FinTech - Banking the Unbanked in Africa (Part 1)
Updated: Mar 13
The launch of digital financial services has led to an unprecedented increase in the number of people enjoying access to financial services in Africa, without making use of the formal banking sector. Digital financial services have been popularly referred to as FinTech, a term that is used to refer to technology enabled financial solutions that include cryptocurrencies, mobile money or online lending platforms.
According to Brummer & Gorfine, some of the features that distinguish FinTech from traditional financial services include; the services are technology based in nature, the speed of innovation, there is convergence of various industries, the relatively low costs and barriers to entry and borderless operation of the services and finally, the ability to cross national boundaries with ease. As a result of FinTech’s disruption of the traditional forms of financial services, it has enabled financial inclusion and become a central part of national development discourse in most African countries.
This is because insufficient innovation in business models and inadequate use of existing and potential channels to reach the majority of citizens, continue to undermine attempts to build inclusive financial systems in Africa. According to the World Bank, up to 95 million unbanked adults in Africa receive cash payments for agricultural products, and an estimated 65 million save their money using semi-formal methods. FinTech has become technology’s response to the lack of access to financial services in Africa problem by navigating the various barriers that are faced by Africans.
In Malawi, for example, Angle Dimension, a local tech startup, launched Khusa, a peer-to-peer savings mobile app platform, which is the personification of African solutions for African people. Khusa’s target market is the semi-formal savings groups such as the Malawian Village Savings and Loan Association, which is a group of people who save together and take small loans from those savings. Angle Dimension, however, realized there was a challenge with traction with the mobile app since its launch. This was as a result of the cost of the internet in Malawi, which remains on the high side for members of the targeted savings groups.
Consequently, the target market could not afford to purchase the data needed to download the app and transact on it. Angle Dimension further found that almost 70% of Malawian internet users only purchased WhatsApp data bundles to keep in touch with friends and family.
Accordingly, Angle Dimension integrated the Khusa App with WhatsApp Business Solution. WhatsApp is a simple, reliable, and private way to communicate with anyone in the world, and lets people stay in touch with friends, family and businesses–anytime, anywhere. The integration meant that village and savings groups such as the Malawian Village Savings and Loan Association, could do almost all of their group activities via WhatsApp without the need to download the Khusa app. This was achieved by pushing the savings contributions to the bank and to the mobile wallet on the Khusa app, on the go. Using this technology knowing that the majority of the urban and suburban Malawians spend more time on WhatsApp, directly appealed to Angel Dimensions’ target market. Angle Dimension was nominated for the World Summit Award (WSA) in 2018 for its innovative Khusa village savings mobile application.
The Khusa App has so far registered over a 100 groups since its launch. The integration of Khusa with WhatsApp changed the perception of banking for the everyday Malawian citizen allowing Malawians to do all their group savings activities on WhatsApp, while keeping in touch with their families and friends.
As innovative and convenient as the Khusa App and other such FinTech services are, they raise regulatory concerns as a result of their disruptive nature. One of the major concerns is that FinTech services are not supported by traditional business models as they usually transcend the financial industry to include other industries such as the telecommunications industry. This has created uncertainty as to which industry FinTech falls under, hence which industry to regulate.
Also, the decentralised and disintermediate delivery of FinTech services has increased access to financial services, reduced the cost and barriers of entry into the financial market on the part of the Fintech service provider and all around responded to a problem that is faced in a number of African countries with regard to access to financial services. However, with the conveniences have come the disadvantages such as the fact that without regulation citizens are vulnerable to abuse and have no defined platform to obtain recourse for any disputes that may arise.
Finally, there is no regulation to ensure that FinTech innovation is done so in the interest of the public.
In the next part of this series, the policy considerations of Fintech will be unpacked further and the practical and legal implications will be explored.
Bram Fudzulani co-authored this article. He is a financial technology (fintec), Internet governance and policy enthusiast. Bram is passionate about bridging the financial and digital divide gap for UN SDGs. He currently serves as ICT Association of Malawi (ICTAM) President
and is also an alumnus of the ICANN fellowship programme.
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