Back in 2009, Paul Volcker, former Chairman of the US Federal Reserve and a member of the Economic Recovery Advisory Board, participated in the Wall Street Journal Future of Finance Initiative in the UK. During his panel, he was asked about innovative ideas in the field of financial services. His answer was definitive: “The only thing useful banks have invented in recent decades is the ATM,” he said.
Indeed, while every sector and industry has been dramatically influenced by technological inventions and innovations, the financial sector has hardly budged. Many efforts were put into creative thinking by global finance executives, but most of it was focused on new financial instruments that will up the banks’ earnings.
These instruments defined by legendary investor Warren Buffett as “financial weapons of mass destruction”, globally blamed for the financial crisis of 2008, did not bring any value to the customers - and the world of finance was hardly affected by the technological revolution.
In recent years, advanced technologies are entering the field of finance by storm. Digital payments via cell phone, internet payments, and the blockchain and crypto revolution are examples of developments and innovation that bring real value to users, finally stirring some change into the sleepy finance sector.
While the effects of these innovations are still unclear, many professionals around the world already agree that we are on the brink of a financial revolution, with various technologies that have penetrated the heart of the financial mainstream. New technologies are finding their way to fertile ground, growing and gaining momentum on their way to take over the global market.
“The blockchain continent”
Over the past few years, many have marked Africa as the “perfect home” for blockchain technology. The vast number of people living without a bank account (⅔ of the Sub-Saharan population) combined with the huge penetration rates of cellular devices have substantial potential for mass adoption. In addition, the widespread use of digital payments (Mobile Money) also lays a strong foundation for the use of innovative financial technologies.
But marking the entire continent as fertile ground for advanced financial technologies may be too broad and vague. To provide real value to both technology companies and local users, we must focus, and highlight one sector as the ideal starting point for the financial-technological revolution.
Focusing on development
The development and impact sector is the best sector for the initial implementation of new financial tools. Various projects entail billions of dollars a year, mostly transferred from various countries around the world to Africa through a large number of intermediaries. The multiple entities involved lead to countless obstacles along the way, and more often than not, result in massive funds disappearing throughout the process. Ultimately, large portions of development budgets are cut, important projects receive only partial funding, and a great deal of money ends up in the wrong hands.
This can all change. Emerging financial technologies (most notably blockchain and smart contracts) have already been proven to be effective in the effort to cut out unnecessary middlemen, guaranteeing that the capital reaches its proper destination. Transfer times, security levels, ease of use, and more have also improved significantly thanks to advanced technological developments.
Revolutionising the entire financial sphere is ambitious, to say the least. Technology companies operating in the field must focus even more, and concentrate their efforts on a particular sector, one that will benefit from the solution and allow millions of users to enjoy its value. To support the efforts, African governments must navigate the market in this direction and provide companies and organizations with the best conditions for success.
Focusing on only one sector will allow a win-win situation: companies operating in the field will benefit from a fertile ground to prove the value of their solutions, local residents will enjoy scaled solutions, and governments will enjoy larger sums of money reaching their destination while establishing Africa as the leading global hub of financial innovation.