Smartphones and wireless devices, along with other cutting-edge technologies, are allowing Africa to leapfrog entire phases of infrastructure development. Smartphones and portable renewable energy bypass infrastructure limits. In the case of financial technology, those same smartphones are letting more people access a wide array of financial services without waiting for major banks to arise and start serving them. Let’s take a closer look at Africa’s booming fintech industry.

Remittances and Payments

In 2016, an estimated 63 billion US dollars in remittances flowed to Africa. The value of these remittances is expected to double by 2020. The fees paid to send this money back take a sizable slice, something the recipients literally cannot afford to lose. The global average is 8%, but those sending money back to Africa pay an average 11.5% in money transfer fees. The reasons for this and other banking fees are addressed as part of the Ohio University masters in financial economics program.

Then there is the fact that saving and transporting cash brings sizable risk when there are large areas without strong protection for the average citizen. And many businesses want the certainty of a digital financial transaction to avoid having to handle large volumes of cash. This is why payments and remittances account for the majority of more than 300 identified African fintech startups.

Access to Capital

Big banks and financial services companies often don’t want to offer life insurance, crop insurance, disability insurance or other types of insurance to people for whom this could literally make all the difference in the world. For big businesses, the risk is too great and the profits too small.

For more than sixty African fintech startups, the expected high volume of business and low cost of setting it all up via apps and cloud services makes it a profitable proposition. They hope to profit from banking the unbanked, including those in urban areas who simply cannot access formal services due to a lack of information.

Parallel Institutions

The ability to access the internet in some form via a smartphone is associated with a 1% increase in economic growth in an area; if it was 5% per year before, it is now 6%. This has led to smartphone minutes becoming an alternative currency in many areas. It has also made mobile wallets managed through cell phone service providers de facto savings accounts.

This led to MFS Africa enabling a cross-border financial network through its mobile wallets, allowing people who otherwise lacked access to financial institutions to pay bills (including phone bills), remit money, and even take out modest loans.

These parallel financial institutions through history to the modern day are discussed as part of the Ohio University Online masters of finance program. The Ohio University online program is itself an example of good online educational programs that reach those who wouldn’t be able to gain such expertise at a local brick and mortar school.

Conclusion

African fintech is driven by a demand for cheaper financial transactions. Investors and startups are emerging to service the unbanked, who are often overlooked by major financial institutions.