Wayne Barratt, Director of Operations at Platcorp Group
Task a Silicon Valley investor to tell you about the world’s next big fintech hubs and it’s unlikely Africa will be on their lips. It should be. The continent is regularly overlooked on the global tech stage, but according to new data from Boston Consulting Group, it’s the region which demands the most attention. Africa is home to the fastest-growing fintech market in the world and by 2030, revenues are projected to expand approximately 13-fold to around $65 billion, representing the highest growth multiple of any region. The payments subsector is a key driver of this growth; it’s estimated that Africa now accounts for around three-quarters (74%) of global mobile money transaction volume.
But what if I were to say these impressive figures represent just a fraction of the continent’s fintech potential? Despite this rapid growth, millions of individuals and SMEs (small and medium enterprises) remain shut out from the financial system, even though they prop it up. According to the IFC, SMEs account for up to 90% of all businesses in sub-Saharan Africa but they still regularly struggle to access the finance they need to grow. If Africa is to cement its place as a booming tech hub and unlock its full potential, it needs an infrastructure that supports – not limits – growth.
Fintech’s design problem
The fintech sector, as a whole, isn’t short on innovation – where it trips up is in its structure and design. It’s a sector that has been optimised for speed and scale, from fast onboarding to products built for mass roll-outs. In ideal conditions, where connectivity is strong, data is consistent, and customers have formal financial histories, this strategy works well. But in many regions, including Africa, these conditions simply don’t exist.
Naively, many fintechs ignore these critical differences when they look at Africa. They rush to scale and take a Western approach to their African expansion, assuming what worked in Europe will work across the Mediterranean. This couldn’t be further from the truth. Such strategies fail when faced with low connectivity, decentralised operations and inconsistent data, which make it difficult to build up a complete picture of a borrower. Clinging to traditional credit models, they overlook millions of individuals and SMEs who are credit-worthy, yet require a level of assessment beyond the rote tick-boxes of conventional criteria. The result? Growth is stymied both for the fintechs themselves and those they purport to reach.
The next phase of fintech growth will be driven by inclusion
A new model is clearly needed in Africa and regions like it. That model is built around inclusion. The next stage of fintech growth will be driven and defined not by the fintechs that worship scale, but those that optimise for access.
This isn’t a far-off dream: the technology is already being developed and deployed by innovative firms. From using mobile payment patterns to assess creditworthiness when an individual lacks a formal credit history, to leveraging drone tech, farm-mapping or satellite technology to assess a smallholder farmer, who would ordinarily be flat-out denied a loan due to unavoidable sector volatility, there are fintechs and investors who recognise that the next era of growth comes from true inclusion. An inclusive model also involves products that are tailored to the unique needs of customers, such as smaller loan sizes for solo entrepreneurs and micro-enterprises. An individual entrepreneur may not want (or qualify for) the size of loan traditional firms typically give out, but a one-off, small loan, accessed quickly and easily on their phone, can be a lifeline in tiding them over an unexpected business emergency. It’s about creating and offering products that truly serve the customers in each market you’re in, rather than those that only meet the needs of your imagined ideal.
Robust, inclusive fintech models will not only design for the true needs of consumers but build in mechanisms to ensure they’re keeping on track. Assessing impact should hone in on service outputs, rather than inputs – rather than measuring success purely on the number of new accounts opened, finding ways to accurately measure who is benefitting from services, the exact extent of that benefit, and how these benefits are measured among different demographics, such as women, youth, and those in rural areas. Again, it’s about creating a business model based on reality and the facts on the ground.
The news that Africa is the world’s growing fintech market is proof of our continent’s vast potential and the innovation it fosters. But it should also be a wake-up call. As long as fintechs seek to force ill-suited models onto markets with radically different requirements, these numbers will remain capped. It’s inclusion, not flashy speed and scale, that will lift limits and allow for the flourishing of the next phase of fintechs.