Private equity firm, AfricInvest has predicted that access to financial services could triple to about 50 percent creating a new market of 350 million additional customers in the near future as a result of technology adoption. The firm also projects that financial services penetration should eventually catch up to the mobile phone penetration rate, which currently stands at 77 percent in Africa.
AfricInvest disclosed this in their latest report on financial technology (Fintech) in Africa. The Fintech report titled ‘Africa and the Global Fintech Revolution’ was released recently.
The report highlighted five new business models driving the financial services sector in Africa. The categories include direct bank and insurance; payments; lending and insuring; financial management; and pure technology providers.
Banking penetration has stayed low at 17 percent on average compared with 50 percent in other emerging markets for a long while. Also, inadequate regulation, low income levels and poor knowledge in financial education among entrepreneurs and individuals have bogged down insurance penetration. Insurance penetration in Africa stands at 0.9 percent, against 8 percent in developed economies.
Financial services firm leveraging technology has made significant stride in increasing access to the mass of unbanked customers.
“The entry of disruptors, the convergence of banks and mobile network operators, and the dematerialization of financial services” are the combination of factors transforming the landscape.
The report noted that mobile network operators remain the largest disruptors in Africa and they are aggressively entering the financial sector, through partnerships with banks, microfinance institutions and insurance companies.
Also gaining major attention as disruptors are Fintech companies such as machine-to-machine or pay-as-you-go lenders which leverages services from mobile networks to remotely disconnect goods when loans are in arrears, hence reducing risk.
The use of technology in financial services has major prospects for the sector according to the report.
“One major change is that as universal access is achieved, and Africans are connected through internet, smartphone and possibly the internet of things, data would finally be available and big data models would prevail. This would, for instance, give greater advantage to scoring models and peer-to-peer lending,” AfricInvest said.
An important factor to watch will be the extent of interoperability of systems, across banking, telecom and internet. Interoperability will increase the amount of data available and hence reinforce the issue of internet availability. However it would lower transaction costs increasing competition, making a cashless economy possible and turning many business models more profitable than they were.
Thirdly as internet and smartphones dominate, tech giants and social media will play a more expanded role in businesses.
Finally, Blockchain and distributed ledgers, according to the report, constitutes the “main unknown” that businesses are going to have to face.
“If the regulatory and cooperation barriers can be overcome and Blockchain provides the infrastructure for financial transactions, we should expect even more profound changes,” AfricInvest said.
The “profound changes” may include the deepening of disintermediation, as peer-to-peer lending models would become extremely competitive, and transaction costs would virtually disappear. It would also prompt the emergence of new powerful entrants in the market.
