector
What’s driving the emergence of fintech across Sub-Saharan Africa are the huge inefficiencies found in the traditional African financial sector, compounded by chronic under-investment in infrastructure. In fact, the existing financial services sectors in many parts of Africa are so bad or non-existent that some have argued that fintech isn’t disrupting the sector at all, it’s actually building it.
“With high-speed internet getting cheaper and more pervasive – 4G internet has become available in the last year in most markets and 3G is available in even rural areas for affordable prices – it has finally become easy to run digital companies,” says BitPesa’s Rossiello.
The differences in fintech development between the various countries of the region can be partly explained by the approach of governments and regulators to innovation, which varies widely. “Some give lots of lip service to innovation but make it nearly impossible for new companies to secure partnerships with traditional financial institutions. Other regulators, like those in Nigeria, have clear and strict regulations that make it feasible for companies devoted to compliance and structure to succeed,” says Rossiello.
Bitcoin and blockchain– the underlying technology that powers cryptocurrencies – is thriving in a region with so many different currencies flowing through such poor traditional payment platforms. Africa already boasts several established bitcoin exchange services, such as ICE3X and BitX in South Africa and BitPesa in its six markets of East and West Africa, where users can trade between bitcoin and traditional currencies.
“With currency restrictions and an over-dependence on the US dollar, it has become very difficult, expensive and risky to operate a business across African currencies,” says Rossiello. “By using bitcoin as a middle currency, many businesses can safely make bank-to-bank transfers from one African currency (or global currency) to another, with bitcoin safely helping the settlement behind the scenes.”
“We are really excited with the uptake of our customers, many of them from the traditional financial sector, in using our bitcoin-powered international payments and settlement products – it is the perfect time to use decentralised technologies like bitcoin to jump ahead of the slower incumbents and create safer, cheaper and more scalable systems,” she adds.
As well as the huge and growing payments area, fintech is also looking at ways to help the financing of micro, small and medium-sized enterprises in Africa, of which the World Bank estimates up to 70% lack any access to funding. The World Bank sees fintech helping to bridge a $2tn funding gap for millions of SMEs in emerging markets that are seeking credit to grow their businesses.
For example, in March BitPesa announced it has partnered with BitBond, which is based in Berlin and offers loans to businesses around the world, including those in Central and Eastern Europe like Bulgaria, to connect fixed-income investors with small business owners in Africa who need loans. To make global cross-border lending possible, the platform uses the bitcoin blockchain for payment processing. “When companies use bitcoin technology, working together is nearly a seamless process as we have the same systems and goals,” says Rossiello.
Nii Quaynor, a scientist and engineer who is often described as the “father of the internet in Africa", holds out great hope for the potential of blockchain technology, with its attributes of transparency and non-corruptibility, to transform great swathes of Africa, with non-financial applications such as land registries and voting. Banks in Africa, so often the targets of corruption, are also looking into the potential uses of blockchain.