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The term fintech, shorthand for financial technology, is a dynamic description difficult to definitively pin down. It is perhaps best understood as encompassing technologies that ‘disrupt’ existing financial products and services or parts of the financial services sector. Here, the oft-used term disruption refers to innovations which provide new or more efficient services and products to new or existing customers. Globally, the fintech sector is already a multibillion dollar industry and is predicted to continue growing. Despite some analysts believing that traditional institutions using big data may end being more important than fintech startups in changing the face of the financial services industry, fintech startups are currently at the forefront of the most important innovations in the industry. TransferWise provides a great example of the potential of financial technology startups to shake things up. Launced in 2011, the international money transfer startup is currently valued at more than $1 billion and announced earlier this year that it had started making profit. Easy to use via app or on a laptop/desktop and with significantly discounted forex rates for international transfers, the company is now looking to expand into other areas of the fintech industry.

With remittances, valued at more than $30 billion in 2016, a major source of foreign investment into Africa, the potential of fintech startups such as TransferWise is immense. Optimists argue that fintech could have a revolutionary impact in many African countries especially as fintech applications in Africa are arguably more needs driven than their more desire driven applications in Western Europe and North America. Practically, fintech startups in Africa are building new infrastructure and creating new customers previously unreached by traditional financial services. These innovations mean that in many African countries the card stage of the financial transaction process is likely to be skipped, with many Africans moving directly from cash to digital transaction methods. With at least two thirds of Africa’s adult population unbanked according to most estimates, fintech companies are also improving financial inclusion and thus positively contributing to sustainable economic growth. With the region easily becoming the world leader in mobile (money) wallet usage (11% of Africans have a mobile banking account as compared to the global average of 2%), fintech solutions are only likely to improve.

It must be noted that cash is still indisputably the main method of carrying out transactions in most African countries. This leaves ample room for growth for fintech startups, especially in the payment and transfer arena. According to Disrupt Africa’s Finnovating for Africa Report, there has been a boom in fintech startups since 2015. It found 301 fintech startups on the continent, most of which were set up in the last two years and which have collectively received just under $93 million since 2015. The report also found that fintech startups were the most likely startups to be funded and amongst fintech startups, blockchain startups were the most likely to get (external) funding. According to the report, payment/transfer and remittances startups dominate the fintech landscape on the continent, accounting for 41.5% of all startups. Indeed according to the co-founder of Disrupt Africa, Tom Jackson, there is need for consolidation in this category as it is becoming saturated.

Though it has only the third most fintech startups after the other ‘Big Three’ African fintech hubs of South Africa and Nigeria, most analysts describe Kenya as the ‘best’ fintech hub on the continent. The well chronicled story of M-Pesa, is obviously a major reason for this title but so are the multiple apps and services built upon the original mobile money wallet service. M-Shwari for example, a paperless banking service which allows M-Pesa customers to save and access loans dispersed millions of loans in 2016 and disperses tens of thousands of loans each day. BitPesa, the online bitcoin payments company is another example of a Kenyan fintech company making waves on the continent and is also present in Nigeria, Uganda and Tanzania. Nigeria’s Flutterwave, an integrated payments startup that provides the digital infrastructure for businesses to make and accept payments from and to anywhere on the continent, earlier this year raised $10 million in a funding round and has processed $1.2 billion and 10 million transactions since its 2016 launch.

That Kenya, South Africa and Nigeria receive more fintech investment than the rest of the continent put together illustrates the need for much more investment in the fintech industries of the continent’s other countries. With fintech conferences like the Dot Finance Summit and the Finnovation Africa series and accelerators and clubs like BitHub Africa and the Co-Creation Hub, the hope is that the meetings of minds and transfers of knowledge will help the rest of the continent’s fintech scene take off.

Despite fintech solutions often being specific to economic, financial and cultural settings precluding a copy and paste methodology even between different African countries, some features are quite similar across the continent. With Africinvest predicting 350 million new financial services customers in Africa in the next ten years, the roles of traditional banks, mobile network operators, interoperability and regulation will be key to the success or otherwise of financial technology companies.

Partly to stave off potential competition and prevent the loss of customers, traditional banks and financial institutions are buying and entering into partnerships with fintech startups which usually offer consumers faster, more efficient and cheaper processes and systems. A number of competitions and fellowships sponsored by financial institutions including Ecobank, SWIFT, the MasterCard Foundation and RMI Holdings have sprung up in the last few years offering financial and technical support to selected fintech startups.

With a substantial number of fintech companies basing their products and services on mobile applications or services, mobile network operators are crucial to the development of the fintech sector. These mobile network operators often own a substantial amount of the telecommunications infrastructure that many fintech companies rely on. Many mobile operators on the continent have indeed developed their own fintech products in-house. Competition and technical challenges mean that interoperability (between borders and platforms) is currently below the requisite levels for fintech solutions to begin to be continentally transformative. Some fintech companies, like the aforementioned Flutterwave, are attempting to address this through their service offerings but more generally, improving interoperability on a macro scale through teleco agreements or regulation may be more impactful to the industry in the long run.

Regulation is indeed a major influencer of the direction of fintech development. Many experts believe M-Pesa’s success in Kenya was partly due to the relative lack of regulation of its products and services faced upon their introduction to the market. Amongst other reasons, stronger regulatory hurdles are often cited as a reason why M-Pesa failed to match its Kenyan success in South Africa. Regulators, particularly central bank officials, have to balance the need to provide a framework in which fintech startups can grow whilst also protecting consumers. For example, necessitating fintech companies have a banking licence before beginning operations could be a hurdle too high to overcome for many nascent firms. At the same time, allowing any company to set up as a digital financial services firm without some prerequisites may lead to citizens being taken advantage of by various fraudulent and/or exploitative schemes.

In summary, the outlook for the financial technology sector in Africa is ‘good but can improve’.