5 Challenges for Fintech Growth in Africa

Mobile money is connecting banks to the unbanked population within the financial system, playing a key role in transforming African societies.

5 Challenges for Fintech Growth in Africa

Fintech developments are changing the game for the financing and banking industry. Fintech in Africa has leapfrogged because of mobile money advances.

For instance, M-PESA is a successful mobile-based financial service in Kenya, which was launched in 2007. The technology is powered by mobile network Safaricom. Mobile money is using telecommunications to connect banks to the adult population that is unbanked within the financial system. This has played a key role in transforming African society and facilitating the goal of becoming a cashless society. 

Fintech in Africa has been developing in unique ways compared to other jurisdictions. Despite Africa being fertile ground for fintech development, there are various challenges that are being experienced, among them being:

  • Difficulty earning the trust of customers

Of the adult population in Africa, 350 million adults lacked bank accounts by 2014, which is 17% of the global total of 2 billion consumers, as reported by the Global Findex Database. The world statistics of the unbanked populace has since reduced to 1.7 billion.  

The African culture is one that still trusts cash payments compared to any other form of payment. This unbanked market finds it hard to trust the financial service providers and mostly the fintech developments themselves.  Trust becomes a difficult thing to grow organically by fintech innovators, since they have not been in the marketplace long enough.

  • Cash Dominance and low incomes

The World Bank indicates that 350 million adults in Africa didn’t have formal banking services by the year 2014. In general, people on the continent love using their monetary funds in cash. Since most of them are low-income earners, they use cash to store the little income they earn.

Fintech investors lack the same infrastructure, capital, and brand credibility as the banks and therefore experience difficulties in changing mindsets and habits of unbanked people.

  • Lack of favorable infrastructure

There is a lack of sufficient infrastructure to facilitate mobile interoperability on the continent. Infrastructure such as mobile networks are not as well developed in Africa as they are on other continents.

According to a GSMA report, the 3G network coverage in Kenya in 2017 was at 85%, which was an improvement from 67% in 2014.  The 4G network coverage in Kenya covered a third of the country’s population by 2017.  The report also showed that Rwanda achieved the highest level of 4G coverage (above 90%) in Africa by the start of 2018.

The internet, which is a major requirement for customers to access digital financial services, is yet to be made accessible to most Africans, especially in the rural areas.

  • Low literacy levels

For customers to adopt financial technology they must be literate. It requires an understanding of the technology involved in order to trust the process. 

This becomes a challenge since a large population in Africa is illiterate, the most recent data from the World Bank has literacy rates at less than 70% in 2015, as compared to East Asia and the Pacific at more than 90%. 

The low literacy levels of most Africans limit their use of mobile devices which are key players in transforming the African society into becoming a cashless society.

  • Regulatory climate

Regulation plays a key role in ensuring the growth and development of the fintech industry. It helps in eliminating, or at least minimising fraud. The challenge faced by fintech development in Africa is that the regulators are not proactive. There is a need for them to speed up the process of fintech development. 

Since Africa is not a country, but a continent with many diverse cultures, the regulatory environment is not flexible across the landmass. For instance, it was easy and fast for mobile banking to kick off in Kenya due to the existing flexible regulatory environment, while it took Paga in Nigeria two years to start operating due to the rigid regulatory environment.

Market Potential

Though fintech developments still remains a small market in Africa, investments are expected to rise significantly by 2020. Africa’s financial sector remains a land full of opportunities for investors to rise, innovate and shine.

Fintech investors need to scale up and consolidate so as to bring affordable fintech services to low-income adults in Africa. According to a 2017 report by IT News Africa, to build the trust of the unbanked market, fintech investors will need to follow three stages; acquisition, activation, and retention. The infrastructure that facilitates mobile interoperability such as networks on the continent is being laid to enable the physical meet the digital.


The Global Findex Database 2017

The Global Findex Database 2014

Connected Society: State of Mobile Internet Connectivity 2018

Literacy Rate, adult total

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